EXHIBIT 10.11
DATED: SEPTEMBER ___, 2006
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.
No. RENG-1-1 $2,000,000
RADIAL ENERGY INC.
SECURED CONVERTIBLE DEBENTURE
DUE: SEPTEMBER ____, 2009
This Secured Convertible Debenture (the "DEBENTURE") is issued by
RADIAL ENERGY INC., a Nevada corporation (the "COMPANY"), to CORNELL CAPITAL
PARTNERS, LP (the "HOLDER"), pursuant to that certain Securities Purchase
Agreement (the "SECURITIES PURCHASE AGREEMENT") dated September___, 2006.
FOR VALUE RECEIVED, the Company hereby promises to pay to the Holder or
its successors and assigns the principal sum of Two Million Dollars ($2,000,000)
together with accrued but unpaid interest on or before September ___, 2009 (the
"MATURITY DATE") in accordance with the following terms:
SECTION 1. GENERAL TERMS
(a) INTEREST. Interest shall accrue on the outstanding principal
balance hereof at an annual rate equal to seven percent (7%). Interest shall be
calculated on the basis of a 365-day year and the actual number of days elapsed,
to the extent permitted by applicable law. Interest hereunder shall be paid on
the Maturity Date (or sooner as provided herein) to the Holder or its assignee
in whose name this Debenture is registered on the records of the Company
regarding registration and transfers of Debentures in cash or in Common Stock
(valued at the Closing Bid Price on the Trading Day immediately prior to the
date paid) at the option of the Company.
(b) SECURITY. This Debenture is secured by a Pledge and Escrow
Agreement (the "PLEDGE AGREEMENT") dated September ___, 2006 among the Company,
and the Holder, the Escrow Agent, a Pledge and Escrow Agreement (the
"_______PLEDGE AGREEMENT") dated September ___, 2006 among __________, and the
Holder, the Escrow Agent, and a Security Agreement (the "SECURITY AGREEMENT")
dated September ___, 2006 between the Company, its wholly owned subsidiaries of
the Company and the Holder.
SECTION 2. 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
other charges in respect of this Debenture, free of any claim of subordination,
as and when the same shall become due and payable whether upon a an Optional
Redemption (as defined in SECTION 3(a)), the Maturity Date or by acceleration or
otherwise;
(ii) The Company or any subsidiary of the Company shall commence,
or there shall be commenced against the Company or any subsidiary of the Company
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company or any subsidiary of 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 any subsidiary of the Company or there is commenced against the
Company or any subsidiary of the Company any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of ninety (90) days; or
the Company or any subsidiary of the Company is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company or any subsidiary of the Company suffers
any appointment of any custodian, private or court appointed receiver or the
like for it or any substantial part of its property which continues undischarged
or unstayed for a period of ninety (90) days; or the Company or any subsidiary
of the Company makes a general assignment for the benefit of creditors; or the
Company or any subsidiary of 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 or any subsidiary of 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 or any subsidiary of 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 or any subsidiary of the Company for the purpose of
effecting any of the foregoing;
(iii) The Company or any subsidiary of the Company shall default in
any of its obligations under any other debenture or 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 or any subsidiary of the Company
in an amount exceeding $100,000, 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;
(iv) The Common Stock shall cease to be quoted for trading or
listing for trading on any of (a) the American Stock Exchange, (b) New York
Stock Exchange, (c) the Nasdaq National Market, (d) the Nasdaq Capital Market,
or (e) the Nasdaq OTC Bulletin Board ("OTC") (each, a "PRIMARY MARKET") and
shall not again be quoted or listed for trading on any Primary Market within
five (5) Trading Days of such delisting;
(v) The Company or any subsidiary of the Company shall be a party
to any Change of Control Transaction (as defined in SECTION 6);
(vi) The Company shall fail to file the Underlying Shares
Registration Statement (as defined in SECTION 6) with the Commission (as defined
in SECTION 6), or the Underlying Shares Registration Statement shall not have
been declared effective by the Commission, in each case within the time periods
set forth in the Investor Registration Rights Agreement ("REGISTRATION RIGHTS
AGREEMENT") dated September ___, 2006 between the Company and the Holder;
(vii) If while the Underlying Shares Registration Statement is
required to be maintained effective pursuant to the terms of the Investor
Registration Rights Agreement, the effectiveness of the Underlying Shares
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the Holder for sale of all of the
Holder's Registrable Securities (as defined in the Investor Registration Rights
Agreement) in accordance with the terms of the Investor Registration Rights
Agreement, and such lapse or unavailability continues for a period of more than
ten (10) consecutive Trading Days (other than days during an Allowable Grace
Period (as defined in the Registration Rights Agreement)or for more than an
aggregate of twenty (20) days (other than days during an Allowable Grace Period
(as defined in the Registration Rights Agreement) in any 365-day period (which
need not be consecutive);
(viii) The Company shall fail for any reason to deliver Common
Stock certificates to a Holder prior to the fifth (5th) Trading Day after a
Conversion Date, 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, in accordance with the terms hereof;
(ix) The Company shall fail for any reason to deliver the payment
in cash pursuant to a Buy-In (as defined herein) within three (3) days after
notice is claimed delivered hereunder;
(x) The Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Debenture (except as may be covered by SECTION
2(A)(I) THROUGH 2(A)(IX) hereof) or any Transaction Document (as defined in
SECTION 6) which is not cured with in the time prescribed, or an Event of
Default under any other debenture issued to the Holder in connection with the
Securities Purchase Agreement shall occur;
(b) During the time that any portion of this Debenture is outstanding,
if any Event of Default has occurred, the full principal amount of this
Debenture, together with interest and other amounts owing in respect thereof, to
the date of acceleration shall become at the Holder's election, immediately due
and payable in cash, PROVIDED HOWEVER, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Company.
Furthermore, in addition to any other remedies, the Holder shall have the right
(but not the obligation) to convert this Debenture at any time (x) after an
Event of Default or (y) on or before the Maturity Date at the Conversion Price
then in-effect. 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 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. Upon an
Event of Default, notwithstanding any other provision of this Debenture or any
Transaction Document, the Holder shall have no obligation to comply with or
adhere to any limitations, if any, on the conversion of this Debenture or the
sale of the Underlying Shares except as may be provided under applicable
securities laws.
SECTION 3. REDEMPTIONS.
(a) COMPANY'S OPTIONAL CASH REDEMPTION. The Company at its option shall
have the right to redeem ("OPTIONAL Redemption") from time to time a portion or
all amounts outstanding under this Debenture prior to the Maturity Date provided
that as of the date of the Holder's receipt of a Redemption Notice (as defined
herein) the Underlying Share Registration Statement is effective, and no Event
of Default has occurred by (i) paying the Holder an amount equal to the
principal amount being redeemed plus the applicable redemption premium as set
forth below (the "REDEMPTION PREMIUM"), and accrued interest, (collectively
referred to as the "REDEMPTION AMOUNT"), and (ii) providing the Holder with the
applicable period of advanced written notice of its intention to make a
redemption (the "REDEMPTION NOTICE PERIOD") as set forth below. If the Closing
Bid Price of the of the Common Stock, as reported by Bloomberg, LP, is less than
the Fixed Conversion Price on the date the Holder receives the Company's notice
of its intention to make a redemption (the "REDEMPTION NOTICE") then the
applicable Redemption Premium shall be twenty percent (20%) of the principal
amount being redeemed and the Redemption Notice Period shall be three (3)
Trading Days. If the Closing Bid Price of the of the Common Stock, as reported
by Bloomberg, LP, is greater than or equal to the Fixed Conversion Price on the
date the Holder receives a Redemption Notice then the applicable Redemption
Premium shall be thirty percent (30%) of the principal amount being redeemed and
the Redemption Notice Period shall be forty five (45) days. After receipt of a
Redemption Notice and during the applicable Redemption Notice Period, the Holder
shall have the absolute right, in its sole discretion, to convert all or any
portion of this Debenture, subject to the limitations set forth in SECTION 4(B).
Upon the expiration of the Redemption Notice Period, the Company shall pay to
the Holder in immediately available funds the Redemption Amount after giving
effect to conversions effected during the Redemption Notice Period.
SECTION 4. CONVERSION.
(a) CONVERSION AT OPTION OF HOLDER.
(i) 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 (as defined in SECTION 6) (subject to the
limitations on conversion set forth in SECTION 4(B) hereof). The number of
shares of Common Stock issuable upon a conversion hereunder equals the quotient
obtained by dividing (x) the outstanding amount of this Debenture to be
converted by (y) the Conversion Price (as defined in SECTION 4(C)(I)). The
Company shall deliver Common Stock certificates to the Holder prior to the Fifth
(5th) Trading Day after a Conversion Date.
(ii) Notwithstanding anything to the contrary contained
herein, if on any Conversion Date: (1) the number of shares of Common Stock at
the time authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay principal and interest hereunder in
shares of Common Stock; (2) the Common Stock is not listed or quoted for trading
on the OTC or on a Primary Market; or (3) the Company has failed to timely
satisfy a conversion; then, at the option of the Holder, the Company, in lieu of
delivering shares of Common Stock pursuant to SECTION 4(A)(I), shall deliver,
within three (3) Trading Days of each applicable Conversion Date, an amount in
cash equal to the product of the outstanding principal amount to be converted
divided by the applicable Conversion Price, and multiplied by the highest
Closing Bid Price of the stock from date of the conversion notice till the date
that such cash payment is made.
Further, if the Company shall not have delivered any cash due in
respect of conversion of this Debenture 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) The Holder shall effect conversions by delivering to the
Company a completed notice in the form attached hereto as Exhibit A (a
"CONVERSION NOTICE"). 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.
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. 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, verified by an independent third party, shall be controlling and
determinative in the absence of manifest error.
(b) CERTAIN CONVERSION RESTRICTIONS.
(i) The Company shall not effect any conversions of this
Debenture and the Holder shall not have the right to convert any portion of this
Debenture or receive shares of Common Stock as payment of interest hereunder to
the extent that after giving effect to such such conversion or receipt of such
interest payment, the Holder, together with any affiliate thereof, would
beneficially own (as determined in accordance with Section 13(d) of the Exchange
Act and the rules promulgated thereunder) in excess of 4.99% of the number of
shares of Common Stock outstanding immediately after giving effect to such
conversion or receipt of shares as payment of interest. 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 4.99%
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 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 this 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 this 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(A)(I) and, any principal amount tendered
for conversion in excess of the permitted amount hereunder shall remain
outstanding under this Debenture. 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.
(c) CONVERSION PRICE AND ADJUSTMENTS TO CONVERSION PRICE.
(i) The conversion price in effect on any Conversion Date
shall be equal to the lesser of (a) [insert 120% of VWAP on the trading day
immediately prior to the closing date] (the "FIXED CONVERSION PRICE") or (b)
ninety percent (90%) of the lowest daily Volume Weighted Average Price during
the fifteen (15) Trading Days immediately preceding the Conversion Date (the
"MARKET CONVERSION PRICE"). The Fixed Conversion Price and the Market Conversion
Price are collectively referred to as the "CONVERSION PRICE." The Conversion
Price may be adjusted pursuant to the other terms of this Debenture.
(ii) If the Company, at any time while this 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 this Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Conversion Price, then the
Conversion Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock (excluding treasury shares, if
any) 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 (excluding treasury shares, if any) 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 would purchase
at the Conversion Price. 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. However, upon the expiration of any such right, option or
warrant to purchase shares of the Common Stock the issuance of which resulted in
an adjustment in the Conversion Price pursuant to this Section, if any such
right, option or warrant shall expire and shall not have been exercised, the
Conversion Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Conversion Price
made pursuant to the provisions of this Section after the issuance of such
rights or warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights, options or warrants been made on the basis of offering
for subscription or purchase only that number of shares of the Common Stock
actually purchased upon the exercise of such rights, options or warrants
actually exercised. No adjustment under this Section shall be made as a result
of issuances of Excluded Securities.
(iv) If the Company or any subsidiary thereof, as applicable,
at any time while this Debenture is outstanding, shall issue shares of Common
Stock or rights, warrants, options or other securities or debt that are
convertible into or exchangeable for shares of Common Stock ("COMMON STOCK
EQUIVALENTS") entitling any Person to acquire shares of Common Stock, at a price
per share less than the Conversion Price (if the holder of the Common Stock or
Common Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights per share
which is issued in connection with such issuance, be entitled to receive shares
of Common Stock at a price per share which is less than the Conversion Price,
such issuance shall be deemed to have occurred for less than the Conversion
Price), then, at the sole option of the Holder, the Conversion Price shall be
adjusted to mirror the conversion, exchange or purchase price for such Common
Stock or Common Stock Equivalents (including any reset provisions thereof) at
issue. Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. The Company shall notify the Holder in writing, no later
than one (1) business day following the issuance of any Common Stock or Common
Stock Equivalent subject to this Section, indicating therein the applicable
issuance price, or of applicable reset price, exchange price, conversion price
and other pricing terms. No adjustment under this Section shall be made as a
result of issuances of Excluded Securities.
(v) If the Company, at any time while this 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 this 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 Closing Bid
Price determined as of the record date mentioned above, and of which the
numerator shall be such Closing Bid Price 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.
(vi) 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, at its option, (A) 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 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 this 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, or (B) require the
Company to prepay the outstanding principal amount of this Debenture, plus all
interest and other amounts due and payable thereon. The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vii) Whenever the Conversion Price is adjusted pursuant to
SECTION 4 hereof, 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; or (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 address as it shall appear upon the
stock books of the Company, at least twenty (20) 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 this Debenture during the
20-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
or any subsidiary of the Company with or into another Person, or (2) sale by the
Company or any subsidiary of the Company of more than one-half of the assets of
the Company in one or a series of related transactions, a Holder shall have the
right to (A) exercise any rights under SECTION 2(B), (B) convert the aggregate
amount of this 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 this Debenture could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled, or (C) 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 this 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 this Debenture
set forth herein and the agreements pursuant to which this Debentures were
issued. In the case of clause (C), 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) OTHER PROVISIONS.
(i) The Company shall at all times reserve and keep available
out of its authorized Common Stock the full number of shares of Common Stock
issuable upon conversion of all outstanding amounts under this Debenture; and
within three (3) 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 promptly reserve a sufficient number of shares of
Common Stock to comply with such requirement.
(ii) All calculations under this SECTION 4 shall be rounded
up to the nearest $0.0001 or whole share.
(iiii) 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 and payment
of interest on this 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 forth in this Debenture or in the Transaction Documents) be issuable
(taking into account the adjustments and restrictions set forth herein) upon the
conversion of the outstanding principal amount of this 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 Underlying Shares Registration
Statement has been declared effective under the Securities Act, registered for
public sale in accordance with such Underlying Shares Registration Statement.
(iv) 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 Closing Bid Price 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.
(v) The issuance of certificates for shares of the Common
Stock on conversion of this 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.
(vi) Nothing herein shall limit a Holder's right to pursue
actual damages or declare an Event of Default pursuant to SECTION 2 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 or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief, in each case without the need to post a bond or provide other
security. 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.
(vii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such certificate or certificates
pursuant to SECTION 4(A)(I) 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 under
SECTION 4(A)(I). 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 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.
SECTION 5. NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given under the terms hereof must be
in writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Trading Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company, to: Radial Energy Inc.
Attention:
Telephone:
Facsimile:
With a copy to:
Telephone:
Facsimile:
If to the Holder: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attention: Mark Angelo
Telephone: (201) 985-8300
With a copy to: Troy Rillo, Esq.
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
SECTION 6. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"APPROVED STOCK PLAN" means a stock option plan that has been approved
by the Board of Directors of the Company prior to the date of the Securities
Purchase Agreement, pursuant to which the Company's securities may be issued
only to any employee, officer or director for services provided to the Company.
"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.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of (a) 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 fifty percent
(50%) of the voting securities of the Company (except that the acquisition of
voting securities by the Holder shall not constitute a Change of Control
Transaction for purposes hereof), (b) a replacement at one time or over time of
more than one-half of the members of the board of directors of the Company 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), (c) the merger, consolidation or sale of
fifty percent (50%) or more of the assets of the Company or any subsidiary of
the Company in one or a series of related transactions with or into another
entity, or (d) 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 (a), (b) or (c).
"CLOSING BID PRICE" means the price per share in the last reported
trade of the Common Stock on a Primary Market or on the exchange which the
Common Stock is then listed as quoted by Bloomberg, LP.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $.001, of the Company
and stock of any other class into which such shares may hereafter be changed or
reclassified.
"CONVERSION DATE" shall mean the date upon which the Holder gives the
Company notice of their intention to effectuate a conversion of this Debenture
into shares of the Company's Common Stock as outlined herein.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED SECURITIES" means, (a) shares issued or deemed to have been
issued by the Company pursuant to an Approved Stock Plan (b) shares of Common
Stock issued or deemed to be issued by the Company upon the conversion, exchange
or exercise of any right, option, obligation or security outstanding on the date
prior to date of the Securities Purchase Agreement, provided that the terms of
such right, option, obligation or security are not amended or otherwise modified
on or after the date of the Securities Purchase Agreement, and provided that the
conversion price, exchange price, exercise price or other purchase price is not
reduced, adjusted or otherwise modified and the number of shares of Common Stock
issued or issuable is not increased (whether by operation of, or in accordance
with, the relevant governing documents or otherwise) on or after the date of the
Securities Purchase Agreement, and (c) the shares of Common Stock issued or
deemed to be issued by the Company upon conversion of this Debenture.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"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 Primary 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.
"TRANSACTION DOCUMENTS" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Security Agreement, the Irrevocable Transfer
Agent Instructions, and the Registration Rights Agreement, the Pledge Agreement,
and the ______ Pledge Agreement.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
SECTION 7. 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, interest and other charges
(if any) 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 this Debenture is
outstanding, the Company shall not and shall cause their subsidiaries not to,
without the consent of the Holder, (i) amend its certificate 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 other than as to
the Underlying Shares to the extent permitted or required under the Transaction
Documents; or (iii) enter into any agreement with respect to any of the
foregoing.
SECTION 8. 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 9. 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 10. Excepted for any Permitted Indebtedness (as defined in the
Security Agreement) no indebtedness of the Company is senior to this Debenture
in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. Without the Holder's consent, the
Company will not and will not permit any of their subsidiaries to, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness 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
there from that is senior in any respect to the obligations of the Company under
this Debenture.
SECTION 11. This Debenture shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect to
conflicts of laws thereof. Each of the parties consents to the jurisdiction of
the Superior Courts of the State of New Jersey sitting in Hudson County, New
Jersey and the U.S. District Court for the District of New Jersey sitting in
Newark, New Jersey in connection with any dispute arising under this Debenture
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on FORUM NON CONVENIENS to the bringing of any
such proceeding in such jurisdictions.
SECTION 12. If the Company fails to strictly comply with the material
terms of this Debenture, then the Company shall reimburse the Holder promptly
for all fees, costs and expenses, including, without limitation, attorneys' fees
and expenses incurred by the Holder in any action in connection with this
Debenture, including, without limitation, those incurred: (i) during any
workout, attempted workout, and/or in connection with the rendering of legal
advice as to the Holder's rights, remedies and obligations, (ii) collecting any
sums which become due to the Holder, (iii) defending or prosecuting any
proceeding or any counterclaim to any proceeding or appeal; or (iv) the
protection, preservation or enforcement of any rights or remedies of the Holder.
SECTION 13. Any waiver by 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 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 14. 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 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.
SECTION 15. 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 16. 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 17. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
[REMAINDER OF PAGE INTENTIONLLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
COMPANY:
RADIAL ENERGY INC.
By:_________________________________________
Name:
Title:
EXHIBIT A
CONVERSION NOTICE
(TO BE EXECUTED BY THE HOLDER IN ORDER TO CONVERT THE DEBENTURE)
TO:
The undersigned hereby irrevocably elects to convert $_________________
of the principal amount of Debenture No. RENG-1-1 into Shares of Common Stock of
RADIAL ENERGY INC., according to the conditions stated therein, as of the
Conversion Date written below.
CONVERSION DATE: _________________________________________________
AMOUNT TO BE CONVERTED: $________________________________________________
CONVERSION PRICE: $________________________________________________
NUMBER OF SHARES OF COMMON
STOCK TO BE ISSUED: _________________________________________________
AMOUNT OF DEBENTURE
UNCONVERTED: $________________________________________________
PLEASE ISSUE THE SHARES OF COMMON STOCK IN THE FOLLOWING NAME AND TO THE
FOLLOWING ADDRESS: ISSUE TO:
AUTHORIZED SIGNATURE: _________________________________________________
NAME: _________________________________________________
TITLE: _________________________________________________
BROKER DTC PARTICIPANT CODE:
ACCOUNT NUMBER: