THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITY AS PERMITTED BY
THE SECURITIES Purchase AGREEMENT PURSUANT TO WHICH THE SECURITIES WERE ISSUED.
Original Issue Date: October 26, 2005
No. 1 $2,000,000
12% SENIOR SECURED CONVERTIBLE DEBENTURE
This 12% Senior Secured Convertible Debenture (this "Debenture") is a
duly authorized and issued 12% Senior Secured Convertible Debenture of MAVERICK
OIL AND GAS, INC., a Nevada corporation, having its principal place of business
located at 000 Xxxx Xxx Xxxx Xxxx., Xxxxx 000, Xxxx Xxxxxxxxxx, XX 00000 (the
"Company"), for the principal amount of $2,000,000, issued in connection with
that certain Purchase Agreement (as defined below) of even date herewith entered
into by and among the Company and the Holder.
FOR VALUE RECEIVED, the Company promises to pay to TRIDENT GROWTH FUND,
L.P., a Delaware limited partnership, having its principal place of business
located at 000 Xxxxxx, Xxxxxxx, Xxxxx 00000, or its registered assigns (the
"Holder"), the principal sum of $2,000,000 on the earlier of (a) October 18,
2006; or (b) the consummation of a Change of Control Transaction (the "Maturity
Date"), and to pay interest to the Holder on the then outstanding principal
amount of this Debenture in accordance with the provisions hereof. This
Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
"Bankruptcy Event" means any of the following events: (a) the
Company or any Subsidiary (as such term is defined in Rule 1.02(s) of
Regulation S-X) thereof commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction relating to the Company or any Subsidiary thereof; (b)
there is commenced against the Company or any Subsidiary thereof any
such case or proceeding that is not dismissed within 60 days after
commencement; (c) the Company or any Subsidiary thereof is adjudicated
insolvent or bankrupt or any order of relief or other order approving
any such case or proceeding is entered; (d) the Company or any
Subsidiary thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property that is not discharged
or stayed within 60 days; (e) the Company or any Subsidiary thereof
makes a general assignment for the benefit of creditors; (f) the
Company or any Subsidiary thereof calls a meeting of its creditors with
a view to arranging a composition, adjustment or restructuring of its
debts; (g) the Company or any Subsidiary thereof, by any act or failure
to act, expressly indicates its consent to, approval of or acquiescence
in any of the foregoing or takes any corporate or other action for the
purpose of effecting any of the foregoing; or (h) an application for
the appointment of a receiver or liquidator for the Company or any of
its material assets.
"Capital Lease" means any lease of property (real, personal or
mixed) which, in accordance with GAAP, should be capitalized on the
lessee's balance sheet or for which the amount of the asset and
liability thereunder as if so capitalized should be disclosed in a note
to such balance sheet.
"Cash Flow" means an amount equal to (i) the Company's
Consolidated EBITDA, minus (ii) the Company's Consolidated non-financed
Capital Expenditures.
"Consolidated EBITDA" means, for any Person for any period:
(i) the consolidated net income of such Person and its
Consolidated Subsidiaries for such period (after Income Taxes),
calculated in accordance with GAAP, but excluding:
any gain arising from the sale of capital assets,
any gain arising from any write-up of assets,
earnings of any other Person, substantially all of the
assets of which have been acquired by such Person or its Consolidated
Subsidiaries in any manner, to the extent that such earnings were
realized by such other Person prior to the date of such acquisition.
earnings of any Person in which the Person or its
Consolidated Subsidiaries has an ownership interest (other than wholly
owned Subsidiaries of such Person ), unless such earnings have
actually been received by the Person or its Consolidated Subsidiaries
in the form of cash distributions,
earnings of any Person to which assets of the Person
or its Consolidated Subsidiaries shall have been sold,
transferred or disposed of, or into which the Person shall have
merged, to the extent that such earnings arise prior to the date of
such transaction,
any gain arising from the acquisition of any
securities of such Person or any of its Consolidated Subsidiaries, and
any extraordinary gain realized by such Person or any
of its Consolidated Subsidiaries during such period.
plus the following, but only in each case to the extent
incurred by the Company and its Consolidated Subsidiaries during such
period and deducted in the calculation above for such period,
all income and franchise taxes,
all Interest Expense,
all depreciation expense, and
all amortization expense.
"Current Assets" means, at any particular time, all amounts
which, in conformity with GAAP, would be included as current assets on
a consolidated balance sheet of the Company and its Subsidiaries;
provided however, there shall be excluded therefrom (a) all prepaid
expenses of every type and nature, (b) all amounts due from partners,
officers, stockholders or other Affiliates, and all loans due from
employees, and (c) all deferred charges.
"Current Liabilities" means, at any particular time, all
amounts (including deferred taxes) which, in conformity with GAAP,
would be included as current liabilities on a consolidated balance
sheet of the Company and its Subsidiaries.
"Current Ratio" means the ratio of Current Assets to Current
Liabilities.
"Dallas Courts" shall have the meaning set forth in Section
7(e).
"Debenture Register" shall have the meaning set forth in
Section 2(b).
"Event of Default" shall have the meaning set forth in
Section 6.
"GAAP" mean generally accepted accounting principles.
"Interest Expense" means, with respect to any Person and for
any period (without duplication), all interest on that Person's Debt,
whether paid in cash or accrued as a liability and payable in cash
during any subsequent period (including, without limitation, the
interest component of Capital Leases), as determined by GAAP.
"Late Fees" shall have the meaning set forth in the second
paragraph to this Debenture.
"Liabilities" mean all liabilities, obligations and
indebtedness of any and every kind and nature (including, without
limitation, lease obligations, accrued interest, charges, expenses,
attorneys' fees and other sums) chargeable to the Company and made to
or for the benefit of the Company, whether arising under this Debenture
or arising under the any of the Transaction Documents, whether
heretofore, now or hereafter owing, arising, due or payable from
Company to the Holder and however evidenced, credited, incurred,
acquired or owing, whether primary, secondary, direct, contingent,
fixed, or otherwise, including obligation of performance.
"Net Income" or "Net Loss" means, with respect to any Person
for any period, the net income or net loss of such Person determined in
accordance with GAAP, after payment of income Taxes but excluding any
extraordinary or non-recurring items.
"Original Issue Date" shall mean the date of the first
issuance of this Debenture regardless of the number of transfers of
this or any portion of this Debenture and regardless of the number of
instruments which may be issued to evidence such Debenture or
Debentures.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of the date hereof, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
Section 2. Interest.
a) Payment of Interest in Cash. The Company shall pay interest,
in cash, to the Holder on the then outstanding principal amount of
this Debenture at the rate of 12% per annum, payable in cash via wire
transfer monthly, in arrears, on the last day of each month for the
period beginning on the Initial Issuance Date and ending on the
Maturity Date or such earlier or later time when this Debenture is
paid or prepaid in full (except that, if any such date is not a
Business Day, then such payment shall be due on the next succeeding
Business Day) (each such date, an "Interest Payment Date"), subject to
the conversion rights of Xxxxxx as stated herein.
b) Interest Calculations. Interest shall be calculated on the
basis of a 360-day year and shall accrue daily commencing on the
Original Issue Date until payment in full of the principal sum,
together with all accrued and unpaid interest and other amounts which
may become due hereunder, has been made. Interest hereunder will be
paid to the Person in whose name this Debenture is registered on the
records of the Company regarding registration and transfers of
Debentures (the "Debenture Register").
c) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 18% per annum (or
such lower maximum amount of interest permitted to be charged under
applicable law) ("Late Fee") which will accrue daily, from the date
such interest is due hereunder through and including the date of
payment.
d) Prepayment. The Company may prepay all or any portion of the
then outstanding principal amount of this Debenture without any
prepayment premium or discount by providing Holder not less than 90
days prior written notice, such outstanding principal balance
remaining subject to Xxxxxx's conversion rights hereunder until the
actual prepayment is made following such notice period.
Section 3. Conversion Right; Adjustments.
The Holder of this Debenture shall have the right, at Holder's
option, at any time on or after of the Original Issuance Date of this
Debenture, to convert all, or, in multiples of $50,000, any part of
this Debenture into such number of fully paid and nonassessable shares
of Common Stock as shall be provided herein. The Holder of this
Debenture may exercise the conversion right by giving written notice (a
"Conversion Notice") to the Company of the exercise of such right and
stating the name or names in which the stock certificate or stock
certificates for the shares of Common Stock are to be issued and the
address to which such certificates shall be delivered. The Conversion
Notice shall be accompanied by this Debenture. The number of shares of
Common Stock that shall be issuable upon conversion of the Debenture
shall equal the then outstanding principal amount of this Debenture
plus all accrued and unpaid interest due and payable on the Debenture
on the Conversion Date (defined below) or a portion thereof (in the
discretion of the Holder) divided by the Conversion Price (as defined
below) in effect on the date the Conversion Notice is given. Conversion
shall be deemed to have been effected on the date the Conversion Notice
is delivered to the Company (each, a "Conversion Date"). Within 10
business days after a Conversion Date, the Company shall issue and
deliver by hand against a signed receipt therefor or by reputable
overnight delivery carrier to the address designated in the Conversion
Notice, a stock certificate or stock certificates of the Company
representing the number of shares of Common Stock to which Holder is
entitled and a check or cash in payment of all interest accrued and
unpaid under the Debenture being converted up to and including the
Conversion Date. If a stock certificate or stock certificates are not
delivered within 10 business days after a Conversion Date, the Company
shall pay and/or grant to Holder 0.1% (on a Fully Diluted Basis) of the
Company's Common Stock per day until such certificates are delivered.
The conversion rights will be governed by the following provisions:
a) Conversion Price.On the issue date hereof and until such
time as an adjustment shall occur, the Conversion Price shall be equal
to the lesser of:
(i) the price per share of the Common Stock and
Common Stock Equivalents sold to any Person in the first Qualifying
Transaction to be consummated following the Original Issue Date; or
(ii) $1.00 per share.
b) Adjustment for Issuance of Shares at less than the
Conversion Price.
(i) If and whenever any Additional Common Stock (as
herein defined) shares shall be issued by the Company (the "Stock Issue
Date") entitling any Person to acquire shares of Common Stock, at an
effective price per share less than the then Conversion Price, then in
each such case the initial Conversion Price shall be reduced to a new
Conversion Price in an amount equal to the lowest consideration per
share by which such purchaser could purchase such additional shares of
Common Stock or Common Stock Equivalents then issued, and accordingly,
the number of shares issuable to Holder upon conversion shall be
proportionately increased as a result thereof; and, in the case of
shares issued without consideration, the initial Conversion Price shall
be reduced in amount and the number of shares issued upon conversion
shall be increased in an amount so as to maintain for the Holder the
right to convert this Debenture into shares equal in amount to the same
percentage interest in the Common Stock of the Company as existed for
the Holder immediately preceding the Stock Issue Date.
Notwithstanding the foregoing, the Conversion Price shall be
adjusted down in the event that the next Qualifying Transaction whereby
derivative securities are issued, AND the net value of the Common Stock
issued or issuable in such transaction is determined to be less than
the current Exercise Price. The parties agree to negotiate such
determination of the value in good faith.
(ii) Consideration for Shares. In case of the
issuance of Additional Common Stock for a consideration part or all of
which shall be cash, the amount of the cash consideration therefor
shall be deemed to be the amount of the cash received by Company for
such shares. In case of the issuance of any shares of Additional Common
Stock for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor, other than cash, shall
be deemed to be the then fair market value of the property received as
determined by either an agreement between the parties or an investment
banking firm selected by Xxxxxx.
(iii) Reclassification of Shares. In case of the
reclassification of securities into shares of Common Stock, the shares
of Common Stock issued in such reclassification shall be deemed to have
been issued for a consideration other than cash. Shares of Additional
Common Stock issued by way of dividend or other distribution on any
class of stock of the Company shall be deemed to have been issued
without consideration.
(iv) Split up or Combination of Shares. In case
issued and outstanding shares of Common Stock shall be subdivided or
split up into a greater number of shares of the Common Stock, the
Conversion Price shall be proportionately decreased, and in case issued
and outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Conversion Price shall be
proportionately increased, such increase or decrease, as the case may
be, becoming effective at the time of record of the split-up or
combination, as the case may be.
(v) The term "Additional Common Stock" herein shall
mean, other than with respect to an Exempt Issuance, in the most
broadest sense all shares of Common Stock or Common Stock Equivalents
hereafter issued by the Company (including, but not limited to Common
Stock held in the treasury of the Company, except Common Stock issued
upon the conversion or exercise of any security purchased in connection
with the Purchase Agreement.
c) Adjustment for Mergers, Consolidations, Etc..
(i) In the event of distribution to all Common Stock
holders of any stock, indebtedness of the Company or assets (excluding
cash dividends or distributions from retained earnings) or other rights
to purchase securities or assets, then, after such event, this
Debenture will be convertible into the kind and amount of securities,
cash and other property which the holder of the Debenture would have
been entitled to receive if the holder owned the Common Stock issuable
upon conversion of the Debenture immediately prior to the occurrence of
such event.
(ii) In case of any capital reorganization,
reclassification of the stock of the Company (other than a change in
par value or as a result of a stock dividend, subdivision, split up or
combination of shares), this Debenture shall be convertible into the
kind and number of shares of stock or other securities or property of
the Company to which the holder of the Debenture would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such
event. The provisions of the foregoing sentence shall similarly apply
to successive reorganizations, reclassifications, consolidations,
exchanges, leases, transfers or other dispositions or other share
exchanges.
d) Notice of Adjustment. In the event the Company shall
propose to take any action which shall result in an adjustment in the
Conversion Price, the Company shall give notice to the Holder, which
notice shall specify the record date, if any, with respect to such
action and the date on which such action is to take place. Such notice
shall be given on or before the earlier of 10 days before the record
date or the date which such action shall be taken. Such notice shall
also set forth all facts (to the extent known) material to the effect
of such action on the Conversion Price and the number, kind or class of
shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon
conversion of this Debenture. Additionally, following completion of an
event wherein the Conversion Price shall be adjusted, the Company shall
furnish to the holder of this Debenture a statement, signed by an
authorized officer of the Company of the facts creating such adjustment
and specifying the resultant adjusted Conversion Price then in effect.
e) Reservation of Shares. The Company warrants and agrees that
it shall at all times reserve and keep available, free from preemptive
rights, sufficient authorized and unissued shares of Common Stock to
effect conversion of this Debenture.
f) Registration Rights. The Holder has certain rights with
respect to the registration of shares of Common Stock issued upon the
conversion of this Debenture, such rights being specifically set forth
in the Purchase Agreement entered into by and between Holder and the
Company on the date hereof.
g) Exercise Limitations. At any time after the Common Stock is
registered under Section 12 of the Exchange Act, the Holder shall not
have the right to convert any portion of this Debenture, pursuant to
Section 3 or otherwise, to the extent that after giving effect to such
issuance after exercise, the Holder (together with the Holder's
affiliates), as set forth on the applicable Conversion Notice, would
beneficially own in excess of 4.99% (or as applicable, 9.99%) of the
number of shares of the Common Stock outstanding immediately after
giving effect to such issuance. For purposes of the foregoing
determination, the number of shares of Common Stock beneficially owned
by the Holder and its affiliates shall include the number of shares of
Common Stock issuable upon such conversion of this Debenture less the
number of shares of Common Stock which would be issuable upon (A)
conversion of the remaining, unexercised portion of this Debenture and
(B) exercise or conversion of the unexercised or unconverted portion of
any other Securities (including, without limitation, any other
Debentures or Warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially
owned by the Holder. Except as set forth in the preceding sentence, for
purposes of this Section 3(g), beneficial ownership shall be calculated
in accordance with Section 13(d) of the Exchange Act. To the extent
that the limitation contained in this Section 3(g) applies, the
determination of whether this Debenture is convertible (in relation to
other securities owned by the Holder) and of which a portion of this
Debenture is convertible shall be in the sole discretion of Holder. For
purposes of this Section 3(g), in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) Schedule 3.1(g)
to the Purchase Agreement, (y) a more recent public announcement by the
Company or (z) any other notice by the Company or the Company's
Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the
Company shall within two Business Days confirm orally and in writing to
the Holder the number of shares of Common Stock then outstanding. The
provisions of this Section 3(g) may be waived by the Holder upon, at
the election of the Holder, not less than 61 days' prior notice to the
Company, and the provisions of this Section 3(g) shall continue to
apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver).
Section 4. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No
service charge will be made for such registration of transfer or
exchange.
b) Investment Representations. This Debenture has been issued
subject to certain investment representations of the original Holder
set forth in the Purchase Agreement and may be transferred or
exchanged only in compliance with the Purchase Agreement and
applicable federal and state securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment to
the Company for transfer of this Debenture, the Company and any agent
of the Company may treat the Person in whose name this Debenture is
duly registered on the Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the
contrary.
Section 5. Negative Covenants. So long as any portion of this
Debenture is outstanding, without the prior written consent of the
Holder, which consent may be withheld in the sole discretion of the
Holder, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:
a) Indebtedness. Other than equipment leases of up to $25,000 in
the aggregate for any 12 month period, enter into, create, incur,
assume or suffer to exist any indebtedness or Liens, on or with
respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits therefrom
that is senior to, or pari passu with, in any respect, the Company's
obligations under the Debentures;
b) Repayment of Indebtedness. Repay any principal due and owing
on any promissory notes, debentures, or other forms of indebtedness,
other than (i) periodic interest payments due and owing thereunder;
(ii) repayment due of any principal amount or interest due or becoming
due under this Debenture; and (iii) repayment of the indebtedness set
forth in Schedule 4.9 to the Purchase Agreement; provided, nothing
contained in this section shall prohibit the Company from making any
payments with respect to trade payables made in the ordinary course of
the Company's business;
c) Repayment of Shares. Repay, repurchase or offer to repay,
repurchase or otherwise acquire any of shares of its Common Stock or
other equity securities or as otherwise permitted by the Transaction
Documents;
d) Bylaws. Amend its certificate of incorporation, bylaws or
other charter documents so as to adversely affect any rights of the
Holder in its capacity as a holder of the Debentures;
e) Loans and Investments. Lend or advance money, credit or
property to any person or entity, or invest in (by capital
contribution or otherwise), or purchase or repurchase the stock or
indebtedness or assets or properties of any person or entity, or agree
to do any of the foregoing, other than in the ordinary course of
business;
f) Guarantees. Assume, endorse or otherwise become or remain
liable in connection with the obligations (including accounts payable)
of any other person or entity, other than in the ordinary course of
business.
g) Sale of Assets, Dissolution, Etc. Transfer, sell, assign,
lease or otherwise dispose of any of its properties or assets, or any
assets or properties necessary or desirable for the proper conduct of
its business, or transfer, sell, assign or otherwise dispose of any of
its accounts, or contract rights to any person or entity, or change
the nature of its business, wind-up, liquidate or dissolve, or agree
to any of the foregoing, other than in the ordinary course of
business;
h) Acquisition of Assets. Agree to purchase, acquire, or lease of
any assets of any Person, other than in the ordinary course of
business;
i) Compensation. Increase the compensation of any of its officers
or consultants making more than $100,000 per year, hire any relative
of any officer, director or shareholder of the Company, or pay a bonus
to any such person.
j) Subsidiaries. Establish or form a partially or wholly owned
Subsidiary. Sell, transfer or assign any interest in the Company's
existing Subsidiaries.
k) No Further Issuance of Securities. Other than in accordance
herewith, create, issue or permit the issuance of any additional
securities of the Company or of any of its Subsidiaries (including
with respect to any Qualifying Transaction), if any, or any rights,
options or warrants to acquire any such securities and in the event
that Company desires to issue securities with preferences or rights
greater than that which the Common Stock has, the Holder will have the
option of converting into such stock in lieu of the Common Stock
hereby;
l) No Dividends; No Redemption. Declare any dividend, pay or set
aside for payment any dividend or other distribution, in cash, stock,
or other property, or make any payment to any related parties,
including to any preferred stockholders, as a dividend, redemption, or
otherwise, other than the payment of salaries in the ordinary course
of business.
m) Stock Splits. Undertake a reverse or forward stock split or
reclassification of the Common Stock; or
n) Agreement. Enter into any agreement obligating the Company to
undertake any of the matters set forth in this Section 5.
Section 6. Affirmative Covenants. So long as any portion of this
Debenture is outstanding and unless the Holder otherwise consents in
writing, which consent may be withheld in the sole discretion of the
Holder, the Company will:
a) Taxes and Liens. Promptly pay, or cause to be paid, all taxes,
assessments and other governmental charges which may lawfully be
levied or assessed upon the income or profits of the Company, or upon
any property, real, personal or mixed, belonging to the Company, or
upon any part thereof, and also any lawful claims for labor, material
and supplies which if unpaid, might become a lien or charge against
any such property; provided, however, the Company shall not be
required to pay any such tax, assessment, charge, levy or claim so
long as the validity thereof shall be actively contested in good faith
by proper proceedings; but, provided further that any such tax,
assessment, charge, levy or claim shall be paid or bonded in a manner
satisfactory to the Holder upon the commencement of proceedings to
foreclose any lien securing the same.
b) Business and Existence. Do or cause to be done all things
necessary to preserve and to keep in full force and effect any
licenses necessary to the business of the Company, its corporate
existence and rights of its franchises, trade names, trademarks, and
permits which are reasonably necessary for the continuance of its
business; and continue to engage principally in the business currently
operated by the Company.
c) Insurance and Properties. Keep its business and properties
insured at all times with responsible insurance companies and carry
such types and amounts of insurance as are required by all federal,
state and local governments in the areas which the Company does
business and as are usually carried by entities engaged in the same or
similar business similarly situated. In addition, the Company shall
maintain in full force and effect policies of liability insurance in
amounts at least equal to that currently in effect.
d) Maintain Property and Assets. Maintain its property and assets
in good order and repair and, from time to time, make all needed and
proper repairs, renewals, replacements, additions and improvements
thereto, so that the business carried on may be properly and
advantageously conducted at all times in accordance with prudent
business management, and maintain annually adequate reserves for
maintenance thereof.
e) True Books. Keep true books of record and account in which
full, true and correct entries will be made of all of its dealings and
transactions, and set aside on its books such reserves as may be
required by GAAP, consistently applied, with respect to all taxes,
assessments, charges, levies and claims referred to in (a) above, and
with respect to its business in general, and include such reserves in
interim as well as year-end financial statements.
f) Right of Inspection. Permit any person designated by the
Holder, at the Holder's expense, to visit and inspect any of the
properties, books and financial reports of the Company, all at such
reasonable times upon three (3) Business Days prior notice to Company,
and as often as the Holder may reasonably request, provided the Holder
does not unreasonably interfere with the daily operations of the
Company and Holder executes a confidentiality agreement.
g) Observance of Laws. Conform to and duly observe all laws,
regulations and other valid requirements of any regulatory authority
with respect to the conduct of its business except those that would
not cause a Material Adverse Effect, as determined in the reasonable
discretion of the Holder.
h) Company's Knowledge of Default. Upon an officer or director of
the Company obtaining knowledge of, or threat of, an Event of Default
hereunder, cause such officer to promptly, within no more than five
(5) Business Days, deliver to the Holder notice thereof specifying the
nature thereof, the period of existence thereof, and what action the
Company has taken and/or proposes to take with respect thereto.
i) Notice of Proceedings. Upon an officer or director of the
Company obtaining knowledge of any material litigation, dispute or
proceedings being instituted or threatened against the Company, or any
attachment, levy, execution or other process being instituted against
any assets of the Company, cause such officer to promptly, within no
more than five (5) Business Days, give the Holder written notice of
such litigation, dispute, proceeding, levy, execution or other
process.
j) Certificate of Covenant Compliance Within 30 days of the last
day of each March, June, September and December, the Company will
issue a Certificate of Covenant Compliance, executed by either the
Chief Executive Officer or Chief Financial Officer in the form of
Exhibit A attached hereto. If the Company is not in compliance with
the covenants specified in this Section 5, the Company will modify the
Certificate of Covenant Compliance by stating the exception and
providing a detailed explanation of the non-compliance.
k) Payment of Xxxxxx's Expenses. If at any time or times
hereafter, Xxxxxx employs counsel in connection with the execution and
consummation of the transactions contemplated by this Debenture or to
commence, defend or intervene, file a petition, complaint, answer,
motion or other pleading, or to take any action in or with respect to
any suit or proceeding (bankruptcy or otherwise) relating to this
Debenture or any other Transaction Document, or any other agreement,
guaranty, note, instrument or document heretofore, now or at any time
or times hereafter executed by the Company and delivered to Holder, or
to enforce any rights of Holder hereunder whether before or after the
occurrence of any Event of Default, or to collect any of the
Liabilities, then in any of such events, all of the reasonable
attorneys' fees arising from such services, and any expenses, costs
and charges relating thereto, shall be part of the Liabilities,
payable on demand.
l) Financial Reporting. The Company shall provide to Holder
audited annual financial statements, audited by mutually agreed upon
independent certified public accounting firm. Said financial
statements shall be prepared in accordance with GAAP, consistently
applied, and shall be delivered to Holder within ninety (90) days
after the close of the Company's fiscal year. The report of the
auditor that accompanies the financial statements shall not contain
any qualifications or limitations, such auditor to be a mutually
agreeable accounting firm. The Company's fiscal year ends on December
31, and shall not be changed without the prior written consent of the
Holder. The Company shall provide to Holder unaudited monthly
financial statements (including month to date and year to date actual
to prior periods) and a report in such form as is acceptable to
Holder, both presented in accordance with GAAP, consistently applied
(subject to such exceptions for interim financials as may be noted by
the Company thereon), and shall be delivered to Holder within
twenty-five (25) days after the close of the Company's month. The
Company shall also deliver any other reports reasonably requested by
Xxxxxx. If the statements or reports are not delivered within
twenty-five (25) days of the close of any month, then the Company will
pay a late fee of $250 per day until the report is delivered in
adequate form in the sole discretion of Holder.
m) Financial Covenants. As of the 150th date following the date
of this Agreement and thereafter continuing until the Termination
Date, the Company must maintain the following ratios:
(i) Cash Interest Coverage. Until this Debenture is repaid in
full, the Company shall maintain a Consolidated EBITDA ratio, based on
any of the Company's quarterly financial statements (as determined on
the last day of each fiscal quarter for the immediately preceding
quarter), of 2.0 or greater. The Consolidated EBITDA ratio is defined
as Consolidated EBITDA divided by Interest Expense (Consolidated
EBITDA / Interest Expense).
(ii) Cash Flow Coverage Ratio. The ratio of (a) the Company's
Cash Flow to (b) the sum of (i) the Company's consolidated Interest
Expense plus (ii) the Company's scheduled payments of principal
(including the principal component of Capital Leases) to be paid
during the 12 months following any date of determination shall at all
times exceed (1) 1.5 to 1.0. Compliance with the ratio will be tested
as of the last day of each month, with Cash Flow and Interest Expense
being calculated for the twelve months then ended.
(iii) Current Ratio. The Company will at all times maintain a
Current Ratio of not less than 1.5 to 1.0. The Current Ratio shall be
calculated and tested quarterly as of the last day of each fiscal
quarter of the Company.
(iv) Actual versus Budget. The Company shall on a quarterly basis
achieve 75 percent of its budgeted revenue and income. Budget numbers
shall be those delivered to Holder contemporaneously herewith and then
on an annual calendar basis.
Section 7. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant
to any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal
amount of any Debenture, or (B) interest (including Late Fees)
on, or liquidated damages in respect of, any Debenture, in
each case free of any claim of subordination, as and when the
same shall become due and payable (whether on the Maturity
Date or by acceleration or otherwise);
ii. the Company shall fail to observe or perform any
other covenant or agreement contained in this Debenture or any
of the other Transaction Documents which failure is not cured,
if possible to cure, within the earlier to occur of (A) 10
Business Days after notice of such default sent by the Holder
or by any other Holder and (B) 10 Business Days after the
Company shall become or should have become aware of such
failure;
iii. a default or event of default (subject to any
grace or cure period provided for in the applicable agreement,
document or instrument) shall occur under (A) any of the
Transaction Documents or (B) any other material agreement,
lease, document or instrument to which the Company or any
Subsidiary is bound and not cured;
any representation or warranty made herein, in any other Transaction Documents,
in any written statement pursuant hereto or thereto, or in any other report,
financial statement or certificate made or delivered to the Holder or any other
holder of Debentures shall be untrue or incorrect in any material respect as of
the date when made or deemed made;
i. there shall have occurred a Bankruptcy Event;
ii. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an amount
exceeding $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.
iii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or dispose
of all or in excess of 33% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction) or shall redeem or repurchase any its outstanding shares
of Common Stock or Common Stock Equivalents;
iv. the Company shall fail for any reason to pay in full the
amount of cash due pursuant to a Buy-In of the Warrant within 5
Business Days after notice therefor is delivered hereunder or shall
fail to pay all amounts owed on account of an Event of Default within
5 Business Days of the date due;
v. the Company shall fail to have available a sufficient number
of authorized and unreserved shares of Common Stock to issue to such
Holder upon exercise of the Warrants in full and not remedied as
permitted in the Transaction Documents;
vi. the Company shall redeem any of the Common Stock Equivalents;
vii. upon the reasonable determination by the Holder that there
has been a Material Adverse Effect; or
viii. the occurrence of an Activity Event of Default (as defined
in Section 5.1(f)(ii) of the Purchase Agreement).
b) Remedies Upon Event of Default. If any Event of Default
occurs, 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. Commencing 5 days after the occurrence of any
Event of Default that results in the eventual acceleration of this
Debenture, the interest rate on this Debenture shall accrue at the
rate of 18% per annum, or such lower maximum amount of interest
permitted to be charged under applicable law. All Debentures for
which the full principal amount hereunder shall have been paid in
accordance herewith shall promptly be surrendered to or as directed
by the Company. The Holder need not provide and the Company hereby
waives any presentment, demand, protest or other notice of any kind,
and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Xxxxxx at any time prior
to payment hereunder and the Holder shall have all rights as a
Debenture holder until such time, if any, as the full payment under
this Section shall have been received by it. No such rescission or
annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.
Section 8. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holders hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service, addressed to the Company, at
the address set forth above, facsimile number (____) _____-_______,
Attn: Chief Executive Officer, 000 Xxxx Xxx Xxxx Xxxx., Xxxxx 000,
Xxxx Xxxxxxxxxx, XX 00000, or such other address or facsimile number
as the Company may specify for such purposes by notice to the Holders
delivered in accordance with this Section. Any and all notices or
other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service addressed
to each Holder at the facsimile number or address of such Holder
appearing herein, or such other address or facsimile number as such
Holder may specify in accordance with this Section. Any notice or
other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 5:30 p.m.
(Dallas, Texas time), (ii) the date after the date of transmission,
if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 5:30
p.m. (Dallas, Texas time) on any date and earlier than 11:59 p.m.
(Dallas, Texas time) on such date, (iii) the second Business Day
following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the
principal of, interest and liquidated damages (if any) on, this
Debenture at the time, place, and rate, and in the coin or currency,
herein prescribed. This Debenture is a direct debt obligation of the
Company. This Debenture ranks pari passu with all other Debentures
now or hereafter issued under the terms set forth herein.
c) Security Interest. This Debenture is a direct debt obligation
of the Company and, pursuant to the Security Documents, is secured by
a first priority security interest in all of the assets of the
Company and certain other collateral for the benefit of the Holders.
d) Lost or Mutilated Debenture. If this Debenture shall be
mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost,
stolen or destroyed Debenture, a new Debenture for the 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.
e) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the
internal laws of the State of Texas, without regard to the principles
of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense
of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of
Dallas, Texas (the "Dallas Courts"). Each party hereto --------------
hereby irrevocably submits to the exclusive jurisdiction of the
Dallas Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, or such
Dallas Courts are improper or inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at
the address in effect for notices to it under this Debenture and
agrees that such service shall constitute good and sufficient service
of process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to
this Debenture or the transactions contemplated hereby. If either
party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its
attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.
f) Waiver. Any waiver by the Company or the Holder of a breach
of any provision of this Debenture shall not operate as or be
construed to be a waiver of any other breach of such provision or of
any breach of any other provision of this Debenture. The failure of
the Company or the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture.
Any waiver must be in writing.
g) Severability. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain
in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other
persons and circumstances. If it shall be found that any interest or
other amount deemed interest due hereunder violates applicable laws
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of
interest. The Company covenants (to the extent that it may lawfully
do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any
stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal
of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect
the covenants or the performance of this indenture, and the Company
(to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will
not, by resort to any such law, hinder, delay or impeded the
execution of any power herein granted to the Holder, but will suffer
and permit the execution of every such as though no such law has been
enacted.
h) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day.
i) Headings. The headings contained herein are for convenience
only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
j) Usury. To the extent it may lawfully do so, the Company
hereby agrees not to insist upon or plead or in any manner whatsoever
claim, and will resist any and all efforts to be compelled to take
the benefit or advantage of, usury laws wherever enacted, now or at
any time hereafter in force, in connection with any claim, action or
proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Documents. Notwithstanding
any provision to the contrary contained in any Transaction Documents,
it is expressly agreed and provided that the total liability of the
Company under the Transaction Documents for payments in the nature of
interest shall not exceed the Maximum Rate, and, without limiting the
foregoing, in no event shall any rate of interest or default
interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if
the maximum contract rate of interest allowed by law and applicable
to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the
new maximum contract rate of interest allowed by law will be the
Maximum Rate applicable to the Transaction Documents from the
effective date of such increase or decrease forward, unless such
application is precluded by applicable law. If under any
circumstances whatsoever, interest in excess of the Maximum Rate is
paid by the Company to any Purchaser with respect to indebtedness, if
any, evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election in the event any
principal amount remains outstanding.
(k) Amendment. This Agreement may not be amended, supplemented
or modified, except by an agreement in writing signed by each of the
parties hereto.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
MAVERICK OIL AND GAS, INC.
By: /s/ V. Xxx Xxxxxx
_________________________________
Name: X. Xxx Xxxxxx
Title: Chief Executive Officer
EXHIBIT A
I, the undersigned, hereby represent that Maverick Oil and Gas, Inc. is
in compliance with all of its covenants specified in Sections 5 and 6 of that
certain 12% Senior Secured Convertible Debenture originally dated as of October
18, 2005, executed by Maverick Oil and Gas, Inc., with its principal place of
business at 000 Xxxx Xxx Xxxx Xxxx., Xxxxx 000, Xxxx Xxxxxxxxxx, XX 00000, in
favor of Trident Growth Fund, L.P., with its principal place of business at 000
Xxxxxx, Xxxxxxx, Xxxxx 00000.
MAVERICK OIL AND GAS, INC.
By:_________________________________
Name:
Title: