Exhibit 10.4
EXHIBIT A
to Securities Purchase Agreement
Dated: November 18, 2004
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE 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.
No. 3 $2,855,000.00
TIDELANDS OIL & GAS CORPORATION
7.0% CONVERTIBLE DEBENTURE
DUE May 18, 2006
THIS DEBENTURE is issued by Tidelands Oil & Gas Corporation, a Nevada
Corporation (the "Company"). This Debenture is designated as the Company's 7.0%
Convertible Debenture, due May 18, 2006, in the aggregate principal amount of
Two Million Eight Hundred Fifty-Five Thousand Dollars ($2,855,000.00) (the
"Debenture").
FOR VALUE RECEIVED, the Company promises to pay to Monarch Pointe Fund, Ltd., a
British Virgin Islands international business company, or its registered assigns
(the "Holder"), the principal sum of $2,855,000.00, on or before May 18, 2006,
or such earlier date as the Debenture is required 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 at
the rate of 7.0% per annum, with interest accruing commencing on the date hereof
and payable monthly on the first Business Day (as defined in Section 5 below) of
each month (each an "Interest Payment Date").
Interest shall be calculated on the basis of a 360-day year and shall
accrue daily commencing on the Original Issue Date (as defined in Section 5)
until payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts, which may become due hereunder, has been made.
Interest hereunder will be paid to the Person (as defined in Section 5) in whose
name this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the "Debenture Register").
This Debenture is subject to the following additional provisions:
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Section 1. 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.
Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 5) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 5) 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 3. Events of Default.
(a) An "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 the principal of, interest
on, or damages in respect of the Debenture, free of any claim of subordination,
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 is not cured within
thirty (30) days after the date the payment became due and payable;
(ii) the failure to file a Registration Statement with the
Commission within thirty (30) days of the Original Issue Date registering the
resale of the Underlying Shares;
(iii) the failure to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach of this
Debenture, the Purchase Agreement or the Registration Rights Agreement, and such
failure or breach shall not have been remedied within thirty (30) days after the
date on which notice of such failure or breach shall have been given;
(iv) any of the following which is not dismissed within 60
days, the Company shall commence, or there shall be commenced against the
Company a case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced against the Company, and any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the Company is
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adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Company suffers any
appointment of any custodian or the like for it or any substantial part of its
property which continues undischarged or unstayed for a period of 60 days; or
the Company makes a general assignment for the benefit of creditors; or the
Company shall fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or the Company shall call
a meeting of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or the Company shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company for the
purpose of effecting any of the foregoing;
(v) the Common Stock shall cease to be quoted for trading or
listed for trading on the National Association of Securities Dealers OTC
Bulletin Board ("OTC") or Nasdaq SmallCap Market, New York Stock Exchange,
American Stock Exchange or the Nasdaq National Market (each, a "Subsequent
Market") and shall not again be quoted or listed for trading thereon within five
(5) Trading Days;
(vi) the Company shall fail for any reason to deliver Common
Stock certificates to a Holder prior to the fifth Trading Day after a Conversion
Date pursuant to and in accordance with Section 4(b) 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 the
Debenture in accordance with the terms hereof. If the Company's transfer agent
is not open for business during a Trading Day, such Trading Day shall not be
counted for purposes of determining the number of days for delivery of a Common
Stock certificate;
(vii) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within ten Business
Days after notice is deemed delivered hereunder;
(viii) the Company shall fail for any reason to cause the
number of authorized but unissued shares of its Common Stock to be increased to
an amount sufficient to enable the Company to comply with the reserve
requirement of Section 4(c)(v) within a period of sixty (60) days following its
receipt of any Holder's notice under Section 4(c)(v) that such reserve is not
being satisfied if, at the time of the notice, the number of authorized shares
of the Company's Common Stock is insufficient for this purpose; or
(ix) the Company shall fail to use its best efforts to cause
the Commission to deem the Registration Statement effective within ninety (90)
days after the date on which it is filed with the Commission.
(b) During the time that any portion of this Debenture is outstanding,
if any Event of Default pursuant to Section 3(a) occurs, then the Conversion
Price shall be reduced from 85% of the Market Price to 75% of the Market Price,
but in no event higher that the Ceiling Price or lower than the Floor Price (as
those terms are defined in Section 4(c)(i) and 5 below). In addition, if an
Event of Default under Section 3(a)(ii) occurs, the Company shall pay liquidated
damages to Holder equal to $3,333 for each day during which such Event of
Default remains uncured. Any amounts to be paid as liquidated damages shall be
paid in cash monthly in arrears on or before the 30th day following the end of
the month or partial month to which they relate.
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
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its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.
Section 4. Conversion.
(a) (i) Conversion at Option of Holder.
(A) 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, after the Original Issue Date (subject to the limitations on conversion
set forth in Section 4(a)(ii) hereof). The number of shares of Common Stock
issuable upon a conversion hereunder equals the quotient obtained by dividing
(x) the outstanding principal amount of this Debenture to be converted by (y)
the Conversion Price (as defined in Section 4(c)(i)).
(B) Reserved.
(C) The Holder shall effect conversions by simultaneously
delivering to the Company a completed notice in the form attached hereto as
Exhibit A (a "Conversion Notice"), including a completed Conversion Schedule in
the form of Schedule I to the Conversion Notice (on each Conversion Date, the
"Conversion Schedule"). The Conversion Schedule shall set forth the remaining
principal amount of this Debenture and all accrued and unpaid interest thereon
subsequent to the conversion at issue. The date on which a Conversion Notice is
delivered is the "Conversion Date." Unless the Holder is converting the entire
principal amount outstanding under this Debenture, the Holder is not required to
physically surrender this Debenture to the Company in order to effect
conversions. Subject to Section 4(b), each Conversion Notice, once given, shall
be irrevocable. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture plus all accrued and unpaid
interest thereon in an amount equal to the applicable conversion, which shall be
evidenced by entries set forth in the Conversion Schedule. The Holder and the
Company shall maintain records showing the principal amount converted and the
date of such conversions. In the event of any dispute or discrepancy, the
records of the Holder shall be controlling and determinative in the absence of
manifest error.
(ii) Certain Conversion Restrictions.
(A) A Holder may not convert the Debenture or receive shares
of Common Stock as payment of interest hereunder to the extent such conversion
or receipt of such interest payment would result in the Holder, together with
any affiliate thereof, beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules promulgated thereunder) in
excess of 9.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of interest on, the
Debenture held by such Holder after application of this Section. Since the
Holder will not be obligated to report to the Company the number of shares of
Common Stock it may hold at the time of a conversion hereunder, unless the
conversion at issue would result in the issuance of shares of Common Stock in
excess of 9.999% of the then outstanding shares of Common Stock without regard
to any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
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determine whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of
which portion of the principal amount of the Debenture is convertible shall be
the responsibility and obligation of the Holder. If the Holder has delivered a
Conversion Notice for a principal amount of the Debenture that, without regard
to any other shares that the Holder or its affiliates may beneficially own,
would result in the issuance in excess of the permitted amount hereunder, the
Company shall notify the Holder of this fact and shall honor the conversion for
the maximum principal amount permitted to be converted on such Conversion Date
in accordance with the periods described in Section 4(b) and, at the option of
the Holder, either retain any principal amount tendered for conversion in excess
of the permitted amount hereunder for future conversions or return such excess
principal amount to the Holder. The provisions of this Section may be waived by
a Holder (but only as to itself and not to any other Holder) upon not less than
65 days prior notice to the Company. Other Holders shall be unaffected by any
such waiver.
(b) (i) Reserved.
(ii) Nothing herein shall limit a Holder's right to pursue
actual damages or declare an Event of Default pursuant to Section 3 herein for
the Company's failure to deliver certificates representing shares of Common
Stock upon conversion within the period specified herein and such Holder shall
have the right to pursue all remedies available to it at law. 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. Further, if the
Company shall not have delivered any cash due in respect of conversion of the
Debenture or as payment of interest thereon by the fifth (5th) Trading Day after
the Conversion Date, the Holder may, by notice to the Company, require the
Company to issue shares of Common Stock pursuant to Section 4(c), except that
for such purpose the Conversion Price applicable thereto shall be the lesser of
the Conversion Price on the Conversion Date and the Conversion Price on the date
of such Holder demand. Any such shares will be subject to the provisions of this
Section.
(iii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder any certificate or certificates
representing shares of Common Stock upon conversion within the period specified
herein by the fifth (5th) Trading Day after the Conversion Date, and if after
such fifth (5th) Trading Day the Holder purchases (in an open market transaction
or otherwise) Common Stock to deliver in satisfaction of a sale by such Holder
of the Underlying Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Company shall (A) pay in cash to the Holder
(in addition to any 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 market price of the
Common Stock at the time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder, either reissue a Debenture in the 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. If the Company's
transfer agent is not open for business during a Trading Day, such Trading Day
shall not be counted for purposes of determining the number of days for delivery
of a Common Stock certificate. For example, if the Holder purchases Common Stock
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having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of Debentures with respect to which the market price of the
Underlying Shares on the date of conversion 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.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder any damages under Section
4(b)(ii) in respect of the certificates resulting in such Buy-In which would
represent a double recovery for harm for which the payments made under this
Section 4(b)(iii) compensated the Holder .
(c) (i) The "Conversion Price" shall be equal to Eighty-Five Percent
(85%) of the Market Price (as defined in Section 5 below) on the date of any
Conversion Notice, rounded to the nearest ▇▇▇▇▇, subject to adjustment as
described herein; provided, however, the Conversion Price shall in no event be
higher than $0.76 (the "Ceiling Price") nor shall such Conversion Price be less
than $0.45 per share (the "Floor Price"). In the event that the Registration
Statement has not been deemed effective by the SEC within 90 days after filing,
then the Conversion Price shall be reduced from 85% of the Market Price to 75%
of the Market Price, but in no event higher that the Ceiling Price or lower than
the Floor Price.
(ii) If the Company, at any time while the Debenture is
outstanding shall (a) pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue 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
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding 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.
(iii) If the Company, at any time while the Debenture is
outstanding, shall distribute to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price at which the Debenture shall thereafter be convertible shall be determined
by multiplying the 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 Per Share
Market Value determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value 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
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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.
(iv) In case of any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder shall have the right
thereafter to convert the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange, and the Holder of the
Debenture shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Company
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled.
(v) The Company shall maintain a share reserve of not less
than 105% of the shares of Common Stock issuable upon conversion of the
Debenture; and within five (5) Business Days following the receipt by the
Company of a Holder's notice that such minimum number of Underlying Shares is
not so reserved, the Company shall if there are sufficient authorized but
unissued shares promptly reserve a sufficient number of shares of Common Stock
to comply with such requirement. If there are not sufficient authorized but
unissued shares, the Company shall use its best efforts to call a special
shareholders' meeting within sixty (60) days of such notice to increase the
number of authorized shares of Common Stock.
(vi) All calculations under this Section 4 shall be made to
the nearest ten thousandth. No adjustments in either the Conversion Price shall
be required if such adjustment is less than $0.0001, provided, however, that any
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(vii) Whenever the Conversion Price is adjusted pursuant to
this Section 4(c), the Company shall promptly mail to the Holder a notice
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
(viii) If (A) the Company shall declare a dividend (or any
other distribution) 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
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or agency maintained for the purpose of conversion of the Debenture, and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the Company, at least ten (10) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to 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 the Debenture during the ten
(10) day calendar period commencing the date of such notice to the effective
date of the event triggering such notice.
(ix) In case of any (1) merger or consolidation of the Company
with or into another Person, or (2) sale by the Company of more than one-half
(1/2) of its assets in one or a series of related transactions, a Holder shall
have the right to (A) convert the aggregate principal amount of the Debenture
then outstanding into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such merger, consolidation or sale, and such Holder shall be entitled
upon such event or series of related events to receive such amount of
securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of the Debenture could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled, or (B) in the case of a merger or consolidation, require the surviving
entity to issue to the Holder a convertible debenture with a principal amount
equal to the aggregate principal amount of the Debenture then held by such
Holder, plus all accrued and unpaid interest and other amounts owing thereon,
which such newly issued convertible debenture shall have terms identical
(including with respect to conversion) to the terms of this Debenture, and shall
be entitled to all of the rights and privileges of the Holder of the Debenture
set forth herein and the agreements pursuant to which the Debentures were
issued. In the case of clause (B), the conversion price applicable for the newly
issued shares of convertible preferred stock or convertible debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Conversion Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger, sale or consolidation shall include such terms so as
to continue to give the Holder the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such events.
(d) 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 the Debenture and payment of interest
on the Debenture, each as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holder, not
less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
8
forth in the Debenture) be issuable (taking into account the adjustments and
restrictions of Section 4(b)) upon the conversion of the outstanding principal
amount of the Debenture and payment of interest hereunder. The Company covenants
that all shares of Common Stock that shall be so issuable shall, upon issue, be
duly and validly authorized, issued and fully paid, nonassessable and, if the
Registration Statement has been declared effective under the Securities Act,
registered for public sale in accordance with such Registration Statement.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the Holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debenture shall be made without charge to the Holder thereof
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 such 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.
(g) Any and all notices or other communications or deliveries to be
provided by the Holder hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the Company, at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇., ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: President, Facsimile No. 210-764-2809 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 the
Company hereunder shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, 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, and, in the case of each Holder, with
a copy to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇, Attention ▇▇▇▇▇ ▇. ▇▇▇▇▇, Facsimile No. (213)
620-1398. 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 5:00 p.m. (the recipient's
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 5:00 p.m. (the recipient's time) on any
date and earlier than 11:59 p.m. (the recipient's time) on such date, (iii) four
(4) days after deposit in the United States mail, (iv) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (v) upon actual receipt by the party to whom such notice is
required to be given.
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Section 5. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"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 are authorized or required by law or other government action to
close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $0.001 par value per share, of
the Company and stock of any other class into which such shares may hereafter be
changed or reclassified.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Market Price" on any given date shall be the average of the lowest
four intra-day trading prices of the Company's Common Stock during the ten (10)
immediately preceding trading days (which may include trading days prior to the
Original Issue Date), provided, that such 10 trading day period shall be
extended by the number of trading days during such period on which (i) trading
in the Common Stock is suspended by, or not traded on, the OTC or a subsequent
market on which the common stock is then traded, or (ii) after the date of
Registration Statement for the underlying shares of Common Stock into which this
Debenture may be converted is declared effective by the SEC, the prospectus
included in the Registration Statement may not be used by the Holder for resale
of underlying shares of Common Stock, is suspended by, or not traded on, the OTC
or a subsequent market on which the Common Stock is then listed, or (iii) after
the date the Registration Statement is declared effective by the SEC, the
prospectus included in the Registration Statement for the underlying shares may
not be used by the Holder for the resale of underlying shares of Common Stock
(provided such inability to use the prospectus is not (a) caused by the Holder
or (b) as a result of the Company's filing of post-effective amendments to the
Registration Statement.
"Original Issue Date" shall mean the date of the first issuance of the
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.
"Per Share Market Value" means the price per share in the last reported
trade of the Common Stock on the OTC or on a Subsequent on which the Common
Stock is then listed.
"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 that Securities Purchase Agreement, dated
November 18, 2004 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 Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
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"Registration Statement" means the registration statement to be filed
by the Company with the SEC pursuant to the Registration Rights Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Trading Day" means a day on which the shares of Common Stock are
quoted on the OTC or quoted or traded on such Subsequent Market on which the
shares of Common Stock are then quoted or listed; provided, that in the event
that the shares of Common Stock are not listed or quoted, then Trading Day shall
mean a Business Day.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Debenture or as payment of interest in accordance with the
terms hereof.
Section 6. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct obligation of the Company. This Debenture
ranks pari passu with all other Debentures now or hereafter issued under the
terms set forth herein. As long as the Debenture is outstanding, the Company
shall not and shall cause their subsidiaries not to, without the consent of the
Holder, (i) amend its articles of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Holder; (ii) repay,
repurchase or offer to repay, repurchase or otherwise acquire shares of its
Common Stock or other equity securities; or (iii) enter into any agreement with
respect to any of the foregoing.
Section 7. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 8. If this Debenture is mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed debenture, a new Debenture for the 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, and indemnity, if requested, all reasonably satisfactory to
the Company.
Section 9. This Debenture shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably submit
to the exclusive jurisdiction of the state and federal courts sitting in the
City of Los Angeles, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waive, and agree not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. The Company hereby irrevocably waives personal service of process and
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consents to process being served in any such suit, action or proceeding by
sending a copy thereof to the Company at the address in effect for notices to
them under this instrument and the Company 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 manner permitted by law. Each party 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 Agreement or the
transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of this Debenture, the Purchase Agreement
or the Registration Rights Agreement, 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.
Section 10. 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.
Section 11. 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 shall violate
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 they 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 the 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.
Section 12. 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.
Section 13. Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of Holder. Holder may
assign this Agreement, in whole or in party, and any rights or obligation
hereunder without the prior written consent of Company by delivery of written
notice to Company of such assignment.
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IN WITNESS WHEREOF, each of the Company has caused this 7.0%
Convertible Debenture to be duly executed by a duly authorized officer as of the
date first above indicated.
TIDELANDS OIL & GAS CORPORATION
By:____________________________
Name:__________________________
Title:_________________________
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $0.0001 par value per share (the "Common Stock"), of Tidelands Oil
& Gas Corporation. (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.
Conversion calculations: ______________________________________________
Date to Effect Conversion
______________________________________________
Principal Amount of Debentures to be Converted
$__________ of Interest Accrued on
Account of Conversion
at Issue
Payment of Interest in Kind |_| Yes
|_| No
If yes, $ _______ of Interest Accrued on
Account of Conversion at
Issue
______________________________________________
Number of shares of Common Stock to be Issued
______________________________________________
Applicable Conversion Price
______________________________________________
Signature
______________________________________________
Name
______________________________________________
Address
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Schedule 1
CONVERSION SCHEDULE
-------------------
7.0% Convertible Debenture due May ___, 2006, in the aggregate principal amount
of $______________ issued by _________________________. This Conversion Schedule
reflects conversions made under Section 4(a)(i) of the above referenced
Debenture.
Dated:
==================== ============== =================== ========== =============
Aggregate
Principal Amount
Remaining
Date of Conversion Subsequent to
(or for first entry, Conversion
Original Issue Amount of (or original Company
Date) Conversion Principal Amount) Attest
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