EXHIBIT 10.1
CERTIFICATE FOR 14% SECURED CONVERTIBLE DEBENTURE
THIS DEBENTURE AND THE SHARES AND WARRANTS DELIVERABLE ON CONVERSION OF THE
DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
(1933), AS AMENDED, (THE "1933 ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. THESE SECURITIES ARE RESTRICTED SECURITIES AS THAT TERM IS
DEFINED IN RULE 144 UNDER THE 1933 ACT. AS RESTRICTED SECURITIES, THEY MAY BE
RESOLD ONLY IN ACCORDANCE WITH RULE 144 OR REGULATION S UNDER THE 1933 ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT OR AN
EXEMPTION FROM THE 1933 ACT. HEDGING TRANSACTIONS MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE 1933 ACT. THIS DEBENTURE MAY NOT BE CONVERTED UNLESS THE
UNDERLYING SHARES AND WARRANTS HAVE BEEN REGISTERED UNDER THE 1933 ACT AND THE
APPLICABLE SECURITIES LEGISLATION OF ANY STATE OR AN EXEMPTION FROM THOSE
REGISTRATION REQUIREMENTS IS AVAILABLE.
NO. o CDN $o
WESCORP ENERGY INC.
CONVERTIBLE DEBENTURE CERTIFICATE
14% REDEEMABLE SECURED CONVERTIBLE DEBENTURE
DUE DECEMBER 31, 2005
I. DEBENTURE TERMS
Wescorp Energy Inc. (the "COMPANY") for value received hereby promises
to pay to oof o(the "HOLDER") on or before December 31, 2005 ( the
"MATURITY DATE"), on presentation and surrender of this Debenture the
sum of $o in lawful money of the United States and to pay interest on
the principal amount hereof at the rate of 14% per annum from the date
of issue of this Debenture (the "CLOSING DATE"), such interest to be
calculated and paid quarterly, the first payment to fall on March 31,
2005, provided however that if the payment of interest would result in
a breach of any applicable bank covenants of the Company, then such
interest shall continue to accrue but shall only be paid when such
payment would not result in a breach of any applicable bank covenants.
Except when the payment of interest would result in a breach by the
Company of any of its applicable bank covenants, should the Company at
any time make default in the payment of any principal or interest, the
Company agrees to pay interest on the amount in default at the same
rate, annually on the same dates. As interest on this Debenture becomes
due, the Company (except in case of payment at maturity or on
redemption at which time payment of interest may be made upon surrender
of this Debenture) shall, at least three business days prior to each
date on which interest becomes due, forward or cause to be forwarded by
prepaid post to the registered address of the registered holder of this
Debenture for the time being, or in the case of joint holders to the
registered address of whichever of such joint holders is named first, a
cheque for such interest, less any tax required by law to be deducted,
payable to the order of such holder or holders. The forwarding of such
cheque shall satisfy and discharge the liability for interest upon this
Debenture to the extent of the sum represented thereby (plus the amount
of any tax deducted as aforesaid) unless such cheque be not paid on
presentation.
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II. CONVERSION
The principal amount of this Debenture, plus any accrued but unpaid
interest, is convertible, at the option of the Holder, upon surrender
of this Debenture to the Company at any time prior to 4:30 p.m.
(Edmonton time) ("EXPIRY TIME") on the earlier of:
(a) The Maturity Date; or
(b) that date which is 30 days following the delivery of a notice
from the Company that it intends to repay all or any portion
of the Debenture in accordance with the terms of Section III
hereof,
(the "EXPIRY DATE"), into units (the "UNITS") with each Unit being
comprised of one fully paid and non-assessable common share in the
capital of the Company having a par value of $0.0001 per share (the
"COMMON SHARES"), as constituted on the Closing Date (without
adjustment for dividends on Common Shares issuable upon conversion) and
one Common Share purchase warrant (the "WARRANT(S)"), at a conversion
rate (the "CONVERSION RATE") of US$0.90 per Unit.
The Warrants may be exercised at any time pursuant to the terms and
conditions of the Warrant Certificate up to 4:00 p.m. local time in
Edmonton, Alberta on December 31, 2006 as follows:
(a) If exercised on or before December 31, 2005, the holder of
each Warrant shall be entitled to purchase one (1) Common
Share for each Warrant held for US$1.00 per Common Share; and
(b) Thereafter until December 31, 2006, the Holder of each Warrant
shall be entitled to purchase one (1) Common Share for each
Warrant held for US$2.00 per Common Share.
At any time before the Expiry Time on the Expiry Date, the Holder may
convert all or any amount of this Debenture into Units upon providing
to the Company at its head office at 8711 - 50th Avenue, Edmonton,
Alberta T6E 5H4, Attention: Douglas Biles:
(a) This Debenture Certificate;
(b) A completed and executed Subscription Form (in the form
attached hereto as Schedule "A") evidencing the election
(which upon delivery to the Company shall be irrevocable) of
the Holder to convert the Debentures into Units; and
(c) An investor questionnaire (in the form attached hereto as
Schedule "B") or similar documents to the Company
demonstrating the sale of the Common Shares to be purchased is
exempt from the registration and prospectus requirements of
the applicable securities legislation in Canada and the
registration laws of the Act 1933, as amended, and any state
securities laws.
The receipt of the Company of such Debenture Certificate and
accompanying documents shall be the date of conversion of the Debenture
affected hereby. If the Holder is not converting all of the Debenture
represented by any Debenture Certificate, the Holder shall be entitled
to receive a Debenture Certificate representing the remainder of the
Debenture which is the difference between the amount of the Debenture
converted and the amount represented by the Debenture Certificate.
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Forthwith upon receiving Debenture Certificates and written instruments
evidencing the desire of the Holder thereof to convert all or a portion
of the Debenture into Units, the Company shall cause to be delivered to
the Holder or mail to the Holder at an address specified by the Holder
in the subscription form attached, or other document acceptable to the
Company, certificates for the appropriate number of Common Shares and
Warrants not exceeding those to which the Holder is entitled to acquire
pursuant to the Debenture so converted.
The Company shall not be required to issue fractional Common Shares and
Warrants upon the conversion of Debentures pursuant to the terms
hereof, nor shall any compensation be made for such fractional Common
Shares and Warrants, if any (except that the principal amount of the
Debenture not so converted will be paid when due). If more than one
Debenture shall be surrendered for conversion at any one time by the
Holder, the number of whole Units issuable upon conversion thereof
shall be computed on the basis of the aggregate principal amount of
such Debentures to be converted.
III. REDEMPTION
Provided that the weighted average trading price of the Company's
Common Shares as traded on the NASD OTC Bulletin Board for the prior
ten (10) trading days was at least $1.35 US per share, this Debenture
may be redeemed by the Company, without penalty, at any time prior to
the Maturity Date, upon 30 days prior written notice (the "REDEMPTION
NOTICE") to the Holder, and the Debenture shall thereafter be
redeemable in whole or in part from time to time at the option of the
Company at a price equal to the principal amount thereof to be redeemed
plus any accrued and unpaid interest on such Debenture (collectively
the "REDEMPTION AMOUNT").
The Redemption Notice shall be given by or on behalf of the Company to
the holder of the Debenture at least 30 days prior to the date (the
"REDEMPTION DATE") fixed for redemption. The Redemption Notice shall
specify, in case of a partial redemption of this Debenture, that part
of the principal amount thereof to be so redeemed and shall specify the
redemption date, the redemption price and places of payment and shall
state that all interest thereon shall cease from and after such
redemption date.
If the Debenture has not been converted either in whole or in part by
the Holder, commencing on the Redemption Date, the Company shall
deliver to the Holder who surrenders this Debenture Certificate which
are subject of the redemption by the Company, the Redemption Amount in
cash, and if the Debenture is being redeemed in part only, a new
Debenture Certificate, to such Holders promptly upon receipt of this
Debenture Certificate.
In case the Holder of this Debenture so called for redemption shall,
within 30 days from the date fixed for redemption fail so to surrender
any of his Debenture or shall not within such time except payment of
the Redemption Amount payable in respect thereof, the Company shall set
aside in trust for such holder such monies. Any monies shall be
deposited in a chartered bank in Canada. Such setting aside shall for
all purposes be deemed a payment to the Holder of the sum so set aside
and to the extent such Debenture shall thereafter not be considered as
outstanding and the Holder shall only have right to receive payment of
the money so paid and deposited upon surrender and delivery up of his
Debenture or Debentures, in which case, he shall be entitled to receipt
of the Redemption Amount only.
If payment of the Redemption Amount of this Debenture which has been
called for by the Company is not made upon due surrender of the such
Debenture, the right to convert such Debenture, shall, in
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addition to all other rights that may then accrue to the Debenture
Holder, revive and continue as if such Debenture had not been called
for redemption.
If the Debenture is converted, in whole or in part, after a Redemption
Notice is issued, the Company undertakes to file a registration
statement in the United States with respect to any Common Shares issued
upon such conversion as soon as reasonably possible thereafter as
determined by the board of directors of the Company.
IV. SECURITY INTEREST
In consideration of the Holder subscribing for the Debenture hereunder,
Flowstar Technologies Inc., ("FLOWSTAR") a wholly owned subsidiary of
the Company, does hereby grant a security interest to the Holder in and
to Flowstar's inventory and receivables. Further, this Debenture shall
rank pari passu with all Debentures issued in the Offering as if all of
the Debentures had been issued and negotiated simultaneously.
Until default of payment in accordance with the terms hereof, Flowstar
shall be at liberty to deal with its inventory and accounts receivable
in the ordinary course of its business. Upon the payment of all of the
principal and interest owing hereunder, Flowstar shall be entitled to
discharge any registered security interest related hereto. For such
purpose, the Holder does hereby irrevocably nominate, constitute and
appoint the Company with full power of substitution as his true and
lawful attorney and agent with full power and authority in his name,
place and stead to make any such filings in connection with the
discharge of any security agreement in relation to this Debenture.
V. ADJUSTMENTS
The number of Common Shares (or other securities) issuable pursuant to
the conversion of this Debenture shall be subject to adjustments in the
event that the Company:
(a) subdivides its outstanding Common Shares;
(b) combines its outstanding Common Shares into a smaller number
of Common Shares; or
(c) issues by reclassification of its Common Shares, other
securities of the Company (including any such reclassification
in connection with a consolidation, merger, amalgamation or
other combination in which the Company is the surviving
corporation).
The number of Common Shares (or other securities) issuable pursuant to
the conversion of this Debenture shall be adjusted so that the Holder
shall be entitled to receive the kind and number of Common Shares or
other securities of the Company which he would have owned or have been
entitled to receive after the happening of any of the events described
above had the Debenture been converted immediately prior to the
happening of such event or any record date with respect thereto. The
adjustments provided for herein are cumulative and shall apply to
successive adjustment events. If any dispute arises between the Company
and the Holder with respect to any adjustments to be made in accordance
with the provisions hereof, such dispute shall be conclusively
determined by the auditors of the Company and such determination shall
be binding upon the Company and the Holder.
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VI. HOLDER NOT A SHAREHOLDER
The holding of this Debenture evidenced by this Debenture Certificate
shall not constitute the Holder a shareholder of the Company or entitle
the Holder to any right or interest in respect thereof, except as
herein provided.
VII. COVENANTS OF THE COMPANY AND FLOWSTAR
Each of the Company and Flowstar hereby represent, warrant, covenant
and agree with the Holder as follows:
(a) That each of the Company and Flowstar are duly incorporated
pursuant to the laws of the jurisdiction of their respective
incorporations and as at the date hereof each is a valid and
subsisting Company with the corporate capacity and power to
own its assets and to carry on its business as presently
carried on.
(b) This Debenture Certificate has been duly executed and
delivered by each of the Company and Flowstar and is a legal,
valid and binding obligation of each the Company and Flowstar.
(d) The Company is duly authorized to create and issue the
Debentures and that the Debentures, when issued, will be valid
and enforceable against the Company and that, subject to the
provisions of this Certificate, the Company will cause the
Common Shares and Warrants from time to time acquired pursuant
to the conversion of the Debenture under this Certificate, and
the certificates representing such Common Shares to be duly
issued and delivered in accordance with this Debenture
Certificate and the terms hereof. At all times prior to the
Expiry Time on the Expiry Date, while any of the Debentures
are outstanding, the Company shall reserve and there shall be
conditionally allotted but unissued out of its authorized
capital a sufficient number of Common Shares for the purpose
of enabling it to satisfy its obligations to issue Common
Shares upon the conversion of all Debentures outstanding
hereunder from time to time. All Common Shares acquired
pursuant to the conversion of the Debentures shall be fully
paid and non-assessable and shall have a par value of
US$0.0001.
(e) That the Company will duly and punctually pay or cause to be
paid to every Debenture holder the principal of and interest
accrued on the Debentures on the dates, at the places, in the
monies and in the manner mentioned herein.
(f) That the Company will do, execute, acknowledge and deliver or
cause to be done, executed, acknowledged or delivered, all
other acts, deeds and assurances in law as the Holder may
reasonably require for the better accomplishing and effecting
the intentions and provisions of this Certificate.
(g) That each of the Company and Flowstar will, subject to the
express provisions hereof, maintain their respective corporate
existences and carry on and conduct and will cause to be
carried on and conducted the respective business in the same
manner as heretofore carried on and conducted, provided,
however, that both the Company and Flowstar or any subsidiary
thereof may cease to operate or may dispose of any business,
premises, property or operation if in the opinion of the
directors or officers of the Company, or Flowstar or any
subsidiary thereof, as the case may be, it would be advisable
and in the best interests of the Company,
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Flowstar or any subsidiary thereof, to do so, and, subject to
the express provisions hereof, it will do or cause to be done,
all things necessary to preserve and keep in full force and
effect its corporate existence, provided, however, that
nothing herein contained shall prevent the amalgamation,
consolidation, merger, sale, winding-up or liquidation of the
Company, Flowstar or any subsidiary thereof or the abandonment
of any rights and franchises of the Company, Flowstar or any
subsidiary thereof if there are reasonable grounds to believe
that the Holder would not be prejudiced by such action and, in
the opinion of the directors or officers of the Company,
Flowstar or any subsidiary of the Company, as the case may, it
would be advisable and in the best interest of the Company,
Flowstar or of such subsidiary of the Company to do so.
(h) Dividends on Common Shares During Conversion Period
If the Company pays a dividend in the ordinary course to
holders of Common Shares prior to the Expiry Time on the
Expiry Date, the Company shall give notice to each Holder of
any such dividend in the ordinary course not less than seven
days prior to the record date therefore, but shall be under no
obligation to pay any such dividend in the ordinary course to
the Holder in respect of any and all Debentures then
outstanding.
(i) Other Covenants of the Company
The Company shall perform all its covenants and carry out all of the acts or
things to be done by it as provided in this Certificate.
VIII. NON-TRANSFERABLE
The Debenture evidenced by this Debenture Certificate may not be
transferred by the registered holder hereof without the prior written
consent of the Company, and then only in compliance with all applicable
securities legislation in Canada and under the Securities Act 1933, as
amended and any applicable state securities laws. Any Common Share
certificate issued pursuant to this Debenture will bear the following
legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED, SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF ONLY (A) TO THE CORPORATION; (B)
PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE U.S. SECURITIES ACT; (C) IN
AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF
REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH ANY
APPLICABLE SECURITIES LAWS; (D) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144 OR (E) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE U.S.
SECURITIES ACT."
"UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS
SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS FOUR (4)
MONTHS AND ONE (1) DAY AFTER THE LATTER OF [(I)THE DISTRIBUTION DATE];
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AND (II) THE DATE THE ISSUER BECAME A REPORTING ISSUER IN THE PROVINCE
OR TERRITORY."
IX. SUBORDINATION OF THE HOLDER
The Holder hereby agrees that it shall subordinate all amounts due and
owing under the Debenture and the security granted in respect thereof
in favour of any bank or lending institution of the Company and/or
Flowstar providing interim or permanent financing to the Company or
Flowstar as required. For such purposes, by accepting this Debenture
Certificate the Holder does hereby irrevocably nominate, constitute and
appoint the Company with full power of substitution as his true and
lawful attorney and agent with full power and authority in his name,
place and stead to execute all agreements and documents and complete
all filings as are required to subordinate the Holders interest
hereunder to such bank or lending institution.
X. REALIZE ON SECURITY
Each Holder shall have the right at all times to be exercised in
its/his own discretion to pursue all remedies available under its/his
respective Holders' security, provided that if any Holder takes any
action or exercises any remedy with respect to its/his security, the
other parties shall take all reasonable steps to enforce their security
and shall cooperate with all Holders in the collective realization and
enforcement of their rights. Prior to commencing any proceeding to
enforce its/his security, a Holder shall provide the other holders of
Debentures with three (3) days notice thereof, provided however, that
if such Holder determines in good faith that any delay would be
prejudicial to it/him, the notice need only be given at the time
enforcement is made. No Holder shall be liable to the other holders of
the Debenture for any accidental omission to provide the notice as
required pursuant to this section.
XI. GENERAL PROVISIONS
(a) In case this Debenture Certificate shall become mutilated or
be lost, stolen or destroyed, the Company may issue and
deliver a new Debenture Certificate upon surrender and
cancellation of the mutilated Debenture Certificate or, in the
case of a lost, stolen or destroyed Debenture Certificate, in
lieu of and in substitution for the same. In case of loss,
theft or destruction, the applicant for a substituted
Debenture Certificate shall furnish to the Company such
evidence of such loss, theft or destruction as shall be
satisfactory to the Company in its discretion and shall also
furnish an indemnity satisfactory to the Company in its
discretion. The applicant shall pay all reasonable expenses
incidental to the issuance of any substituted Debenture
Certificate;
(b) The Holder and Flowstar acknowledge that the Holder shall
register a financing statement in the Province of Alberta
against Flowstar describing the collateral as follows:
(i) "all inventory and accounts receivable of the Debtor, and
any proceeds therefrom."
(b) A Holder may at any time prior to the Maturity Date or the
date of conversion of the Debentures, whichever is earlier,
upon written instructions delivered to the Company, exchange
this Debenture Certificate for other Debenture Certificates of
an equivalent aggregate principal amount. The Holder shall pay
all reasonable expenses incidental to such exchange of
Debenture Certificates;
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(c) The Company shall not be required to deliver Certificates
during the period when the transfer books of the Company are
closed by law and, in the event of a surrender of Debentures
for conversion into Common Shares during such period, the
delivery of Certificates may be postponed for a period not
exceeding 10 days after the date of the reopening of the
transfer books;
(d) The parties hereto and each of them do hereby covenant and
agree to do such things and execute such further documents,
agreements and assurances as may be necessary or advisable
from time to time in order to carry out the terms and
conditions of this Certificate in accordance with their true
intent;
(e) If any term, covenant or condition of this Certificate or the
application thereof to any party or circumstance shall be
invalid or unenforceable to any extent, the remainder of this
Certificate or application of such term, covenant or condition
to a party or circumstance other than those to which it is
held invalid or unenforceable shall not be affected thereby
and each remaining term, covenant or condition of this
Certificate shall be valid and shall be enforceable to the
fullest extent permitted by law;
(f) This Certificate constitutes the entire agreement between the
parties hereto relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or
written, of the parties and there are no general or specific
warranties, representations or other agreements by or among
the parties in connection with the entering into of this
Certificate or the subject matter hereof except as
specifically set forth herein;
(g) This Certificate may be altered or amended in any of its
provisions when any such changes are reduced to writing and
signed by the parties hereto but not otherwise.
XII. NOTICE
Any notice or acceptance required or permitted to be given under the
terms of this Agreement shall be sufficiently given to the party to
whom it is addressed if delivered the party (or if such party is a
company, or to an officer of that company), or, if forwarded by
registered mail, return receipt requested, or, if sent by facsimile
transmission as follows:
To Flowstar at: 8711 - 50th Avenue
Edmonton, AB T6E 5H4
Facsimile: (780)482-7280
Attention: Doug Biles
And to the Holder at: (the address on face page hereof or such
other address as provided by the Holder to
the Company from time to time.)
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And to the Company at: 8711 - 50th Avenue
Edmonton, AB T6E 5H4
Facsimile: (780)482-4280
Attention: Doug Biles
or to such other address or facsimile number as a party may furnish in
writing to the remaining parties from time to time. Any notice
personally delivered before 4:30 p.m. local time at the place of
delivery on a day (hereinafter called a "Business Day") that is not a
Saturday, Sunday or statutory holiday at the place of delivery shall be
deemed to have been received and given on the day of delivery and any
notice personally delivered after 4:30 p.m. local time at the place of
delivery shall be deemed to have been received and given on the next
following Business Day. Any notice mailed as aforesaid shall be deemed
to have been received and given 6 clear days after the day it is
mailed, unless there is a postal strike or other disruption affecting
mail delivery, in which event the notice shall be deemed to have been
received and given when it is actually received. Any notice transmitted
by facsimile before 4:30 p.m. local time on a Business Day at the place
to which it is sent shall be deemed to have been received and given on
the day of transmission and any notice transmitted by facsimile after
4:30 local time at the place to which it is sent shall be deemed to
have been received and given on the next following Business Day.
IN WITNESS WHEREOF the Company has caused this Debenture Certificate to
be signed by its duly authorized officers as of , 2005.
WESCORP ENERGY INC.
Per:
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FLOWSTAR TECHNOLOGIES INC.
Per:
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Debenture Holder Authorized Signature
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