Exhibit 10.3

 

Execution

 

DEBENTURE CONVERSION AGREEMENT

 

THIS DEBENTURE CONVERSION AGREEMENT (this “Agreement”) is made as of this 29th
day of December, 2015, by and between Lilis Energy, Inc., a Nevada corporation
(the “Company”), T.R. Winston & Company, as placement agent in the transactions
through which the Holders purchased the Conversion Debentures, and continues to
act as collateral agent in connection with the Conversion Debentures (“TRW”),
and the parties designated on Exhibit A hereto as Holders (each a “Holder” and
together the “Holders”).

 

RECITALS

 

WHEREAS, as of the date of this Agreement, there is $6,846,465 in outstanding
aggregate principal amount of the Company’s 8% Senior Secured Convertible
Debentures (the “Conversion Debentures”), which are convertible into shares of
common stock of the Company, par value $0.0001 (the “Common Stock”), according
to the terms of the Conversion Debentures;

 

WHEREAS, the Holders currently hold Conversion Debentures with aggregate
outstanding principal amounts as set forth opposite each Holder’s name on
Exhibit A attached hereto;

 

WHEREAS, TRW acted as placement agent in the transactions through which the
Holders purchased the Conversion Debentures, and continues to act as collateral
agent in connection with the Conversion Debentures;

 

WHEREAS, on January 31, 2014, a debenture conversion agreement was entered into
between the Company, TRW and the Holders, pursuant to which $9,000,000 in
aggregate principal amount of the Debentures (the “Initial Converting
Debentures”) was converted into shares of Common Stock at a conversion price of
$2.00 and each Holder received one warrant to purchase one share of Common Stock
at an exercise price equal to $2.50 per share with an exercise term of 3 years
from their respective dates of issuance;

 

WHEREAS, the Company proposes to enter into an Agreement and Plan of Merger with
Brushy Resources, Inc. (the “Transaction”), which requires the conversion of the
aggregate principal outstanding under such Holder’s Conversion Debentures into
an aggregate of 13,692,930 shares of Common Stock; and

 

WHEREAS, in connection with the Transaction, the Company intends to file an
S-4/Joint Proxy Statement, which will include a proposal to the Company’s
stockholders to seek approval (“Stockholder Approval”) for the conversion of the
Conversion Debentures on the terms set forth above.

 

AGREEMENT

 

NOW, THEREFORE, BE IT RESOLVED, that in consideration of the promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:

 

 

 

 

2.             Agreement to Convert Debentures. The Company and each Holder
hereby agree that upon execution of this Agreement (i) Holder consents to the
Transaction for purposes of the negative covenants in the Conversion Debentures;
(ii) upon the receipt of Stockholder Approval as described above, Holder will be
deemed to have converted such Holder’s Conversion Debentures without any further
action by the Holder, into shares of Common Stock as determined by dividing the
aggregate principal amount of such Holder’s Conversion Debenture by $0.50 (the
“Conversion Stock”) and (iii) that in consideration of the forgoing and on the
Conversion Date, any right to payments owed as accrued and unpaid interest
(whether in cash or kind) on the Conversion Debentures is hereby waived and
forfeited and no interest on the Conversion Debentures will be due and payable.

 

3.             Company’s Representations and Warranties.  The Company represents
and warrants that each share of the Conversion Stock will be duly authorized,
validly issued, fully paid and nonassessable.

 

4.             Holders’ Representations, Warranties, Covenants and
Agreements.  Each Holder hereby represents and warrants to, and covenants and
agrees with, the Company as follows:

 

Such Holder is the record and beneficial holder of the Conversion Debentures set
forth opposite such Holder’s name on Exhibit A attached hereto, free and clear
of any liens and encumbrances.

 

(a)           Such Holder has had complete and unrestricted access to all
material information about the Company that could affect such Holder’s decision
to agree to the Conversion.  As a result of such Holder’s access to all such
material information, such Holder acknowledges that such Holder is fully
informed and knowledgeable about the Company, its business, operations and
plans, and has therefore made a fair and reasoned decision to consent to the
Conversion.

 

(b)           Such Holder acknowledges that an investment in the Conversion
Stock involves a substantial degree of risk and is suitable only for persons
with adequate means who have no need for liquidity in their investments.

 

(c)           Such Holder has knowledge and experience in financial and business
matters and is capable of evaluating the merits and risks of an investment in
the Conversion Stock and the suitability of the investment for such Holder.

 

(d)           Such Holder is effecting the Conversion for investment purposes
only and has no present intention to sell or exchange the Conversion Stock. Such
Holder has adequate means for providing for his or her current needs in any
foreseeable contingency, and such Holder has no need to sell the Conversion
Stock in the foreseeable future.

 

(e)           Such Holder is an “accredited investor” as that term is defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended.

 

(f)           Such Holder acknowledges that no federal or state agency has made
any finding or determination as to the fairness of the Conversion, nor any
recommendation or endorsement, of the issuance of the Conversion Stock in
connection with the Conversion.

 

(g)           Such Holder acknowledges that none of the Conversion Stock has
been registered under the Securities Act of 1933, as amended (the “Act”), or the
blue sky laws of any state.

 

(h)           Such Holder understands that, in issuing the Conversion Stock, the
Company has relied upon an exemption from registration provided in the Act and
upon the foregoing representations and warranties of such Holder.

 

(i)            Such Holder hereby acknowledges that Holder has relied on his or
her own independent tax counsel regarding the tax effects, if any, of the
Conversion.

 

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(j)            Such Holder hereby covenants and agrees that it shall not sell,
transfer, assign, convey or otherwise dispose of any Conversion Debenture held
by such Holder, until such time as the Company has requested and failed to
receive, Stockholder Approval.

   

5.             Release of Security and Indebtedness.

 

(a)           Upon each Holder’s receipt of a certificate evidencing the number
of shares of Common Stock in accordance with the terms hereof, in exchange for
the cancellation in full of the Conversion Debentures held by the Holder on or
before the Conversion Date pursuant to this Agreement and in lieu of payment in
cash of the Company’s indebtedness to Holder, Holder hereby (i) acknowledges and
agrees that receipt of the Conversion Stock will constitute payment in full and
complete satisfaction of the Conversion Debentures held by the Holder, and (ii)
agrees that effective upon receipt by Holder of the Conversion Stock (a) all
security interests, mortgages and other liens, if any, which the Company may
have granted to Holder, or which Holder may otherwise possess with respect to
any assets or properties of the Company, shall automatically be released and
terminated, and (b) the Company shall have no further liabilities or obligations
to Holder.

 

(b)           Each Holder (1) will cause TRW to file, any UCC-3 financing
statement terminating Holder’s liens in any assets or properties of the Company
and if TRW does not file such termination statement promptly upon request, each
Holder authorizes the Company to file such a termination statement, (2) agrees
to promptly execute and deliver the Company or such other party as the Company
may direct in writing following payment in full of the Conversion Stock, such
Uniform Commercial Code financing statement amendments, terminations, releases,
or other agreements and documents, as the Company may request to evidence the
release and termination of Holder’s liens in any assets or properties of the
Company including, but not limited to, releases of all mortgages made by the
Company in favor of Holder and (3) authorizes the Company, or its designees, to
take any other action reasonably necessary to effect the foregoing.

 

(c)           Each Holder, on behalf of itself and its successors and assigns,
do hereby forever release, discharge and acquit the Company and each of its
subsidiaries, affiliates, officers, members, managers, agents and employees, and
their respective successors, heirs, and assigns, and each of them (collectively
and severally, “Releasees”) of and from any and all of the following: claims,
demands, obligations, liabilities, indebtednesses, breaches of contract,
breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance,
cause or causes of actions, debts, sums of money, accounts, compensations,
contracts, controversies, promises, damages, costs, attorneys’ fees, losses and
expenses, of every type, kind, nature, description or character, and
irrespective of how, why, or by reason of what facts, whether heretofore, now
existing or hereafter arising, or which could, might, or may be claimed to
exist, or whatever kind or name, whether known or unknown, suspected or
unsuspected, liquidated or unliquidated, each as though fully set forth herein
at length other than the Company’s obligations under this Agreement.

 

(d)           If Holder is afforded the protections of the Civil Code of
California, each Holder further acknowledges that the release contained herein
includes relinquishing all rights and benefits afforded by Section 1542 of the
Civil Code of California (“Section 1542”), which provides as follows:

 

“A general release does not extend to claims which the [Holder] does not know or
suspect to exist in his or her favor at the time of executing the release, which
if known by him or her must have materially affected his or her settlement with
the Company.”

 

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Holder understands and acknowledges the significance and consequences of a
specific waiver of Section 1542, that Holder intends to waive, and assume the
risk relating to, existing but as yet unknown claims and have been encouraged by
the Releasees to consult independent legal counsel in relation to Holders’
relinquishment of all rights and benefits afforded by Section 1542.

 

6.             Miscellaneous.

 

(a)           All capitalized terms used in this Agreement but not defined
herein shall have the meaning set forth in the Conversion Debentures.

 

(b)           Any provision of this Agreement may be amended or waived if such
amendment or waiver is in writing and is signed, in the case of an amendment, by
each party to this Agreement, or in the case of a waiver, by the party against
whom the waiver is to be effective.

 

(c)           No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.

 

(d)           This Agreement shall be binding on and inure to the benefit of
each party hereto and his or its legal representatives, successors and assigns.

 

(e)           This Agreement shall be governed by and construed in accordance
with the law of the State of New York, without regard to the conflicts of law
rules of such state.

 

(f)            This Agreement may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.

 

(g)           The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement;

 

(h)           This Agreement constitutes the entire agreement between and among
the parties with respect to the subject matter of this Agreement and supersedes
all prior agreements and understandings, both oral and written, between and
among the parties with respect to the subject matter hereof and thereof.  No
provision of this Agreement is intended to confer upon any person other than the
parties hereto any rights or remedies hereunder;

 

(i)            In case any provision of this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby;

 

(j)            Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

 

(k)           Each Holder agrees that irreparable damage to the Company would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the Company shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which the parties may be entitled by law or equity.

 

[Signatures Follow]

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.

 

  LILIS ENERGY, INC.         By /s/ Abraham Mirman   Name:  Abraham Mirman  
Title: Chief Executive Officer         Address for Notices:       Lilis Energy,
Inc.   216 16th Street   Suite 1350   Denver, CO 80202   Attention: Chief
Financial Officer   Telephone: 303-893-9000   Fax: (303) 957-2234

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  PLACEMENT AND COLLATERAL AGENT:       T.R. Winston & Company, LLC, a Delaware
limited liability company        

/s/ G. Tyler Runnels

  Name:  G. Tyler Runnels   Title: Chairman & CEO       HOLDERS:        EZ
Colony Partners, LLC, a Delaware limited liability company          

/s/ Marc Ezralow

  Name:  Marc Ezralow as Trustee of the Marc     Ezralow 1997 Trust   Title:
Manager and Member         Jonathan & Nancy Glaser Family Trust DTD 12/16/1998
Jonathan M. Glaser and Nancy E. Glaser TTEES           /s/ Jonathan Glaser  
Name:  Jonathan Glaser   Title:  Trustee         Wallington Investment Holdings,
Ltd.         /s/ Pierre Caland    Name:  Pierre Caland   Title:  Director      
  Steven B. Dunn and Laura Dunn Revocable Trust DTD 10/28/10, Steven B. Dunn &
Laura Dunn TTEES         /s/ Steven B. Dunn    Name:  Steven B. Dunn   Title: 
Trustee         G. Tyler Runnels and Jasmine N. Runnels TTEES The Runnels Family
Trust DTD 1-11-2000         /s/ G. Tyler Runnels    Name:  G. Tyler Runnels  
Title: Trustee

 

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  EMSE, LLC,  
a Delaware limited liability company         /s/ Marc Ezralow   

Name:

 

Title:

Marc Ezralow as Trustee of the Marc

Ezralow 1997 Trust

Manager and Member

        Address for Notices (all Holders):     T.R. Winston & Company, LLC    
2049 Century Park East     Suite 320     Los Angeles, CA 90067

 

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EXHIBIT A

 

Holder  Total Outstanding Amount (Excluding Interest)   Total Outstanding Amount
of Accrued and Unpaid Interest  

Total Debenture Amount to Be Converted

on the Conversion Date

  

Total Percentage to be Converted

on the Date Hereof

  The Runnels Family Trust DTD 1-11-2000  $854,229.90   $0   $854,229.90    100%
Jonathan & Nancy Glaser Family Trust DTD 12-16-98  $1,159,459.80   $0  
$1,159,459.80    100% Wallington Investment Holdings, Ltd.  $2,090,180.12   $0  
$2,090,180.12    100% EZ Colony Partners, LLC  $1,541,572.17   $0  
$1,541,572.17    100% Steven B. Dunn & Laura Dunn Revocable Trust DTD 10/28/10 
$1,017,111.11   $0   $1,017,111.11    100% EMSE LLC  $183,911.98   $0  
$183,911.98    100% TOTAL:  $6,846,465.08   $0   $6,846,465.08