Exhibit 10.2
EXHIBIT A
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: January ___, 2006
Original Conversion Price (subject to adjustment herein): $0.87
$_____________
ORIGINAL ISSUE DISCOUNT
CONVERTIBLE DEBENTURE
THIS ORIGINAL ISSUE DISCOUNT DEBENTURE is one of a series of duly
authorized and issued Debentures of Tidelands Oil & Gas Corporation, a Nevada
corporation, having a principal place of business at 1862 West Bitters Road, San
Antonio, Texas 78248 (the "Company"), designated as its Original Issue Discount
Convertible Debenture, due January ____, 2008 (this debenture, the "Debenture"
and collectively with the other such series of debentures, the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to ________________________
or its registered assigns (the "Holder"), or shall have paid pursuant to the
terms hereunder, the principal sum of $_______________ by January ____ , 2008 or
such earlier date as this Debenture is required or permitted to be repaid as
provided hereunder (the "Maturity Date"), and to pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this
Debenture in accordance with the provisions hereof. This Debenture is subject to
the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
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"Alternate Consideration" shall have the meaning set forth in Section
5(d).
"Bankruptcy Event" means any of the following events: (a) the
Corporation or any Significant Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X) thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of
any jurisdiction relating to the Corporation or any Significant Subsidiary
thereof; (b) there is commenced against the Corporation or any Significant
Subsidiary thereof any such case or proceeding that is not dismissed within
60 days after commencement; (c) the Corporation or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of
relief or other order approving any such case or proceeding is entered; (d)
the Corporation or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of
its property that is not discharged or stayed within 60 days; (e) the
Corporation or any Significant Subsidiary thereof makes a general
assignment for the benefit of creditors; (f) the Corporation or any
Significant Subsidiary thereof calls a meeting of its creditors with a view
to arranging a composition, adjustment or restructuring of its debts; or
(g) the Corporation or any Significant Subsidiary thereof, by any act or
failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action
for the purpose of effecting any of the foregoing.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which
banking institutions in the State of New York are authorized or required by
law or other government action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 33% of the voting securities of the Company
(other than by means of conversion or exercise of the Debentures and the
Securities issued together with the Debentures), or (ii) the Company merges
into or consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such transaction,
the stockholders of the Company immediately prior to such transaction own
less than 66% of the aggregate voting power of the Company or the successor
entity of such transaction, or (iii) the Company sells or transfers its
assets, as an entirety or substantially as an entirety, to another Person
and the stockholders of the Company immediately prior to such transaction
own less than 66% of the aggregate voting power of the acquiring entity
immediately after the transaction, (iv) a replacement at one time or within
a three year period of more than one-half of the members of the Company's
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board of directors which is not approved by a majority of those individuals
who are members of the board of directors on the date hereof (or by those
individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a majority
of the members of the board of directors who are members on the date
hereof), or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events
set forth above in (i) through (iv).
"Common Stock" means the common stock, par value $.001 per share, of
the Company and stock of any other class of securities into which such
securities may hereafter have been reclassified or changed into.
"Conversion Date" shall have the meaning set forth in Section 4(a).
"Conversion Price" shall have the meaning set forth in Section 4(b).
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with
the terms.
"Debenture Register" shall have the meaning set forth in Section 2(c).
"Effectiveness Period" shall have the meaning given to such term in
the Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question, (i) the
Company shall have duly honored all conversions and redemptions scheduled
to occur or occurring by virtue of one or more Notices of Conversion of the
Holder, if any, (ii) all liquidated damages and other amounts owing to the
Holder in respect of this Debenture shall have been paid, (iii) there is an
effective Registration Statement pursuant to which the Holder is permitted
to utilize the prospectus thereunder to resell all of the shares issuable
pursuant to the Transaction Documents (and the Company believes, in good
faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iv) the Common Stock is trading on a Trading Market
and all of the shares issuable pursuant to the Transaction Documents are
listed for trading on a Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on a Trading Market will continue
uninterrupted for the foreseeable future), (v) there is a sufficient number
of authorized but unissued and otherwise unreserved shares of Common Stock
for the issuance of all of the shares issuable pursuant to the Transaction
Documents, (vi) there is then existing no Event of Default or event which,
with the passage of time or the giving of notice, would constitute an Event
of Default, (vii) the issuance of the shares in question to the Holder
would not violate the limitations set forth in Section 4(c) and (viii) no
public announcement of a pending or proposed Fundamental Transaction or
Change of Control Transaction has occurred that has not been consummated.
"Event of Default" shall have the meaning set forth in Section 8.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Forced Conversion" shall have the meaning set forth in Section 6(a).
"Forced Conversion Date" shall have the meaning set forth in Section
6(a).
"Forced Conversion Notice" shall have the meaning set forth in Section
6(a).
"Forced Conversion Notice Date" shall have the meaning set forth in
Section 6(a).
"Fundamental Transaction" shall have the meaning set forth in Section
5(d).
"Mandatory Default Amount" shall equal the sum of (i) the greater of:
(A) 130% of the outstanding principal amount of this Debenture or (B) the
outstanding principal amount of this Debenture divided by the Conversion
Price on (x) the date the Mandatory Default Amount is demanded (if demand
or notice is required to create an Event of Default) or otherwise due or
(y) the date the Mandatory Default Amount is paid in full, whichever is
less, multiplied by the VWAP on (x) the date the Mandatory Default Amount
is demanded or otherwise due or (y) the date the Mandatory Default Amount
is paid in full, whichever is greater, and (ii) all other amounts, costs,
expenses and liquidated damages due in respect of this Debenture.
"New York Courts" shall have the meaning set forth in Section 9(d).
"Notice of Conversion" shall have the meaning set forth in Section
4(a).
"Original Issue Date" shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Permitted Indebtedness" shall mean (a) the Indebtedness existing on
the Original Issue Date and set forth on Schedule 3.1(gg) attached to the
Purchase Agreement, (b) lease obligations and purchase money Indebtedness
of up to $2,000,000, in the aggregate, incurred in connection with the
acquisition of capital assets and lease obligations with respect to newly
acquired or leased assets, (c) Indebtedness incurred in connection with the
Mexican Project Financing and (d) Indebtedness deemed to have been incurred
in connection with a judgment in the Xxxxxxx Litigation.
"Permitted Lien" shall mean the individual and collective reference to
the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith
judgment of the management of the Company) have been established in
accordance with GAAP, (b) Liens imposed by law which were incurred in the
ordinary course of business, such as carriers', warehousemen's and
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mechanics' Liens, statutory landlords' Liens, and other similar Liens
arising in the ordinary course of business, and (x) which do not
individually or in the aggregate materially detract from the value of such
property or assets or materially impair the use thereof in the operation of
the business of the Company and its consolidated Subsidiaries or (y) which
are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
property or asset subject to such Lien and (c) Liens incurred in connection
with Permitted Indebtedness under clause (b) thereunder provided that such
Liens are not secured by assets of the Company or its Subsidiaries other
than the assets so acquired or leased.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of January 20, 2006 to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among
other things the resale of the Conversion Shares and naming the Holder as a
"selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" shall have the meaning given to such term in the Purchase
Agreement.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
OTC Bulletin Board, the Nasdaq Capital Market, the American Stock Exchange,
the New York Stock Exchange or the Nasdaq National Market.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
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Market on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:02 p.m. Eastern Time); (b) if the OTC Bulletin Board is not a
Trading Market, the volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if
the Common Stock is not then listed or quoted on the OTC Bulletin Board and
if prices for the Common Stock are then reported in the "Pink Sheets"
published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price
per share of the Common Stock so reported; or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.
Section 2. Interest and Prepayment. No regularly scheduled interest
payments shall be made on this Debenture. Except as otherwise set forth in this
Debenture, the Company may not prepay any portion of the principal amount of
this Debenture without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration of transfer or exchange.
b) Investment Representations. This Debenture has been issued subject
to certain investment representations of the original Holder set forth in
the Purchase Agreement and may be transferred or exchanged only in
compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or
not this Debenture is overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date
until this Debenture is no longer outstanding, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in
whole or in part at any time and from time to time (subject to the
limitations on conversion set forth in Section 4(c) hereof). The Holder
shall effect conversions by delivering to the Company the form of Notice of
Conversion attached hereto as Annex A (a "Notice of Conversion"),
specifying therein the principal amount of this Debenture to be converted
and the date on which such conversion is to be effected (a "Conversion
Date"). If no Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is deemed
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delivered hereunder. To effect conversions hereunder, the Holder shall not
be required to physically surrender this Debenture to the Company unless
the entire principal amount of this Debenture has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing the
principal amount converted and the date of such conversions. The Company
shall deliver any objection to any Notice of Conversion within 1 Business
Day of receipt of such notice. In the event of any dispute or discrepancy,
the records of the Holder shall be controlling and determinative in the
absence of manifest error. The Holder and any assignee, by acceptance of
this Debenture, acknowledge and agree that, by reason of the provisions of
this paragraph, following conversion of a portion of this Debenture, the
unpaid and unconverted principal amount of this Debenture may be less than
the amount stated on the face hereof.
b) Conversion Price. The conversion price in effect on any Conversion
Date shall be equal to $0.87 (subject to adjustment herein) (the
"Conversion Price").
c) Conversion Limitations.
(i) Holder's Restriction on Conversion. The Company shall not
effect any conversion of this Debenture, and a Holder shall
not have the right to convert any portion of this Debenture
to the extent that after giving effect to such conversion as
set forth on the applicable Notice of Conversion, such
Holder (together with such Holder's Affiliates, and any
other person or entity acting as a group together with such
Holder or any of such Holder's Affiliates) would
beneficially own in excess of the Beneficial Ownership
Limitation (as defined below). For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially
owned by such Holder and its Affiliates shall include the
number of shares of Common Stock issuable upon conversion of
this Debenture with respect to which such determination is
being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) conversion of the
remaining, nonconverted principal amount of this Debenture
beneficially owned by such Holder or any of its Affiliates
and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company
(including, without limitation, any other Debentures or the
Warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially
owned by such Holder or any of its Affiliates. Except as set
forth in the preceding sentence, for purposes of this
Section 4(c)(ii), beneficial ownership shall be calculated
in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder. To the extent
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that the limitation contained in this Section 4(c)(ii)
applies, the determination of whether this Debenture is
convertible (in relation to other securities owned by such
Holder together with any Affiliates) and of which amounts of
this Debenture are convertible shall be in the sole
discretion of such Holder, and the submission of a Notice of
Conversion shall be deemed to be such Holder's determination
of whether this Debenture may be converted (in relation to
other securities owned by such Holder) and which amounts of
this Debenture are convertible, in each case subject to such
aggregate percentage limitations. To ensure compliance with
this restriction, each Holder will be deemed to represent to
the Company each time it delivers a Notice of Conversion
that such Notice of Conversion has not violated the
restrictions set forth in this paragraph and the Company
shall have no obligation to verify or confirm the accuracy
of such determination. In addition, a determination as to
any group status as contemplated above shall be determined
in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder. For purposes
of this Section 4(c)(ii), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the
number of outstanding shares of Common Stock as reflected in
the most recent of the following: (A) the Company's most
recent Form 10-QSB or Form 10-KSB, as the case may be, (B) a
more recent public announcement by the Company or (C) any
other notice by the Company or the Company's transfer agent
setting forth the number of shares of Common Stock
outstanding. Upon the written request of a Holder, the
Company shall within two Trading Days confirm in writing to
such Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company,
including this Debenture, by such Holder or its Affiliates
since the date as of which such number of outstanding shares
of Common Stock was reported. The "Beneficial Ownership
Limitation" shall be 4.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to
the issuance of shares of Common Stock issuable upon
conversion of this Debenture held by the Holder. The
Beneficial Ownership Limitation provisions of this Section
4(c)(ii) may be waived by such Xxxxxx, at the election of
such Holder, upon not less than 61 days' prior notice to the
Company to change the Beneficial Ownership Limitation to
9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance
of shares of Common Stock upon conversion of this Debenture
held by the Holder, and the provisions of this Section
4(c)(ii) shall continue to apply. Upon such a change by a
Holder of the Beneficial Ownership Limitation from such
4.99% limitation to such 9.99% limitation, the Beneficial
Ownership Limitation may not be further waived by such
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Holder. The provisions of this paragraph shall be construed
and implemented in a manner otherwise than in strict
conformity with the terms of this Section 4(c)(ii) to
correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial
Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this
Debenture.
(ii) Authorized Share Limitations. Notwithstanding anything
herein to the contrary, if the Company has not obtained
Authorized Share Approval, then the Company may not issue,
upon conversion of this Debenture, a number of shares of
Common Stock which, when aggregated with any shares of
Common Stock issued on or after the Original Issue Date and
prior to such Conversion Date (A) in connection with any
Debentures issued pursuant to the Purchase Agreement, (B) in
connection with any Warrants issued pursuant to the Purchase
Agreement and (C) in connection with any warrants issued to
any registered broker-dealer as a fee in connection with the
issuance of the Securities pursuant to the Purchase
Agreement, would exceed 9,000,000 (subject to adjustment for
reverse and forward stock splits and the like) (such number
of shares, the "Issuable Maximum"). Each Holder shall be
entitled to a portion of the Issuable Maximum equal to the
quotient obtained by dividing (x) the aggregate principal
amount of the Debenture(s) issued and sold to such Holder on
the Original Issue Date by (y) the aggregate principal
amount of all Debentures issued and sold by the Company on
the Original Issue Date. If any Holder shall no longer hold
the Debenture(s), then such Holder's remaining portion of
the Issuable Maximum, if any, shall be allocated pro-rata
among the remaining Holders. If, on any Conversion Date, (1)
the applicable Conversion Price is such that the shares
issuable under this Debenture on such Conversion Date,
together with the aggregate number of shares of Common Stock
that would then be issuable upon conversion in full of all
then outstanding Debentures, would exceed the Issuable
Maximum and (2) the Company shall not have previously
obtained Authorized Share Approval, then the Company shall
issue to the Holder requesting a conversion a number of
shares of Common Stock equal to such Holder's pro-rata
portion (which shall be calculated pursuant to the terms
hereof) of the Issuable Maximum and, with respect to the
remainder of the aggregate principal amount of the
Debentures (including any accrued interest) then held by
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such Holder for which a conversion in accordance with the
applicable Conversion Price would result in an issuance of
shares of Common Stock in excess of such Holder's pro-rata
portion (which shall be calculated pursuant to the terms
hereof) of the Issuable Maximum (the "Excess Principal"),
the Company shall be prohibited from converting such Excess
Principal and shall promptly notify the Holder of the reason
therefor. This Debenture shall thereafter be unconvertible
to such extent until and unless Authorized Share Approval is
subsequently obtained, but this Debenture shall otherwise
remain in full force and effect.
d) Mechanics of Conversion
i. Conversion Shares Issuable Upon Conversion of Principal
Amount. The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be
converted by (y) the Conversion Price.
ii. Delivery of Certificate Upon Conversion. Not later than three
Trading Days after any Conversion Date, the Company will deliver or
cause to be delivered to the Holder a certificate or certificates
representing the Conversion Shares which shall be free of restrictive
legends and trading restrictions (other than those which may then be
required by the Purchase Agreement) representing the number of shares
of Common Stock being acquired upon the conversion of this Debenture.
The Company shall, if available and if allowed under applicable
securities laws, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this
Section electronically through the Depository Trust Company or another
established clearing corporation performing similar functions.
iii. Failure to Deliver Certificates. If in the case of any
Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the third
Trading Day after a Conversion Date, the Holder shall be entitled by
written notice to the Company at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return to the
Holder any original Debenture delivered to the Company, and the Holder
shall promptly return the Common Stock certificates representing the
principal amount of this Debenture tendered for conversion to the
Company.
iv. Obligation Absolute; Partial Liquidated Damages. If the
Company fails for any reason to deliver to the Holder such certificate
or certificates pursuant to Section 4(d)(ii) by the third Trading Day
after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, for each $1000 of
principal amount being converted, $5 per Trading Day (increasing to
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$10 per Trading Day after 5 Trading Days after such damages begin to
accrue) for each Trading Day after the second Trading Day after such
third Trading Day until such certificates are delivered. The Company's
obligations to issue and deliver the Conversion Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision
hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other
person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares; provided,
however, such delivery shall not operate as a waiver by the Company of
any such action the Company may have against the Holder. In the event
the Holder of this Debenture shall elect to convert any or all of the
outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or any one associated or
affiliated with the Holder has been engaged in any violation of law,
agreement or for any other reason, unless an injunction from a court,
on notice to Holder, restraining and or enjoining conversion of all or
part of this Debenture shall have been sought and obtained, and the
Company posts a surety bond for the benefit of the Holder in the
amount of 150% of the outstanding principal amount of this Debenture,
which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the underlying
dispute and the proceeds of which shall be payable to such Holder to
the extent it obtains judgment. In the absence of an injunction
precluding the same, the Company shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion. Nothing herein
shall limit a Xxxxxx's right to pursue actual damages or declare an
Event of Default pursuant to Section 8 hereof for the Company's
failure to deliver Conversion Shares within the period specified
herein and such Holder shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief. The exercise
of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under
applicable law.
v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Conversion. In addition to any other rights
available to the Holder, if the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to
Section 4(d)(ii) by the third Trading Day after the Conversion Date,
and if after such third Trading Day the Holder is required by its
brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which the Holder anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall (A) pay in
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cash to the Holder (in addition to any other remedies available to or
elected by the Holder) the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the actual
sale price of the Common Stock at the time of the sale (including
brokerage commissions, if any) giving rise to such purchase obligation
and (B) at the option of the Holder, either reissue (if surrendered)
this Debenture in a principal amount equal to the principal amount of
the attempted conversion or deliver to the Holder the number of shares
of Common Stock that would have been issued had the Company timely
complied with its delivery requirements under Section 4(d)(ii). For
example, if the Holder purchases Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted
conversion of this Debenture with respect to which the actual sale
price of the Conversion Shares at the time of the sale (including
brokerage commissions, if any) giving rise to such purchase obligation
was a total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In and, upon request of
the Company, evidence of the amount of such loss.
vi. Reservation of Shares Issuable Upon Conversion. Subject to
Authorized Share Approval, the Company covenants that it will at all
times reserve and keep available out of its authorized and unissued
shares of Common Stock solely for the purpose of issuance upon
conversion of this Debenture free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holder
(and the other holders of the Debentures), not less than such number
of shares of the Common Stock as shall (subject to the terms and
conditions set forth in the Purchase Agreement) be issuable (taking
into account the adjustments and restrictions of Section 5) upon the
conversion of the outstanding principal amount of this Debenture. The
Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly authorized, validly issued, fully
paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, registered for public sale in
accordance with such Registration Statement.
vii. Fractional Shares. Upon a conversion hereunder the Company
shall not be required to issue stock certificates representing
fractions of shares of Common Stock, but may if otherwise permitted,
make a cash payment in respect of any final fraction of a share based
on the VWAP at such time. If the Company elects not, or is unable, to
make such cash payment, the Holder shall be entitled to receive, in
lieu of the final fraction of a share, one whole share of Common
Stock.
12
viii. Transfer Taxes. The issuance of certificates for shares of
the Common Stock on conversion of this Debenture shall be made without
charge to the Holder hereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay
any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a
name other than that of the Holder of this Debenture so converted and
the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such
tax has been paid.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while
this Debenture is outstanding: (A) pays a stock dividend or otherwise makes
a distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon conversion of this Debenture), (B)
subdivides outstanding shares of Common Stock into a larger number of
shares, (C) combines (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock
of the Company, then the Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
b) [RESERVED].
c) Subsequent Rights Offerings. If the Company, at any time while the
Preferred Stock is outstanding, shall issue rights, options or warrants to
all holders of Common Stock (and not to Holders) entitling them to
subscribe for or purchase shares of Common Stock at a price per share less
than the VWAP at the record date mentioned below, then the Conversion Price
shall be multiplied by a fraction, of which the denominator shall be the
number of shares of the Common Stock outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of Common
Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock outstanding on the date
of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
13
receipt by the Company in full of all consideration payable upon exercise
of such rights, options or warrants) would purchase at such VWAP. Such
adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
d) Pro Rata Distributions. If the Company, at any time while this
Debenture is outstanding, shall distribute to all holders of Common Stock
(and not to the holders of the Debenture) evidences of its indebtedness or
assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security, then in each such case the
Conversion Price shall be adjusted by multiplying such Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the VWAP determined as of the record date
mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by
the Board of Directors in good faith. In either case the adjustments shall
be described in a statement provided to the Holder of the portion of assets
or evidences of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
e) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Conversion
Share that would have been issuable upon such conversion immediately prior
to the occurrence of such Fundamental Transaction, the same kind and amount
of securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of one share
of Common Stock (the "Alternate Consideration"). For purposes of any such
conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based on
the amount of Alternate Consideration issuable in respect of one share of
Common Stock in such Fundamental Transaction, and the Company shall
apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components
of the Alternate Consideration. If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as
14
to the Alternate Consideration it receives upon any conversion of this
Debenture following such Fundamental Transaction. To the extent necessary
to effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder
a new debenture consistent with the foregoing provisions and evidencing the
Holder's right to convert such debenture into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this paragraph (d) and insuring
that this Debenture (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
f) Calculations. All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 5, the number of shares of Common Stock deemed
to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any) issued
and outstanding.
g) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price
is adjusted pursuant to any provision of this Section 5, the Company
shall promptly mail to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Company
issues a variable rate security, despite the prohibition thereon in
the Purchase Agreement, the Company shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be converted
or exercised in the case of a Variable Rate Transaction (as defined in
the Purchase Agreement).
ii. Notice to Allow Conversion by Xxxxxx. If (A) the Company
shall declare a dividend (or any other distribution in whatever form)
on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C)
the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to
which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Company; then, in each case, the Company shall cause to
be filed at each office or agency maintained for the purpose of
conversion of this Debenture, and shall cause to be mailed to the
Holder at its last addresses as it shall appear upon the stock books
of the Company, at least 20 calendar days prior to the applicable
15
record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record
is not to be taken, the date as of which the holders of the Common
Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date
as of which it is expected that holders of the Common Stock of record
shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder
is entitled to convert this Debenture during the 20-day period
commencing the date of such notice to the effective date of the event
triggering such notice.
Section 6. Forced Conversion.
a) Forced Conversion. Notwithstanding anything herein to the contrary,
if after the Effective Date, each of the VWAPs for any 20 consecutive
Trading Days (such period commencing only after the Effective Date, such
period the "Threshold Period")) exceeds 250% of the then effective
Conversion Price (subject to adjustment for reverse and forward stock
splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the Original Issue Date), the Company
may, within 1 Trading Day of the end of any such period, deliver a notice
to the Holder (a "Forced Conversion Notice" and the date such notice is
received by the Holder, the "Forced Conversion Notice Date") to cause the
Holder to convert all or part of the then outstanding principal amount of
Debentures pursuant to Section 4, it being understood that the "Conversion
Date" for purposes of Section 4 shall be deemed to occur on the third
Trading Day following the Forced Conversion Notice Date (such third Trading
Day being referred to as the "Forced Conversion Date"). The Company may not
deliver a Forced Conversion Notice, and any Forced Conversion Notice
delivered by the Corporation shall not be effective, unless all of the
Equity Conditions are met on each Trading Day occurring during the
applicable Threshold Period through and including the later of the Forced
Conversion Date and the Trading Day after the date such Conversion Shares
pursuant to such conversion are delivered to the Holder. Any Forced
Conversion shall be applied ratably to all Holders based on their initial
purchases of Debentures pursuant to the Purchase Agreement. For purposes of
clarification, a Forced Conversion shall be subject to all of the
provisions of Section 4, including, without limitation, the provision
requiring payment of liquidated damages and limitations on conversions.
Section 7. Negative Covenants. So long as any portion of this Debenture is
outstanding, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly:
16
a) other than Permitted Indebtedness, enter into, create, incur,
assume, guarantee or suffer to exist any indebtedness for borrowed money of
any kind, including but not limited to, a guarantee, on or with respect to
any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom;
b) other than Permitted Liens, enter into, create, incur, assume or
suffer to exist any liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom;
c) other than Authorized Shares Approval, amend its certificate of
incorporation, bylaws or other charter documents so as to materially and
adversely affect any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de minimis number of shares of its Common Stock or
Common Stock Equivalents other than as to the Conversion Shares or Warrant
Shares to the extent permitted or required under the Transaction Documents
or as otherwise permitted by the Transaction Documents and other than as to
repurchases of Common Stock or Common Stock Equivalents of departing
officers and directors of the Company, provided that such repurchases shall
not exceed $100,000 in the aggregate for all officers and directors during
the term of this Debenture;
e) enter into any agreement with respect to any of the foregoing; or
f) pay cash dividends or distributions on any equity securities of the
Company.
Section 8. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
i. any default in the payment of (A) the principal amount of any
Debenture, or (B) liquidated damages in respect of, any Debenture, as
and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise)
which default, solely in the case of a default under clause (B) above,
is not cured, within 3 Trading Days;
ii. the Company shall fail to materially observe or perform any
other covenant or agreement contained in this Debenture or any other
Debenture (other than a breach by the Company of its obligations to
deliver shares of Common Stock to the Holder upon conversion which
breach is addressed in clause (xi) below) which failure is not cured,
17
if possible to cure, within the earlier to occur of (A) 5 Trading Days
after notice of such default sent by the Holder or by any other Holder
and (B)10 Trading Days after the Company shall become or should have
become aware of such failure;
iii. on or before the 90th day following the date hereof, the
Company shall have failed to obtain Authorized Share Approval;
iv. a default or event of default (subject to any grace or cure
period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents, or
(B) any other material agreement, lease, document or instrument to
which the Company or any Subsidiary is bound (and not covered by
clause (vi) below);
v. any representation or warranty made herein, in any other
Transaction Documents, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate
made or delivered to the Holder or any other holder of Debentures
shall be untrue or incorrect in any material respect as of the date
when made or deemed made;
vi. the Company or any Significant Subsidiary shall be subject to
a Bankruptcy Event;
vii. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an amount
exceeding $500,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable;
viii. the Common Stock shall not be eligible for quotation on or
quoted for trading on a Trading Market and shall not again be eligible
for and quoted or listed for trading thereon within five Trading Days;
ix. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or dispose
of all or in excess of 33% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction);
x. a Registration Statement shall not have been declared
effective by the Commission on or prior to the 240th calendar day
after the Closing Date;
18
xi. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the Registration
Statement lapses for any reason or the Holder shall not be permitted
to resell Registrable Securities (as defined in the Registration
Rights Agreement) under the Registration Statement, in either case,
for more than 60 consecutive Trading Days or 90 non-consecutive
Trading Days during any 12 month period;
xii. the Company shall fail for any reason to deliver
certificates to a Holder prior to the seventh Trading Day after a
Conversion Date or any Forced Conversion Date pursuant to and in
accordance with Section 4(d) or the Company shall provide notice to
the Holder, including by way of public announcement, at any time, of
its intention not to comply with requests for conversions of any
Debentures in accordance with the terms hereof; or
xiii. any monetary judgment, writ or similar final process shall
be entered or filed against the Company, any Subsidiary or any of
their respective property or other assets for more than $50,000, and
shall remain unvacated, unbonded or unstayed for a period of 45
calendar days.
b) Remedies Upon Event of Default. If any Event of Default occurs, the
full principal amount of this Debenture, together with other amounts owing
in respect thereof, to the date of acceleration shall become, at the
Holder's election, immediately due and payable in cash at the Mandatory
Default Amount. Commencing 5 days after the occurrence of any Event of
Default that results in the eventual acceleration of this Debenture, the
interest rate on this Debenture shall accrue at the rate of 18% per annum,
or such lower maximum amount of interest permitted to be charged under
applicable law. Upon the payment in full of the Mandatory Default Amount on
this entire Debenture the Holder shall promptly surrender this Debenture to
or as directed by the Company. The Holder need not provide and the Company
hereby waives any presentment, demand, protest or other notice of any kind,
and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such Event of Default may be
rescinded and annulled by Holder at any time prior to payment hereunder and
the Holder shall have all rights as a Debenture holder until such time, if
any, as the full payment under this Section shall have been received by it.
No such rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries
to be provided by the Holder hereunder, including, without limitation, any
Notice of Conversion, shall be in writing and delivered personally, by
facsimile, or sent by a nationally recognized overnight courier service,
addressed to the Company, at the address set forth above, facsimile number
(000) 000-0000/2809, Attn: Xxxxxxx Xxxx, Chief Executive Officer or such
other address or facsimile number as the Company may specify for such
purposes by notice to the Holder delivered in accordance with this Section.
Any and all notices or other communications or deliveries to be provided by
19
the Company hereunder shall be in writing and delivered personally, by
facsimile, or sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile telephone number or address of
such Holder appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of
the Holder. Any notice or other communication or deliveries hereunder shall
be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 5:30 p.m.
(New York City time), (ii) the date after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:30 p.m. (New York
City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the second Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon
actual receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed. This
Debenture is a direct debt obligation of the Company. This Debenture ranks
pari passu with all other Debentures now or hereafter issued under the
terms set forth herein.
c) Lost or Mutilated Debenture. If this Debenture shall be mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated
Debenture, or in lieu of or in substitution for a lost, stolen or destroyed
Debenture, a new Debenture for the then outstanding principal amount of
this Debenture so mutilated, lost, stolen or destroyed, but only upon
receipt of evidence of such loss, theft or destruction of such Debenture,
and of the ownership hereof, reasonably satisfactory to the Company.
d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof.
Each party agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or
agents) shall be commenced in the state and federal courts sitting in the
City of New York, Borough of Manhattan (the "New York Courts"). Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
20
suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under
this Debenture and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by law. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial
by jury in any legal proceeding arising out of or relating to this
Debenture or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this
Debenture, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys' fees and other costs and
expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.
e) Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other
term of this Debenture. Any waiver must be in writing.
f) Severability. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is inapplicable to any person or circumstance,
it shall nevertheless remain applicable to all other persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates applicable laws governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum permitted rate of interest. The Company covenants (to the
extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the
extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any
such law, hinder, delay or impeded the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every
such as though no such law has been enacted.
g) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
21
h) Headings. The headings contained herein are for convenience only,
do not constitute a part of this Debenture and shall not be deemed to limit
or affect any of the provisions hereof.
i) Assumption. Any successor to the Company or surviving entity in a
Fundamental Transaction shall (i) assume in writing all of the obligations
of the Company under this Debenture and the other Transaction Documents
pursuant to written agreements in form and substance satisfactory to the
Holder (such approval not to be unreasonably withheld or delayed) prior to
such Fundamental Transaction and (ii) issue to the Holder a new debenture
of such successor entity evidenced by a written instrument substantially
similar in form and substance to this Debenture, including, without
limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of the Debentures held by the
Holder and having similar ranking to this Debenture, and satisfactory to
the Holder (any such approval not to be unreasonably withheld or delayed).
The provisions of this Section 9(i) shall apply similarly and equally to
successive Fundamental Transactions and shall be applied without regard to
any limitations of this Debenture. Any assignee or successor to the Holder
agrees to assume in writing all of the obligations of the Holder under this
Xxxxxxxxx and the other Transaction Documents. The Holder or assignee will
be responsible for the preparation of such documents.
*********************
22
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
TIDELANDS OIL & GAS CORPORATION
By:____________________________
Name:
Title:
23
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Original Issue
Discount Convertible Debenture of Tidelands Oil & Gas Corporation, a Nevada
corporation (the "Company"), due on January __, 2008, into shares of common
stock, par value $.001 per share (the "Common Stock"), of the Company according
to the conditions hereof, as of the date written below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts determined in accordance with Section 13(d) of the Exchange Act,
specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
24
Schedule 1
CONVERSION SCHEDULE
The Original Issue Discount Convertible Debentures due on January __, 2008 in
the aggregate principal amount of $____________ issued by Tidelands Oil & Gas
Corporation. This Conversion Schedule reflects conversions made under Section 4
of the above referenced Debenture.
Dated:
======================== ================== =================== ================
Aggregate
Principal
Amount
Remaining
Subsequent to
Date of Conversion Conversion
(or for first entry, (or original
Original Issue Date) Amount of Principal Company Attest
Conversion Amount)
------------------------ ------------------ ------------------- ----------------
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======================== ================== =================== ================
