EXHIBIT 4.1-CONVERTIBLE DEBENTURE
DATED: JUNE 19, 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
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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. CCP-1 $2,000,000
HYPERDYNAMICS CORPORATION
SECURED CONVERTIBLE DEBENTURE
DUE: JUNE 19, 2009
This Secured Convertible Debenture (the "Debenture") is issued by
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HYPERDYNAMICS CORPORATION, a Delaware corporation (the "Obligor"), to CORNELL
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CAPITAL PARTNERS, LP (the "Holder"), pursuant to that certain Securities
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Purchase Agreement (the "Securities Purchase Agreement") of even date herewith.
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FOR VALUE RECEIVED, the Obligor 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 June 19, 2009 (the
"Maturity Date") in accordance with the following terms:
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Interest. Interest shall accrue on the outstanding principal balance
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hereof at an annual rate equal to ten percent (10%). 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 will be paid to
the Holder or its assignee (as defined in Section 5) in whose name this
Debenture is registered on the records of the Obligor regarding registration and
transfers of Debentures (the "Debenture Register").
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Monthly Payments. The Obligor shall make monthly scheduled payments
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("Scheduled Payments") on this Debenture and all other debentures issued in
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connection with the Securities Purchase Agreement consisting of a total of
$175,000 of principal plus accrued and unpaid interest, commencing with the
first Scheduled Payment which shall be due and payable on the
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earlier of (a) September 1, 2006 or (b) three days after the date that the
Underlying Shares Registration Statement (as defined in Section 5) is declared
effective and continuing on the first business day of each calendar month
thereafter until paid in full. Nothing contained in this paragraph shall limit
the Holder's conversion rights set forth in Section 3.
All payments in respect of the indebtedness evidenced hereby shall be made
in collected funds, and shall be applied to principal, accrued interest and
charges and expenses owing under or in connection with this Debenture in such
order as the Holder elects, except that payments shall be applied to accrued
interest before principal. Notwithstanding the foregoing, this Debenture shall
become due and immediately payable, including all accrued but unpaid interest,
upon an Event of Default (as defined in Section 2 hereof).
However, If the Holder converts a portion of the principal amount
outstanding under this Debenture or any other debenture issued in connection
with the Securities Purchase Agreement prior to a Scheduled Payment due date,
the Obligor shall be entitled to an off-set of the amount due pursuant to such
Schedule Payment equal to the amount converted (the "Off-Set Amount"). In such
event the Obligor shall still be obligated to make a Scheduled Payment reduced
by the Off-Set Amount as contemplated hereunder, if applicable
Right of Redemption. The Obligor at its option shall have the right to
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redeem a portion or all amounts outstanding under this Debenture prior to the
Maturity Date, which are not otherwise due pursuant to a Scheduled Payment,
provided that the Closing Bid Price of the of the Obligor's Common Stock, as
reported by Bloomberg, LP, is less than the Fixed Conversion Price at the time
of the Redemption Notice. The Obligor shall pay an amount equal to the
principal amount being redeemed plus a redemption premium ("Redemption Premium")
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equal to twenty percent (20%) of the principal amount being redeemed, and
accrued interest, (collectively referred to as the "Redemption Amount"). In
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order to make a redemption, the Obligor shall first provide written notice to
the Holder of its intention to make a redemption (the "Redemption Notice")
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setting forth the amount of principal it desires to redeem. After receipt of
the Redemption Notice the Holder shall have three (3) business days to elect to
convert all or any portion of this Debenture, subject to the limitations set
forth in Section 3(b)(i). Upon the expiration of this three (3) business day
period, the Obligor shall deliver to the Holder the Redemption Amount with
respect to the principal amount redeemed after giving effect to conversions
effected during the three (3) business day period.
Security Agreements. This Debenture is secured by a Security Agreement
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dated June 19, 2006 between the Holder and Trendsetters Production Company (the
"Security Agreement") and a Subsidiary Security Agreement dated June 19, 2006
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among the Holder and certain subsidiaries of the Company (the "Subsidiary
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Security Agreement").
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This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
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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.
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Section 2. Events of Default.
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(a) An "Event of Default", wherever used herein, means any one of the
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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
(whether on a Scheduled Payment due date, a Conversion Date or the Maturity Date
or by acceleration or otherwise), which is not cured within three (3) business
days of notice of such breach;
(ii) The Obligor or any material subsidiary of the Obligor shall
commence, or there shall be commenced against the Obligor or any material
subsidiary of the Obligor under any applicable bankruptcy or insolvency laws as
now or hereafter in effect or any successor thereto, or the Obligor or any
material subsidiary of the Obligor 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 Obligor or any material subsidiary of the
Obligor or there is commenced against the Obligor or any material subsidiary of
the Obligor any such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 61 days; or the Obligor or any material subsidiary
of the Obligor is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; or the Obligor or
any material subsidiary of the Obligor 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 sixty
one (61) days; or the Obligor or any material subsidiary of the Obligor makes a
general assignment for the benefit of creditors; or the Obligor or any material
subsidiary of the Obligor 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
Obligor or any material subsidiary of the Obligor shall call a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring of
its debts; or the Obligor or any material subsidiary of the Obligor 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 Obligor or any material subsidiary of the Obligor for the purpose of
effecting any of the foregoing. For the purposes of this Section 2(a)(ii) the
term "material subsidiary" shall mean any subsidiary with total assets in excess
of $100,000;
(iii) The Obligor 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 Obligor in an amount exceeding $500,000, whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable, except those being
contested in good faith;
(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
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("OTC") (each, a "Subsequent Market") and shall not again be quoted or listed
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for trading on any Subsequent Market within five (5) Trading Days of such
delisting;
(v) The Obligor shall fail to file the Underlying Shares
Registration Statement (as defined in Section 5) with the Commission (as defined
in Section 5) within the time periods set forth in the Investor Registration
Rights Agreement ("Registration Rights Agreement") of even date herewith between
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the Obligor and the Holder, or the Underlying Shares Registration Statement
shall not have been declared effective by the Commission within forty five (45)
days of the Scheduled Effective Deadline as set forth in the Registration Rights
Agreement, provided however, that a default shall not occur if a delay in the
effectiveness is the result of the SEC commenting that a specific part of the
Transaction Document is adverse to the SEC ordering effectiveness and the
Obligor has used its best efforts to respond to, and resolve such comment, which
shall be determined in the reasonable discretion of the Holder;
(vi) If the effectiveness of the Underlying Shares Registration
Statement lapses for any reason or the Holder shall not be permitted to resell
the shares of Common Stock underlying this Debenture under the Underlying Shares
Registration Statement, in either case, for more than ten (10) consecutive
Trading Days or an aggregate of thirty (30) Trading Days (which need not be
consecutive Trading Days);
(vii) The Obligor 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 Obligor 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 this Debenture in accordance with the terms hereof
and such breach is not cured within three (3) days of notice of such breach;
(viii) The Obligor shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within five (5) days
after notice is claimed delivered hereunder;
(x) The Obligor shall fail to observe or perform in any material
respect 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 5) which is not cured within twenty (20)
business days after the Obligor is provided with written notice thereof from the
Holder. This Section2 (x) shall be the notice and cure period in relation to
references made to such in other Transaction Document or related transactions.
(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 Obligor.
Furthermore, if an Event of Default occurs and remains uncured, the Holder shall
have the rights set forth in Section 3(c)(xii) hereof. In addition to any other
remedies, the Holder shall have the right (but not the obligation) to convert
this Debenture at any time after (x) an Event of Default or (y) the Maturity
Date at the Conversion Price then in-effect (including, without limitation, the
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Default Conversion Price). The Holder need not provide and the Obligor 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
Xxxxxx 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.
Section 3. Conversion.
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(a) Conversion at Option of Holder.
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(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 5) (subject to the
limitations on conversion set forth in Section 3(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 3(c)(i)). The
Obligor 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 and subject to notice and cure: (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 Subsequent Market; or (3) the Obligor
has failed to timely satisfy its conversion, then, at the option of the Holder,
the Obligor, in lieu of delivering shares of Common Stock pursuant to Section
3(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 plus any interest due therein divided by the
Conversion Price, and multiplied by the highest closing price of the stock from
date of the conversion notice till the date that such cash payment is made.
Further, if the Obligor shall not have delivered any cash due in respect of
conversion of this Debenture or as payment of interest thereon by the fifth
(5th) Trading Day after the Conversion Date, the Holder may, by notice to the
Obligor, require the Obligor to issue shares of Common Stock pursuant to Section
3(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
Obligor 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
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"Conversion Date." Unless the Holder is converting the entire principal amount
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outstanding under this Debenture, the Holder is not
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required to physically surrender this Debenture to the Obligor 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 Obligor 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.
(b) Certain Conversion Restrictions.
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(i) A Holder may not convert this 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
4.99% of the then issued and outstanding shares of Common Stock, including
shares issuable upon conversion of, and payment of interest on, this Debenture
held by such Holder after application of this Section. Since the Holder will
not be obligated to report to the Obligor 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 Obligor 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 3(a)(i) 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 Obligor. Other Holders shall be unaffected by any
such waiver.
(ii) The Total Transaction Shares shall not be greater than
9,215,406 shares (which does not exceed 19.99% of the 46,308,573 outstanding
shares of Common Stock as of the date of the Securities Purchase Agreement),
until the Obligor's shareholders approve (without the vote of any shares
acquired in this transaction and related transactions) the issuance of the Total
Transaction Shares. "Total Transaction Shares" shall mean, in the aggregate,
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any shares of Common Stock issued under (a) this Debenture to the Holder, or its
affiliates, and transferees, subsequent transferees, or any other debenture
issued pursuant to the Securities Purchase Agreement (b) the Warrant Shares (as
defined in the Securities Purchase Agreement), and (c) any shares of Common
Stock issued as Liquidated Damages (as defined in the Registration Rights
Agreement).
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(c) Conversion Price and Adjustments to Conversion Price.
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(i) The conversion price (the "Fixed Conversion Price" or
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"Conversion Price") in effect on any Conversion Date shall be equal to $2.00,
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subject to adjustment as provided herein.
(ii) If the Obligor, 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 Obligor, then the Fixed
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. However, dividends
paid for Preferred Stock currently outstanding shall be excluded from any and
all adjustments in this Section 3(c).
(iii) If the Obligor, 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 Fixed Conversion Price, then
the Fixed 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 Fixed 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 Fixed Conversion Price pursuant to this
Section, if any such right, option or warrant shall expire and shall not have
been exercised, the Fixed 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 Fixed Conversion Price made pursuant to the provisions of
this Section after the issuance of such rights or warrants) had the adjustment
of the Fixed 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.
(iv) If the Obligor 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
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("Common Stock Equivalents") entitling any Person to acquire shares of Common
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Stock, at a price per share less than the Fixed 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 Fixed Conversion Price, such issuance shall be deemed to have occurred
for less than the Fixed Conversion Price), then, at the sole option of the
Holder, the Fixed 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 Obligor
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 and
exercises of options to purchase shares of Common Stock issued for compensatory
purposes pursuant to any of the Obligor's stock option or stock purchase plans.
However, equity line puts in connection with the Dutchess Private Equities Fund
II ,LP equity line of credit are excluded from this Section 3(c). (v) If the
Obligor, 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 Fixed Conversion Price at which this
Debenture shall thereafter be convertible shall be determined by multiplying the
Fixed 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 Obligor
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 Obligor to prepay
the outstanding principal amount of this Debenture, plus all interest and other
amounts due and payable thereon.
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The entire prepayment price shall be paid in cash. This provision shall
similarly apply to successive reclassifications or share exchanges.
(vii) The Obligor 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 Obligor of a
Holder's notice that such minimum number of Underlying Shares is not so
reserved, the Obligor shall promptly reserve a sufficient number of shares of
Common Stock to comply with such requirement.
(viii) All calculations under this Section 3 shall be rounded up
to the nearest $0.001 or whole share.
(ix) Whenever the Conversion Price is adjusted pursuant to Section
3 hereof, the Obligor 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.
(x) If (A) the Obligor shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Obligor shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Obligor 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 Obligor
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Obligor is a party, any sale or
transfer of all or substantially all of the assets of the Obligor, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Obligor shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Obligor; then, in each case, the Obligor 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 Obligor, 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.
(xi) In case of any (1) merger or consolidation of the Obligor or
any subsidiary of the Obligor with or into another Person, or (2) sale by the
Obligor or any subsidiary of the Obligor of more than one-half of the assets of
the Obligor in one or a series of related
9
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.
(xii) If an Event of Default occurs (after the expiration of any
applicable cure period as set forth in Section 2(a)hereof) and remains uncured
for ten (10) days after the Holder sends notice of such Event of Default to the
Obligor, the Holder may elect to switch the Fixed Conversion Price to the
Default Conversion Price. The "Default Conversion Price" shall mean the lesser
------------------------
of (a) the Fixed Conversion Price, or (b) seventy percent (70%) of the lowest
Closing Bid Price of the Common Stock as quoted by Bloomberg, LP during the
fifteen (15) trading days immediately preceding the Conversion Date. Upon the
Obligor's receipt of written notice by the Holder of such an Event of Default
and the Holder's election to exercise the remedy to switch the conversion price
to the Default Conversion Price, the Company shall file a registration statement
within forty five (45) days of notice of such Event of Default to register an
amount of stock equal to two times the remaining amount outstanding under this
Debenture and all other debentures issued pursuant to the Securities Purchase
Agreement and use its best efforts to ensure that such registration statement is
declared effective within ninety days of filing thereof. Further, the Obligor
agrees that the date that full consideration was paid for this Debenture shall
remain the Original Issue Date. The Company shall provide an opinion letter
from counsel within two (2) days of written request by the Holder stating that
the date full consideration was paid for this Debenture is the Original Issue
Date. In the event that counsel to the Company fails or refuses to render an
opinion as required to issue the conversion shares in accordance with this
paragraph (either with or without restrictive legends, as applicable), then the
Company irrevocably and expressly authorizes counsel to the Holder to render
such opinion and shall authorize the Obligor's transfer agent to accept and be
entitled to rely on such opinion for the purposes of issuing the conversion
shares.
10
(d) Other Provisions.
-----------------
(i) The Obligor 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 Obligor as to reservation of such shares set
forth in this Debenture) be issuable (taking into account the adjustments and
restrictions of Sections 2(b) and 3(c)) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder. The
Obligor 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.
(ii) Upon a conversion hereunder the Obligor 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
Obligor 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.
(iii) 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 Obligor
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 Obligor 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 Obligor the amount of such tax or shall have
established to the satisfaction of the Obligor that such tax has been paid.
(iv) 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
Obligor '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.
(v) In addition to any other rights available to the Holder, if
the Obligor fails to deliver to the Holder such certificate or certificates
pursuant to Section 3(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
11
such conversion (a "Buy-In"), then the Obligor 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 Obligor timely complied with its delivery requirements under
Section 3(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 Obligor shall be required to pay
the Holder $1,000. The Holder shall provide the Obligor written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Section 4. 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: Hyperdynamics Corporation
Xxx Xxxxx Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxx Xxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxx Xxxxxxx, Esq.
000 Xxxxx Xxxx #00
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Holder: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
12
With a copy to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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 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.
"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 Obligor,
by contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Obligor (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 Obligor 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 Obligor or any subsidiary (other than any subsidiary with less
than $100,000 in assets) of the Obligor in one or a series of related
transactions with or into another entity, or (d) the execution by the Obligor of
an agreement to which the Obligor 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 the OTC or on the exchange which the Common Stock is then
listed as quoted by Bloomberg, LP.
"Commission" means the Securities and Exchange Commission.
----------
13
"Common Stock" means the common stock, par value $.001, of the Obligor 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
----------------
Obligor 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.
------------
"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 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.
"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 Subsidiary Security
Agreement, the Irrevocable Transfer Agent Instructions, and the Registration
Rights Agreement and any related transactions.
"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 6. Except as expressly provided herein, no provision of this
----------
Debenture shall alter or impair the obligations of the Obligor, 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
Obligor. 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 Obligor 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.
14
Section 7. This Debenture shall not entitle the Holder to any of the
----------
rights of a stockholder of the Obligor, 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
Obligor, 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 Obligor 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 Obligor.
Section 9. No indebtedness of the Obligor is senior to this Debenture
----------
in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise.
Section 10. 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 Xxxxxx 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 11. If the Obligor fails to strictly comply with the terms of
-----------
this Debenture, then the Obligor 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 12. 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 13. 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
15
hereunder shall automatically be lowered to equal the maximum permitted rate of
interest. The Obligor 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 Obligor 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 Obligor (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 14. Whenever any payment or other obligation, notice or cure
-----------
hereunder shall be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.
Section 15. 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]
16
IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
HYPERDYNAMICS CORPORATION
By:/s/ Xxxx X. Xxxxx
Name: Xxxx X. Xxxxx
Title: President and Chief Executive Officer
17
EXHIBIT "A"
-----------
NOTICE OF CONVERSION
--------------------
(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 the above Debenture into Shares of Common Stock of
Hyperdynamics Corporation, according to the conditions stated therein, as of the
Conversion Date written below.
CONVERSION DATE:
---------------------------------------------
APPLICABLE CONVERSION PRICE:
---------------------------------------------
SIGNATURE:
---------------------------------------------
NAME:
---------------------------------------------
ADDRESS:
---------------------------------------------
AMOUNT TO BE CONVERTED: $
--------------------------------------------
AMOUNT OF DEBENTURE
UNCONVERTED: $
--------------------------------------------
CONVERSION PRICE PER SHARE: $
--------------------------------------------
NUMBER OF SHARES OF COMMON
STOCK TO BE ISSUED:
---------------------------------------------
PLEASE ISSUE THE SHARES OF
COMMON STOCK IN THE FOLLOWING
NAME AND TO THE FOLLOWING
ADDRESS:
---------------------------------------------
ISSUE TO:
---------------------------------------------
AUTHORIZED SIGNATURE:
---------------------------------------------
NAME:
---------------------------------------------
TITLE:
---------------------------------------------
PHONE NUMBER:
---------------------------------------------
BROKER DTC PARTICIPANT CODE:
---------------------------------------------
ACCOUNT NUMBER:
---------------------------------------------