Document:

Exhibit 10.4

 

THIS
NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE.  THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR DELIVERY TO MAKER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO MAKER THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND LAWS.

 

THIS
NOTE IS SUBJECT TO THE TERMS AND PROVISIONS OF A SUBORDINATION AGREEMENT OF
EVEN DATE HEREWITH AMONG THE PAYMENT AGENT, PAYEES, MAKER AND COMPASS BANK.

 

CONVERTIBLE SUBORDINATED NOTE

 

Houston, Texas

 

	
  $1,787,330.00

  	
   

  	
  June 16, 2004

  

 

FOR
VALUE RECEIVED, WHITTIER ENERGY COMPANY, a Nevada corporation (“Maker”),
promises to pay to the order of TEXAS INDEPENDENT EXPLORATION LIMITED, a Texas
limited partnership, in its capacity as payment agent for each of the Payees (“Payment
Agent”), at the address of Payment Agent specified in this note (or such
other place as the Payment Agent may hereafter designate in writing), in
immediately available funds and in lawful money of the United States of
America, the principal sum of One Million Seven Hundred Eighty Seven Thousand
Three Hundred and Thirty and No/100 Dollars ($1,787,330.00), together with
interest on the unpaid principal balance of this note from time to time
outstanding at the Stated Rate; provided,
that for the full term of this note the interest rate produced by the aggregate
of all sums paid or agreed to be paid on this note for the use, forbearance or
detention of the debt evidenced hereby shall not exceed the Ceiling Rate.

 

1.                                       Definitions.  As used in this note, the following terms
shall have the respective meanings indicated:

 

(a)                                  “Business Day” means any day except
(i) Saturday, (ii) Sunday or (iii) any day on which national banking
institutions in Texas do not transact business.

 

(b)                                 “Ceiling Rate” means, on any day, the
maximum nonusurious rate of interest permitted by applicable law, stated as a
rate per annum.

 

(c)                                  “Closing” shall have the meaning set
forth in Section 8 of the Letter Agreement.

 

(d)                                 “Common Stock” means the common stock,
par value $0.001 per share, of Parent.

 

(e)                                  “Conversion Price” means $2.00 per
share of Common Stock (subject to adjustment as provided herein).

 

(f)                                    “Current Market Price” means as of the
date of calculation, the last reported sale price per share of Common Stock on
the principal securities exchange or automated quotation

 

 

system on which the Common Stock is then listed or admitted to trading
or quoted, or, in case no such sale takes place on such day, the closing price
on the first previous trading day on which a trade occurred as reported at
http://finance.yahoo.com. If shares of the Common Stock are not listed or
admitted to trading on any exchange or quoted or reported, the Current Market
Price shall be determined in good faith by the Company’s Board of Directors as
expressed by a resolution of such board as of a date which is within fifteen
(15) days of the date as of which the determination is to be made.

 

(g)                                 “Debt” means the indebtedness
(including any interest thereon) evidenced by this note.

 

(h)                                 “Letter
Agreement” means that certain letter agreement of even date herewith
between Maker and Payees.

 

(i)                                     “Maturity Date” means May 31, 2010,
the maturity date of this note as the same may hereafter be accelerated
pursuant to the provisions of this note.

 

(j)                                     “Parent” means Whittier Energy
Corporation, a Nevada corporation and owner of all of the issued and
outstanding capital stock of Maker.

 

(k)                                  “Payees” means, collectively, Texas
Independent Exploration Limited, a Texas limited partnership; Gulfcoast
Acquisitions Limited, a Texas limited partnership and successor by conversion
of Gulfcoast Acquisition Corporation; and Frederick W. Zimmerman d/b/a Island
Resources.

 

(l)                                     “Person” means any individual,
corporation, limited liability company, partnership, joint venture, trust,
unincorporated organization, or any government, governmental agency or
political subdivision thereof.

 

(m)                               “Stated Rate” means seven percent (7%) per annum.

 

2.                                       Computation
of Interest.  Interest on
the outstanding principal of this note shall be computed on a per annum basis
of a year of 360 days and for the actual number of days elapsed, unless such
calculation would result in a rate greater than the highest rate permitted by
applicable law, in which case interest shall be computed on a per annum basis
of a year of 365 days or 366 days in a leap year, as the case may be.

 

3.                                       Mandatory
Payments of Principal and Interest.

 

(a)                                  Accrued and unpaid interest on the unpaid
principal balance of this note shall be due and payable beginning on
August 31, 2004, and continuing regularly on each November 30,
February 28, May 31 thereafter until May 31, 2006, when the entire amount
of principal and interest then remaining unpaid, shall be amortized over a
48-month period and shall be due and payable in equal monthly payments, payable
on the last day of each and every calendar month, beginning June 30, 2006
and continuing regularly thereafter until the Maturity Date, when the entire
amount hereof principal and interest then remaining unpaid, shall be then due
and payable.

 

(b)                                 Subject to Section 7 below, to
the extent that the full principal amount of this note is not converted or
otherwise paid as set forth below, the remaining principal balance of this note
shall be paid in full on the Maturity Date.

 

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(c)                                  All payments hereon made pursuant to this Section 3
shall be applied first to accrued interest, the balance to principal.

 

(d)                                 If any payment provided for in this note
shall become due on a day other than a Business Day, such payment may be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of interest on this note.

 

4.                                       Subordination.

 

(a)                                  Notwithstanding anything to
the contrary under this note, the provisions of this note, including but not
limited to the payment provisions, are subject to and are subordinated as
provided in that certain Subordination Agreement (the “Subordination
Agreement”) of even date herewith among the Payment Agent, Payees, Maker and
Compass Bank and its successors, assignees or participants, and such
subordination provisions shall equally apply (without the necessity of further
action or consent by Payment Agent or any Payee), to any debt of Maker incurred
to replace, renew, repay or refinance Senior Debts (as defined in the
Subordination Agreement).

 

(b)                                 Maker will deliver a copy to
Payment Agent, within five (5) days after delivery to Compass Bank (or its
successors or assigns), of each (i) Compliance Certificate, as defined in that
certain Credit Agreement dated July 2, 2002, as amended (“Credit
Agreement”) and (ii) Statement of Material Adverse Change in Condition as
provided in Section 5.6 of the Credit Agreement.  In addition, Maker will deliver a copy to Payment Agent, within
five (5) days after receipt from Compass Bank, of each (i) consent of Compass
Bank consenting to Maker’s payment to Payment Agent of amounts owing under this
Note pursuant to the Subordination Agreement and (ii) any notice of default
under the Credit Agreement.

 

5.                                       Authority of Payment Agent.  Payment Agent shall have the full power and sole authority under
this note, on behalf of Payees to: collect and receive for distribution to
Payees all funds and Common Stock received, paid or issued on account of this
note; exercise, enforce, waive, amend, or modify any and all rights,
obligations or provisions of this note; execute and deliver on behalf of Payees
any and all instruments, notices or other documents incident thereto, including
without limitation, releases, termination statements, assignments and similar
documents; and, generally, take or cause to be taken all other actions
hereunder or with respect hereto as though Payment Agent were the sole Payee
hereunder.  Maker and Parent shall be
entitled to act in accordance with, and may rely exclusively, without inquiry
of any Payee, on any documents, instruments, notices and directions received
from the Payment Agent, and each Payee hereby releases Maker and Parent from
any liability, claim, damage or expense arising from or relating thereto.

 

6.                                       Conversion.

 

(a)                                  Right to Convert.  The Payment Agent, on behalf
of all Payees of this note, is entitled at any time before close of business on
the Business Day immediately preceding the date this note is repaid in full, to
convert the entire outstanding principal balance of this note or any portion of
the principal balance of this note then outstanding that is an integral
multiple of one quarter of the principal balance of this note, together with
all accrued but unpaid interest thereon, into fully paid and nonassessable
shares of Common Stock of the Parent at the Conversion Price by surrender of
this note, duly endorsed or assigned to Maker or in blank, and also delivery of
ten (10) days prior written notice of conversion to Maker at the principal
executive offices of Maker.

 

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In the event of conversion of this note in part,
a new note (with identical terms) for the unconverted portion hereof will be
issued in the name of the Payment Agent. The Maker shall thereafter deliver to
the Payment Agent the fixed number of shares of Common Stock into which this
note is convertible (together with cash in lieu of fractional shares of Common
Stock as provided herein), and such delivery will be deemed to satisfy Maker’s
obligation to repay the amounts so converted. 
In any conversion, the number of shares of Common Stock to be issued
upon such conversion shall be equal to the quotient obtained by dividing (i)
the aggregate amount of principal and interest to be converted by (ii) the
Conversion Price then in effect.  No
fractions of shares or scrip representing fractions of shares will be issued on
conversion, but instead of any fractional interest (calculated to the nearest
1/100th of a share) Maker shall pay cash in respect of such fraction
(calculated to the nearest 1/100th of a share) in an amount equal to the
Current Market Price per share on the day of conversion.

 

(b)                                 All shares of Common Stock that are issued
upon the conversion of this note shall be duly and validly issued, fully paid
and non-assessable.

 

(c)                                  Parent shall at all times reserve and keep
available, out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of all or a specified portion of the
outstanding principal amount of this note, such number of shares of Common
Stock as shall from time to time be sufficient to effect such conversion.

 

(d)                                 Payee shall not have the right to vote,
receive any dividend or other distribution with respect to or be considered the
record holder of, for purposes of any such vote or dividend or distribution,
any of the shares of Common Stock into which this note may be convertible prior
to such conversion.

 

(e)                                  The Conversion Price shall be subject to
adjustment from time to time as follows:

 

(1)                                  In case Parent shall pay or make a dividend
or other distribution on any Common Stock of Parent payable in shares of Common
Stock, the Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date
fixed for such determination and the denominator shall be the sum of such
number of shares and the total number of shares constituting such dividend or
other distribution, such reduction to become effective immediately after the
opening of business on the day following the date fixed for such
determination.  For the purposes of this
paragraph (1), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of Parent but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock.

 

(2)                                  In case outstanding shares of Common Stock
shall be subdivided into a greater number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day upon
which such subdivision becomes effective shall be proportionately reduced, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such increase
or reduction, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.

 

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(3)                                  In case Parent shall distribute to all
holders of shares of Common Stock (including any such distribution made in
connection with a merger or consolidation in which Parent is the resulting or
surviving Person and the Common Stock is not changed or exchanged) cash,
evidences of indebtedness of Parent or another issuer, securities of Parent or
another issuer or other assets (excluding cash dividends in which holders of
the note participate in the manner provided in Section 6(e)(4) and
dividends payable in shares of Common Stock for which adjustment is made under
another paragraph of this Section 6) or rights or warrants to subscribe
for or purchase of any of the foregoing, then, and in each such case, the
Conversion Price then in effect shall be adjusted (and any other appropriate
actions shall be taken by Parent) by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction (x) the
numerator of which shall be the Current Market Price of the Common Stock
immediately prior to the date of distribution less the then fair market value
(as determined in good faith by the Board of Directors) of the portion of the
cash, evidences of indebtedness, securities or other assets so distributed or
of such rights or warrants applicable to one share of Common Stock and (y) the denominator
of which shall be the Current Market Price of the Common Stock immediately
prior to the date of distribution (but such fraction shall not be greater than
one).  Such adjustment shall be made
whenever any such distribution is made and shall become effective retroactively
to a date immediately following the close of business on the record date for
the determination of stockholders entitled to receive such distribution.

 

(4)                                  If
the Parent declares and pays cash dividends on the Common Stock, then, in that
event, the holders of the note shall be entitled to share in such dividends on
a pro rata basis, as if the note had been converted into shares of Common Stock
immediately prior to the record date for determining the stockholders of the
Parent eligible to receive such dividends.

 

(f)                                    In case Parent (i) consolidates with or
mergers into any other corporation and is not the continuing or surviving
corporation of such consolidation of merger, or (ii) permits any other
corporation to consolidate with or merge into Parent and Parent is the
continuing or surviving corporation but, in connection with such consolidation
or merger, the Common Stock is changed into or exchanged for stock or other
securities of any other corporation, or (ii) effects a capital reorganization
or reclassification of the capital stock of Parent in such a way that holders
of Common Stock shall be entitled to receive stock, securities, cash and/or
assets with respect to or in exchange for Common Stock, then, and in each such
case, proper provision shall be made so that, upon the basis and upon the terms
and in the manner provided in this subsection, the Payment Agent, upon the
conversion of this note at any time after the consummation of such
consolidation, merger, reorganization or reclassification, shall be entitled to
receive (at the aggregate Conversion Price in effect for all shares of Common
Stock issuable upon such conversion immediately prior to such consummation as
adjusted to the time of such transaction), in lieu of shares of Common Stock
issuable upon such conversion prior to such consummation, the stock and other
securities to which such holder would have been entitled upon such consummation
if the Payment Agent had so converted this note immediately prior thereto.

 

7.                                       No Usury
Intended; Spreading. 
Notwithstanding any provision to the contrary contained in this note, it
is expressly provided that in no case or event shall the aggregate of (a) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof, and (b) the aggregate of any other amounts accrued or paid pursuant to
this note, which under applicable laws are or may be deemed to constitute
interest upon the indebtedness evidenced by this note from the date hereof,
ever exceed the Ceiling Rate.  In this
connection, Maker, Payment Agent and Payees stipulate and agree that it is
their common and overriding intent to contract in strict compliance with
applicable usury laws.  In furtherance
thereof, none of the terms of this note shall ever be construed to create a
contract to pay, as consideration

 

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for
the use, forbearance or detention of money, interest at a rate in excess of the
Ceiling Rate.  Maker or other parties
now or hereafter becoming liable for payment of the indebtedness evidenced by
this note shall never be liable for interest in excess of the Ceiling
Rate.  If, for any reason whatever, the
interest paid or received on this note during its full term produces a rate
which exceeds the Ceiling Rate, the holder of this note shall credit against
the principal of this note (or, if such indebtedness shall have been paid in
full, shall refund to the payor of such interest) such portion of said interest
as shall be necessary to cause the interest paid on this note to produce a rate
equal to the Ceiling Rate.  All sums
paid or agreed to be paid to the holder of this note for the use, forbearance
or detention of the indebtedness evidenced hereby shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread in
equal parts throughout the full term of this note, so that the interest rate is
uniform throughout the full term of this note. 
The provisions of this Section 7 shall control all
agreements, whether now or hereafter existing and whether written or oral,
between Maker, Payment Agent and/or Payees.

 

8.                                       Default.  The occurrence of any of the following
events shall constitute default under this note (an “Event of Default”),
whereupon Payment Agent may, at its option, but subject to the terms of the
Subordination Agreement, on behalf of Payees, exercise any or all rights,
powers and remedies expressly afforded under this note and by law, including
the right to declare the unpaid balance of principal and accrued interest on this
note at once mature and payable:

 

(a)                                  any part of the Debt is not paid when due,
whether by lapse of time or acceleration or otherwise, unless the default is
fully cured within ten (10) Business Days after Payment Agent has given Maker
written notice thereof;

 

(b)                                 Maker fails to perform, observe or comply
with—or defaults under—any of the terms, covenants, conditions or provisions
contained in this note unless the failure or default is fully cured within ten
(10) Business Days after Payment Agent has given Maker written notice thereof;

 

(c)                                  Maker: 
(i) voluntarily suspends transaction of business; (ii) becomes insolvent
or unable to pay its debts as they mature; (iii) commences a voluntary case in
bankruptcy or a voluntary petition seeking reorganization or to effect a plan
or other arrangement with creditors; (iv) makes an assignment for the benefit
of creditors; (v) applies for or consents to the appointment of any receiver or
trustee for any such party or for any substantial portion of its property; or
(vi) makes an assignment to an agent authorized to liquidate any substantial
part of its assets.

 

(d)                                 in respect of Maker:  (i) an involuntary case shall be commenced
with any court or other authority seeking liquidation, reorganization or a
creditor’s arrangement of any such party; (ii) an order of any court or other
authority shall be entered appointing any receiver or trustee for any such
party or for any portion of its property; or (iii) a writ or warrant of
attachment or any similar process shall be issued by any court or other
authority against any portion of the property of any such party and such
petition seeking liquidation, reorganization or a creditor’s arrangement or
such order appointing a receiver or trustee is not vacated or stayed, or such writ,
warrant of attachment or similar process is not vacated, released or bonded off
within sixty (60) days after its entry or levy.

 

(e)                                  Maker mergers, conveys, sells, transfers
leases or assigns all or substantially all of its assets without the prior written
consent of the Payment Agent, which shall not be unreasonably withheld.

 

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9.                                       No
Waiver by Payment Agent. 
Payment Agent’s right to accelerate this note for any late payment or
Maker’s failure to fulfill timely its other obligations hereunder shall not be
waived or deemed waived by Payment Agent by the acceptance of a late payment or
late payments in the past or Payment Agent otherwise not accelerating this note
or exercising other remedies for Maker’s failure to perform timely its
obligations hereunder.  Payment Agent
shall not be obligated or be deemed obligated to notify Maker that it is
requiring Maker to comply strictly with the terms and provisions of this note
before accelerating this note and exercising its other remedies hereunder
because of Maker’s failure to perform timely its obligations under this note.

 

10.                                 Costs
and Attorneys’ Fees.  If Payment
Agent retains an attorney in connection with any Event of Default or to
collect, enforce or defend this note in any lawsuit or in any probate,
reorganization, bankruptcy or other proceeding, or if Maker sues Payment Agent
or any holder in connection with this note and does not prevail, then Maker
agrees to pay to Payment Agent or such holder, in addition to principal and
interest, all reasonable costs and expenses incurred by such person in trying
to collect this note or in any such suit or proceeding, including reasonable
attorneys’ fees as determined by the court.

 

11.                                 Waivers
by Maker and Others.  Except to
the extent, if any, that notice of Event of Default is expressly required
herein, Maker waives notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting
and the filing of suit for the purpose of fixing liability and consents that
the time of payment hereof may be extended and re-extended from time to time
without notice.  Maker agrees that its
liability on or with respect to this note shall not be affected by any release
of or change in any guaranty or security at any time existing or by any failure
to perfect or to maintain perfection of any lien against or security interest
in any such security or the partial or complete unenforceability of any
guaranty or other surety obligation, in each case in whole or in part, with or
without notice and before or after maturity.

 

12.                                 Section Headings.  Section headings appearing in this note
are for convenient reference only and shall not be used to interpret or limit
the meaning of any provision of this note.

 

13.                                 Venue;
Choice of Law.  Maker,
Parent, Payment Agent and each Payee hereby irrevocably agree that any legal
proceeding in respect of this note shall be brought in the district courts of
Harris County, Texas, or in the United States District Court for the Southern
District of Texas, Houston Division (collectively, the “Specified Courts”).  Maker, Parent, Payment Agent and each Payee
hereby irrevocably submit to the exclusive jurisdiction of the state and
federal courts of the State of Texas. 
Maker, Parent, Payment Agent and each Payee hereby irrevocably waive, to
the fullest extent permitted by law, any objection which they may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this note brought in any Specified Court, and hereby
further irrevocably waive any claims that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.  THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND
THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.

 

14.                                 Transferability.  By accepting this note, Payment Agent and
each Payee agrees that its interest in this note (i) may be transferred to a
Person controlled by or under common control with the Payment Agent or such
Payee without consent of Compass Bank, Maker or Parent and (ii) may be sold
assigned or otherwise disposed of (each of (i) and (ii), a “Disposition”),
whether voluntary, involuntary or by operation of law, subject, however to
obtaining the prior written consent of Compass Bank, which consent shall not be
unreasonably withheld.  The foregoing
limitations on Dispositions will terminate upon the termination or expiration
of the Subordination Agreement.  Any
attempted Disposition of all or

 

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any portion of this note in violation of this Section 14
shall be, and is hereby declared, null and void ab initio.  Nothing herein shall prevent
a Payee from pledging such Payee’s interest in this note to secure the payment
of indebtedness.  However, the security
interest held by each pledgee of this note shall be owned by such pledgee
subject to the provisions of this note and such pledgee shall not sell, assign
or otherwise dispose of this note unless all provisions of this note have been
complied with in all respects, including, without limitation, the provisions of
Section 14 hereof.  Neither
this note nor Maker’s obligations hereunder may be assigned to any other person
or entity without the prior written consent of Payee, which consent shall not
be unreasonably withheld; provided,
that if Payment Agent has exercised its acceleration rights under Section 7(a)
of this note, then Maker shall not be permitted to assign this note.

 

15.                                 Successors
and Assigns.  This note
and all the covenants and agreements contained herein shall be binding upon,
and shall inure to the benefit of, the respective legal representatives, heirs,
successors and assigns of Maker, Payment Agent, each Payee and, for purposes of
Section 6 only, Parent.

 

16.                                 Severability.  If any provision of this note is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this note shall not
be affected thereby, and this note shall be liberally construed so as to carry
out the intent of the parties to it. 
Each waiver in this note is subject to the overriding and controlling
rule that it shall be effective only if and to the extent that (a) it is not
prohibited by applicable law and (b) applicable law neither provides for nor
allows any material sanctions to be imposed against Payment Agent or any Payee
for having bargained for and obtained it.

 

17.                                 Prepayment.  Maker may
at any time pay the full amount or any part of this note without the payment of
any premium or fee, provided that
Maker must provide written notice to Payment Agent at least thirty (30) days
prior to the date of such prepayment. 
All prepayments hereon shall be applied first to accrued interest and
the balance to principal. 

 

18.                                 Maker, Payment
Agent and each Payee expressly agree, pursuant to Section 346.004 of the
Texas Finance Code, that Chapter 346 shall not apply to this note or to any
advance evidenced by this note and that this note and all such advances shall
not be governed by or subject to the provisions of Chapter 346 in any manner
whatsoever.

 

19.                                 Notice.  All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given on the day when delivered personally or sent by
facsimile (with receipt confirmed), and two (2) Business Days after the date of
mailing when sent by reputable overnight delivery service (receipt requested),
in each case to the other parties at the following addresses and telecopier
numbers (or to such other address or telecopier number as shall be communicated
to the other parties by like notice): (i) if to Maker, to: Whittier Energy
Company or Whittier Energy Corporation, 333 Clay Street, Suite 1100, Houston,
Texas 77002, Facsimile: (713) 850-1879; and (ii) if to Payment Agent, to it at
the address set forth beside its signature on the signature page to this note.

 

20.                                 Entire
Agreement.  This note,
together with the Subordination Agreement, embodies the entire agreement and
understanding between Payment Agent, each Payee, Parent and Maker and other
parties with respect to the subject matter hereof and supersedes all prior
conflicting or inconsistent agreements, consents and understandings relating to
such subject matter.  Maker, Parent,
Payment Agent and each Payee acknowledge and agree that there is no oral
agreement between or among them that has not been incorporated in this note.

 

21.                                 Investment
Intent.  With respect to this note and
the Common Stock, each of the Payment Agent and each Payee hereby represents
and warrants to Parent that he, she or it:

 

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(a)                                  is an “accredited investor” as defined in
Rule 501 of Regulation D of the Securities Act of 1933, as amended (the “Securities
Act”);

 

(b)                                 is in a financial position to hold the Common
Stock for an indefinite period of time, is able to bear the economic risk of an
investment in the Common Stock and can withstand a complete loss of its
investment in the Common Stock;

 

(c)                                  is either alone or together with the
assistance of such person’s own professional advisor or advisors, has the
knowledge and experience in business and financial matters to read and
interpret financial statements of and concerning Parent and Maker and to
evaluate the merits and risk of an investment in this note and the Common
Stock;

 

(d)                                 has obtained, to the extent necessary,
professional advice with respect to the risks inherent in an investment in this
note and the Common Stock and the suitability of an investment in this note and
the Common Stock in light of such person’s financial condition and investment
needs;

 

(e)                                  understands that an investment in this note
and the Common Stock is highly speculative and nevertheless believes that an
investment in this note and the Common Stock is suitable based upon such
person’s investment objectives and financial needs; has adequate means for
providing for such person’s current financial needs and contingencies; and has
no need for liquidity of the investment represented by this note and the Common
Stock;

 

(f)                                    has either attended or been given reasonable
opportunity to attend meetings with representatives of Maker and Parent for the
purpose of asking questions of, and receiving answers from, these
representatives concerning Maker, Parent and an investment in this note and the
Common Stock, and for the purpose of obtaining any additional information to
the extent reasonably available that is necessary to verify the information
provided; acknowledges that as of the date hereof, it does not desire any
further information or data concerning Maker or Parent; acknowledges that Maker
has never made any guarantee or warranty (i) as to the approximate or exact
length of time that such person will, if it exercises its conversion rights
hereunder, be required to remain an owner of the Common Stock (or any other
securities of Maker or Parent), (ii) as to the type of consideration and/or
profit or loss, if any, that will result from an investment in the Common
Stock, or (iii) that any future expectations relating to Maker’s or Parent’s
performance indicate in any way what Maker’s or Parent’s financial condition or
results of operations will be in the future;

 

(g)                                 acknowledges that no person or entity other
than Maker and Parent has been authorized to give any information or to make
any representations on behalf of Maker or Parent in connection with this note,
and if given or made, such information or representations have not been relied
upon by such person as having been made or authorized by Maker or Parent;

 

(h)                                 acknowledges that it has been advised that:

 

THIS NOTE
HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE INVESTMENT INFORMATION PROVIDED HEREIN.  ANY

 

9

 

REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE;

 

(i)                                     understands that (i) this note and the Common
Stock (A) have not been and will not be registered under the Securities Act or
any state securities laws, (B) will be issued in reliance upon an exemption
from the registration and prospectus delivery requirements of the Securities
Act, which relate to private offerings, (C) will be issued in reliance upon
exemptions from the registration and prospectus delivery requirements of state
securities laws which relate to private offerings and (D) may be required to be
held indefinitely without any ability to transfer the same, and (ii) therefore
the holder must bear the economic risk of such investment unless a subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt therefrom; further understands that such
exemptions depend upon, among other things, the bona fide nature of the
investment intent of such person expressed herein;

 

(j)                                     the foregoing representations and warranties
and undertakings are made with the intent that they be relied upon by Maker and
Parent in determining its suitability as an investor and each such person
hereby agrees that such representations and warranties shall survive the
delivery of this note;

 

(k)                                  agrees and covenants that it will reaffirm
and renew all of the above representations and warranties in connection with
its exercise of its conversion rights under Section 6 of this note.

 

22.                                 Guaranty.  Payment and performance of the Debt evidenced by this note is
guaranteed by the Parent, as provided on the attachment hereto.

 

[Rest of Page
Intentionally Left Blank. Signature Pages to Follow.]

 

10

 

IN WITNESS WHEREOF, the undersigned, by their respective
duly authorized and acting executive officers, have executed this Convertible
Subordinated Note as of the date first set forth above.

 

	
   

  	
  MAKER:

  
	
   

  	
   

  	
   

  
	
   

  	
  WHITTIER
  ENERGY CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michael B. Young

  	
   

  
	
   

  	
  Name:

  	
  Michael
  B. Young

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PAYMENT AGENT:

  
	
   

  	
   

  	
   

  
	
   

  	
  TEXAS
  INDEPENDENT EXPLORATION

  LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Frederick W. Zimmerman

  	
   

  
	
   

  	
  Name:

  	
  Frederick
  W. Zimmerman

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PAYEES:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TEXAS
  INDEPENDENT EXPLORATION LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Frederick W. Zimmerman

  	
   

  
	
   

  	
  Name:

  	
  Frederick
  W. Zimmerman

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  GULFCOAST
  ACQUISITIONS LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Frederick W. Zimmerman

  	
   

  
	
   

  	
  Name:

  	
  Frederick
  W. Zimmerman

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  FREDERICK
  W. ZIMMERMAN,

  d/b/a ISLAND RESOURCES

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/
  Frederick W. Zimmerman

  	
   

  
	
   

  	
  Frederick
  W. Zimmerman

  
					

 

11

 

GUARANTY

 

The
undersigned Whittier Energy Corporation agrees to the terms of the foregoing
Convertible Subordinated Note and guarantees Maker’s payment and performance
under the terms thereof.  Whittier
Energy Corporation agrees to perform its obligations under paragraph 6 of the
said note in the event conversion rights are exercised.

 

 

	
   

  	
  PARENT:

  
	
   

  	
   

  
	
   

  	
  WHITTIER
  ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michael B. Young

  	
   

  
	
   

  	
  Name:

  	
  Michael
  B. Young

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  	
   

  
					

 

12EXHIBIT
4.1

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT
(“Agreement”) is entered into this 18th day of June, 2004 (the
“Effective Date”), by and among WJ COMMUNICATIONS, INC., a Delaware corporation
(the “Company”), EiC Corporation, a California corporation (“EiC”), and EiC
Enterprises Limited, a corporation organized under the Laws of Bermuda (“EiC
Enterprises”).

 

WHEREAS, the
parties have entered into the Asset Purchase Agreement of even date herewith
(the “Asset Purchase Agreement”) which provides for, among other things, (i)
the issuance of 442,882 shares of the Company’s Common Stock, $0.01 par value
per share (“Common Stock”), to EiC and EiC Enterprises at Closing (the “Closing
Payment Shares”), (ii) the issuance of shares of Common Stock as part of the
Escrow Deposit (the “Escrow Deposit Shares”), and (iii) the issuance of shares
of Common Stock as part of the Earnout Payments (the “Earnout Payment Shares”);
and

 

WHEREAS, as a
condition of its willingness to accept the Closing Payment Shares, the Escrow
Deposit Shares and the Earnout Payment Shares under the Asset Purchase
Agreement, EiC and EiC Enterprises desire that the Company undertake certain
registration obligations with respect to the resale by EiC and EiC Enterprises
of the Closing Payment Shares and certain other obligations with respect to the
Closing Payment Shares, the Escrow Deposit Shares and the Earnout Payment
Shares.

 

NOW, THEREFORE,
in consideration of the mutual premises and covenants herein contained, the
Company, EiC and EiC Enterprises hereby agree as follows:

 

1.                                       Definitions.  Capitalized terms used, but not otherwise
defined herein shall have the meaning set forth in the Asset Purchase
Agreement.  As used herein:

 

(a)                                  The
term “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(b)                                 The
term “Employees” means the employees of EiC who will receive Closing Payment
Shares from EiC pursuant to a Change of Control Agreement entered into between
such employees and EiC prior to the Effective Date.

 

(c)                                  The
term “Holder” means EiC and EiC Enterprises.

 

(d)                                 The
terms “register,” “registered,” and “registration” refer to a registration
effected by preparing and filing a Registration Statement in compliance with
the Securities Act, and the declaration or ordering of the effectiveness of
such Registration Statement.

 

 

(e)                                  The
term “Person” shall have the meaning set forth in Section 2(2) of the
Securities Act.

 

(f)                                    The
term “Prospectus” shall have the meaning set forth in Section 2(10) of the
Securities Act.

 

(g)                                 The
term “Registrable Securities” means the Closing Payment Shares and shall not
include any Escrow Deposit Shares or any Earnout Payment Shares.

 

(h)                                 The
term “Registration Expenses” shall mean any and all expenses incident to the
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC or National Association of Securities Dealers,
Inc. (the “NASD”) registration and filing fees, including, if applicable, the
fees and expenses of any “qualified independent underwriter” (and its counsel)
that is required to be retained by any Holder of Registrable Securities in
accordance with the rules and regulations of the NASD, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of one counsel for any
underwriters or Holder in connection with blue sky qualification of any of the
Registrable Securities) and compliance with the rules of the NASD, (iii) all
expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus and any amendments or supplements thereto, and in preparing or
assisting in preparing, printing and distributing any underwriting agreements,
securities sales agreements and other documents relating to the performance of
and compliance with this Agreement, (iv) all rating agency fees, (v) the fees
and disbursements of counsel for the Company and of the independent certified
public accountants of the Company, including the expenses of any “cold comfort”
letters required by or incident to such performance and compliance, (vi) the
fees and expenses of any exchange agent or custodian, (vii) all fees and
expenses incurred in connection with the listing, if any, of any of the
Registrable Securities on any securities exchange or exchanges, and (viii) the
reasonable fees and expenses of any special experts retained by the Company in
connection with any Registration Statement.

 

(i)                                     The
term “Registration Statement” shall mean any Registration Statement of the
Company that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, and all amendments and supplements to any such
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.

 

(j)                                     The
term “Restricted Securities” shall mean any Closing Payment Shares, any Escrow
Deposit Shares, and any Earnout Payment Shares.

 

(k)                                  The
term “Rule 144” shall mean Rule 144 promulgated under the Securities
Act, or any similar federal rules thereunder, all as the same shall be in
effect at the time.

 

(l)                                     The
term “Securities Act” means the Securities Act of 1933, as amended.

 

2

 

(m)                               The
term “SEC” means the Securities and Exchange Commission.

 

2.                                       Registration
for Resale.  Subject to the
Company’s postponement rights set forth in Section 9 of this Agreement,
the Company shall use commercially reasonable efforts to file a Registration
Statement within six (6) months after the Effective Date covering the public
resale of the Registrable Securities by the Holder and of the Registrable
Securities by the Employees; provided, however, that the amount of
Registrable Securities that Holder may sell under the Registration Statement
during each period of 90 days shall be limited as set forth in the lock-up
agreement entered into with the Company by the Holder on the Effective Date.

 

3.                                       Effectiveness.  Subject to the Company’s suspension rights
set forth in Section 8 of this Agreement, the Company shall use
commercially reasonable efforts to maintain the effectiveness of any
Registration Statement pursuant to which any of the Registrable Securities are
being offered for up to 180 days (or such shorter period of time as all of the
Registrable Securities are resold by the Holder on the public market), and from
time to time will amend or supplement such Registration Statement and the
Prospectus contained therein to the extent necessary to comply with the
Securities Act and any applicable state securities laws or regulations.  A Registration Statement pursuant to which any
Registrable Securities are being offered will not be deemed to have become
effective unless it has been declared effective by the SEC; provided, however,
that if, after it has been declared effective, the offering of the Registrable
Securities pursuant to such Registration Statement is interfered with by any
stop order, injunction or other order or requirement of the SEC or any other
governmental agency or court, or by exercise of the Company’s suspension rights
set forth in Section 8 such Registration Statement will be deemed not to
have been effective during the period of such interference, until the offering
of Registrable Securities pursuant to such Registration Statement may legally
resume. Subject to the Company’s suspension rights set forth in Section 8
and postponement rights set forth in Section 9 of this Agreement, the
Company will be deemed not to have used commercially reasonable efforts to
cause the Registration Statement to become, or to remain, effective during the
requisite period if it voluntarily takes any action that would result in any
such Registration Statement not being declared effective or that would result
in the Holder or the Employees not being able to offer and sell the Registrable
Securities during that period unless such action is required by applicable laws
and regulations or currently prevailing interpretations of the staff of the
SEC.  The Company shall also provide the
Holder with as many copies of the Prospectus contained in any such Registration
Statement as the Holder may reasonably request.

 

4.                                       Expenses
of Registration.  All Registration
Expenses incurred in connection with any registration, qualification or
compliance pursuant to this Agreement shall be borne by the Company. Except as
provided herein, the Holder and the Employees shall pay all fees and expenses
of its legal counsel, underwriters’ fees, discounts or commissions or transfer
taxes, if any, relating to the sale or disposition of the Holder’s and the
Employees’ Registrable Securities.

 

5.                                       Registration
Procedures.  In the case of each
registration, qualification, or compliance effected by the Company pursuant to
this Agreement, the Company will keep the Holder advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense, the Company will:

 

3

 

(a)                                  Prepare
and file with the SEC a Registration Statement with respect to such Registrable
Securities as described in Section 2 and use commercially reasonable
efforts to cause such Registration Statement to become effective and to remain
effective in accordance with Section 3 (provided that before filing a
Registration Statement or Prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected by the Holder copies of all
such documents proposed to be filed, which documents will be subject to the
review of such counsel);

 

(b)                                 Prepare
and file with the SEC such amendments and supplements to such Registration
Statement and the Prospectus used in connection therewith as may be necessary
to keep such Registration Statement effective and current for a period of not
less than 180 days (or such shorter period of time as all of the Registrable
Securities are resold by the Holder and the Employees on the public market),
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the
Holder and the Employees thereof as set forth in such Registration Statement;

 

(c)                                  (i)  Furnish to the Holder, and to each
underwriter, if any, without charge, such number of copies of such Registration
Statement, each amendment and supplement thereto, the Prospectus included in
such Registration Statement (including each preliminary Prospectus), and such
other documents as the Holder or underwriters may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by the Holder
and the Employees; and (ii) consent to the use of the Prospectus or any
amendment or supplement thereto by the Holder and the Employees of Registrable
Securities included in the Registration Statement in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or
any amendment or supplement thereto;

 

(d)                                 Use
its commercially reasonable efforts to register or qualify such Registrable
Securities under all applicable securities or blue sky laws of such
jurisdictions of the United States by the time the applicable Registration
Statement is declared effective by the SEC as the Holder may reasonably request
in writing and do any other related acts which may be reasonably necessary or
advisable to enable the Holder and the Employees and underwriters to consummate
the disposition in such jurisdictions of the Registrable Securities; provided,
however, that the Company shall not be required to (i) qualify as a
foreign corporation or as a dealer in securities in any jurisdiction where it
would not otherwise be required to qualify but for this Section 5(d), (ii)
file any general consent to service of process in any jurisdiction where it
would not otherwise be subject to such service of process, or (iii) subject
itself to taxation in any such jurisdiction if it is not then so subject;

 

(e)                                  Notify
the Holder and its counsel promptly, and promptly confirm such notice in
writing, (i) at any time when a Prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result
of which, or the fact that, the Prospectus included in such Registration
Statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and, at the reasonable
request

 

4

 

of the Holder, the
Company will prepare a supplement or amendment to such Prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
Prospectus will not contain any untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading; (ii)
when a Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (iii) of any request by
the SEC or any state securities authority for amendments and supplements to a
Registration Statement or Prospectus or for additional information after the
Registration Statement has become effective, (iv) of the issuance by the SEC or
any state securities authority of any stop order suspending the effectiveness
of a Registration Statement or the qualification of the Registrable Securities
or the initiation of any proceedings for that purpose, (v) if, between the
effective date of a Registration Statement and the closing of any sale of
Registrable Securities covered thereby, the representations and warranties of
the Company contained in any underwriting agreement, purchase agreement,
securities sales agreement or other similar agreement, if any, cease to be true
and correct in all material respects, and (vi) the Company’s reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate;

 

(f)                                    If
applicable, use commercially reasonable efforts to cause all such Registrable
Securities to be listed or quoted on each securities exchange or interdealer
quotation system on which similar securities issued by the Company are then
listed or quoted;

 

(g)                                 Obtain
for delivery to the Company with copies to the Holder of the Registrable
Securities being registered, a comfort letter from the Company’s independent
public accountants in customary form and covering such matters of the type
customarily covered by comfort letters as the Holder shall reasonably request,
dated the effective date of the Registration Statement and brought down to the
closing;

 

(h)                                 Cooperate
with the Holder to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends and registered in such names as the Holder may reasonably
request at least two business days prior to the closing of any sale of
Registrable Securities pursuant to such Registration Statement;

 

(i)                                     Upon
the occurrence of any circumstance contemplated by Section 5(e)(iii),
5(e)(iv), or 5(e)(v) hereof, use best efforts to prepare a supplement or
post-effective amendment to such Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Securities, such Prospectus will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and to notify the Holder to suspend use of the Prospectus
as promptly as practicable after the occurrence of such an event, and the
Holder hereby agrees to suspend use of the Prospectus and notify the Employees
to suspend use of the Prospectus until the Company has amended or supplemented
the Prospectus to correct such misstatement or omission;

 

5

 

(j)                                     Use
reasonable commercial efforts to take all other steps necessary to effect the
registration of the Registrable Securities covered by a Registration Statement
contemplated hereby.

 

6.                                       Indemnification
and Contribution.

 

(a)                                  In
connection with any Registration Statement, the Company shall indemnify and
hold harmless the Employees, the Holder and each underwriter who participates
in an offering of the Registrable Securities, each Person, if any, who controls
any of such parties within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act and each of their respective directors,
officers, employees and agents, as follows:

 

(i)                                     from
and against any and all loss, liability, claim, damage and expense whatsoever,
joint or several, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement (or
any amendment thereto) covering Registrable Securities, including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;

 

(ii)                                  from
and against any and all loss, liability, claim, damage and expense whatsoever,
joint or several, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any court
or governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with the
prior written consent of the Company (which consent shall not be unreasonably
withheld); and

 

(iii)                               from
and against any and all expenses whatsoever, as incurred (including reasonable
fees and disbursements of counsel chosen by Holder or any underwriter (except
to the extent otherwise expressly provided in Section 6(c) hereof)),
incurred in investigating, preparing or defending against any litigation, or
any investigation or proceeding by any court or governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under subparagraph (i) or (ii) of this
Section 6(a);

 

provided,
however, that (i) this indemnity does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished in writing to the
Company by the Holder or the Employees, or any underwriter with respect to the
Holder or the Employees, or any underwriter, as the case may be, expressly for
use in a

 

6

 

Registration Statement
(or any amendment thereto) or any Prospectus (or any amendment or supplement
thereto) and (ii) the Company shall not be liable to the Holder or the
Employees, any underwriter or controlling Person, with respect to any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary Prospectus to the extent that any such loss, liability, claim,
damage or expense of the Holder or the Employees, any underwriter or
controlling Person results from the fact that the Holder or the Employees or
any underwriter, sold Registrable Securities to a Person to whom there was not
sent or given, at or prior to the written confirmation of such sale, a copy of
the final Prospectus as then amended or supplemented if the Company had
previously furnished copies thereof to the Holder or any underwriter or
controlling Person and the loss, liability, claim, damage or expense of the
Holder or the Employees or underwriter, or controlling Person results from an
untrue statement or omission of a material fact contained in the preliminary
Prospectus which was corrected in the final Prospectus. Any amounts advanced by
the Company to an indemnified party pursuant to this Section 6 as a result
of such losses shall be returned to the Company if it shall be finally
determined by such a court in a judgment not subject to appeal or final review
that such indemnified party was not entitled to indemnification by the Company.

 

(b)                                 A
selling Holder agrees to indemnify and hold harmless the Company, any
underwriter and each of their respective directors, officers (including each
officer of the Company who signed the Registration Statement), employees and
agents, any underwriter or any other selling Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act,
from and against any and all loss, liability, claim, damage and expense whatsoever
described in the indemnity contained in Section 6(a) hereof, as incurred,
but only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in a Registration Statement or any Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such selling Holder with respect to such Holder expressly for use in
such Registration Statement, or any such Prospectus; provided that the
liability of the Holder for indemnification pursuant to this Section 6(b)
shall not exceed the gross proceeds from the sale of Registrable Securities
received by the Holder.

 

(c)                                  Each
indemnified party shall give prompt notice to each indemnifying party of any
action commenced against it in respect of which indemnity may be sought
hereunder, enclosing a copy of all papers properly served on such indemnified
party, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability which it may have under this Section 6,
except to the extent that it is materially prejudiced by such failure. An
indemnifying party may participate at its own expense in the defense of such
action, or, if it so elects within a reasonable time after receipt of such
notice, assume the defense of any suit brought to enforce any such claim; but
if it so elects to assume the defense, such defense shall be conducted by
counsel chosen by it and approved by the indemnified party or parties, which
approval shall not be unreasonably withheld. In the event that an indemnifying
party elects to assume the defense of any such suit and retain such counsel,
the indemnified party or parties shall bear the fees and expenses of any
additional counsel thereafter retained by such indemnified party or parties; provided,
however, that the indemnified party or parties shall have the right
to employ counsel (in addition to local counsel) to represent the indemnified
party or parties who may be subject to liability arising out of any action in
respect of which indemnity may be sought

 

7

 

against the indemnifying
party if, in the reasonable judgment of counsel for the indemnified party or
parties, there may be legal defenses available to such indemnified party or
parties which are different from or in addition to those available to the
indemnifying party, in which event the fees and expenses of appropriate
separate counsel shall be borne by the indemnifying party. In no event shall
the indemnifying parties be liable for the fees and expenses of more than one
counsel (in addition to local counsel), separate from its own counsel, for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 6 (whether or not the indemnified parties are
actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release in form and substance
satisfactory to the indemnified parties of each indemnified party from ail
liability arising out of such litigation, investigation, proceeding or claim
and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.

 

(d)                                 In
order to provide for just and equitable contribution in circumstances under
which any of the indemnity provisions set forth in this Section 6 is for
any reason held to be unavailable to the indemnified parties although
applicable in accordance with its terms, the Company and the Holder shall
contribute to the aggregate losses, liabilities, claims, damages and expenses
of the nature contemplated by such indemnity agreement incurred by the Company
and the Holder, as incurred; provided, that no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person that was not guilty of
such fraudulent misrepresentation. As between the Company and the Holder, such
parties shall contribute to such aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement in such
proportion as shall be appropriate to reflect the relative fault of the
Company, on the one hand, and the Holder, on the other hand, with respect to
the statements or omissions which resulted in such loss, liability, claim,
damage or expense, or action in respect thereof, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or by or on
behalf of the Holder, on the other, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Holder agree that it would not be
just and equitable if contribution pursuant to this Section 6 were to be determined
by pro rata allocation or by any other method of allocation that does not take
into account the relevant equitable considerations. For purposes of this
Section 6, each affiliate of the Holder, and each director, officer,
employee, agent and Person, if any, who controls a Holder or such affiliate
within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act shall have the same rights to contribution as the Holder,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each Person,

 

8

 

if any, who controls the
Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution
as the Company.

 

(e)                                  The
obligations of the Company and the Holder under this Section 6 shall
survive the completion of an offering of Registrable Securities pursuant to a
Registration Statement.  Notwithstanding
the foregoing, to the extent that the indemnification and contribution
provisions contained in the underwriting agreement executed in connection with
such Registration Statement conflict with the foregoing provisions, the
provisions in such underwriting agreement shall control.

 

7.                                       Information
by Holder.  The Holder of
Registrable Securities included in any registration shall furnish to the
Company such written information regarding such Holder and the Employees and
the distribution proposed by such Holder and the Employees as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification, or compliance referred to in this paragraph,
includingthe names of the Employees to be included in the Registration
Statement and the number of shares the Employees desire to sell under the
Registration Statement provided, that Holder is not responsible for the
accuracy of any such information regarding the Employees and will have no
liability to Company as a result of providing such information to Company.

 

8.                                       Suspension
Rights.  The Company shall have the
right to extend, suspend or delay the effectiveness of any Registration
Statement for periods of up to an aggregate of 60 days if, upon advice of
counsel to the Company, effectiveness of such Registration Statement would
interfere with any then currently active acquisition, financing or similar
transaction of the Company by requiring the premature disclosure of any
material corporate development or otherwise or would interfere with the
registration rights of any third party under previous agreements entered into
by the Company prior to the date of this Agreement.

 

9.                                       Postponement
Rights.  The Company shall have the
right to postpone or delay the filing of any Registration Statement for periods
of up to an aggregate of 60 days if, upon advice of counsel to the Company, the
filing of such Registration Statement would interfere with any then current
active acquisition, financing or similar transaction of the Company or require
the premature disclosure of any material on-public information or because the
Company’s Board of Directors determines in good faith that it would be
seriously detrimental to the Company and its stockholders for such Registration
Statement to be filed or because it would interfere with the registration
rights of any third party under previous agreements entered into by the Company
prior to the date of this Agreement.

 

10.                                 Rule
144 Reporting Covenants of the Company. 
With a view to making available the benefits of certain rules and
regulations of the SEC which may at any time permit the sale of the Restricted
Securities to the public without registration, the Company agrees to use
commercially reasonable efforts to:

 

(a)                                  Make
and keep public information available, as those terms are understood and
defined in Rule 144 under the Securities Act, at all times after the
Closing Date;

 

9

 

(b)                                 File
with the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and

 

(c)                                  So
long as the Holder owns any Restricted Securities, to furnish to the Holder
forthwith upon request and at the Company’s expense a written statement by the
Company as to its compliance with the reporting requirements of said
Rule 144 and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as the
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing the Holder and the Employees to sell any such securities
without registration.

 

11.                                 Termination
of Obligations.  The Company’s
registration obligations pursuant to Sections 2 and 3 hereof shall terminate on
the earlier of (a) the date that all Registrable Securities held or entitled to
be held by Holder may immediately be sold without restriction (including volume
limitations) under Rule 144 during any 90-day period, or (b) one (1) year from
the Effective Date.

 

12.                                 Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of Delaware, without
regard to the conflict of laws provisions thereof.

 

13.                                 Entire
Agreement.  This Agreement and the
other writings referred to herein contain the entire understandings among the
parties with respect to its subject matter. This Agreement supersedes all prior
agreements and understandings among the parties with respect to its subject
matter.

 

14.                                 Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

15.                                 Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

 

16.                                 Communication
with Employees.  The parties hereto
agree and acknowledge that EiC shall have the obligation to communicate with
the Employees regarding the registration for resale of the Closing Payment
Shares EiC will distribute to them pursuant to the Change of Control
Agreement.  EiC covenants that it will:

 

(a)                                  Immediately
after receipt of copies of the Prospectus from the Company, furnish the
Prospectus to the Employees ;

 

(b)                                 Immediately
after receipt of the notice from the Company specified in Section 5(e)
above, promptly notify the Employees in writing (i) at any time when a
Prospectus is required to be delivered under the Securities Act, of the
happening of any event as a result of which, or the fact that, the Prospectus
included in such Registration Statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements therein not
misleading; (ii) when a Registration Statement has become effective and when
any post-effective amendments and supplements thereto become effective, (iii)
of any request by the SEC or any

 

10

 

state securities
authority for amendments and supplements to a Registration Statement or
Prospectus or for additional information after the Registration Statement has
become effective, (iv) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a Registration
Statement or the qualification of the Registrable Securities or the initiation
of any proceedings for that purpose, (v) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, purchase agreement, securities sales agreement or
other similar agreement, if any, cease to be true and correct in all material
respects, and (vi) the Company’s reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate.

 

[the remainder of this page has been
intentionally left blank]

 

11

 

IN WITNESS WHEREOF,
the Company, EiC and EiC Enterprises have executed this Agreement on the day
and year first above written.

 

	
   

  	
  “COMPANY”

  
	
   

  	
   

  
	
   

  	
  WJ COMMUNICATIONS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Michael Farese

  
	
   

  	
  Name:

  	
  Michael Farese

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  “EiC”

  
	
   

  	
   

  
	
   

  	
  EiC Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Nicky Lu

  
	
   

  	
  Name:

  	
   Nicky Lu

  
	
   

  	
  Title:

  	
   

  	
   Chairman and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  “EiC Enterprises”

  
	
   

  	
   

  
	
   

  	
  EiC Enterprises Limited

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Nicky Lu

  
	
   

  	
  Name:

  	
   Nicky Lu

  
	
   

  	
  Title:

  	
   

  	
   Chairman and Chief Executive Officer

  
					

 

 

SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT

 

12

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