Document:

FRAC-EX10.3_2012.3.31

EXHIBIT 10.3

STOCK PURCHASE AGREEMENT

Stock Purchase Agreement (this “Agreement”), dated as of March 21, 2012, by and among Platinum Energy Solutions, Inc., a Nevada corporation (the “Company”) and each entity and person that is listed on the signature pages hereto.  Each such entity and person, together with its successors and permitted assigns, is referred to herein as a “Purchaser,” and all such entities and persons, together with their respective successors and permitted assigns, are collectively referred to herein as the “Purchasers.”

RECITALS

WHEREAS, the Company proposes to issue and sell to the Purchasers, pursuant to the terms and conditions set forth herein, up to 2,700,000 shares of the Company's common stock, par value $0.001 per share, for an aggregate purchase price of up to $13,500,000 (the “Shares”), which Shares will be immediately exchangeable into shares of the Company's Series B Preferred Stock (“Series B Preferred Stock”) upon such preferred stock being duly authorized by the Company's stockholders at a validly called stockholder meeting, as reflected in duly adopted amended and restated articles of incorporation of the Company (the “Offering”); and

WHEREAS, to the extent that the offerees do not purchase all of the Shares available for purchase in the Offering, two stockholders of the Company, Clearlake Capital Partners (Master) II, L.P. (“CCG”) and L. Charles Moncla, Jr. (it being understood and agreed that all references to Mr. Moncla include Mr. Moncla and all entities under Mr. Moncla's control) (together, either the “Requisite Investors” or the “Backstop Providers”), have agreed to purchase, pursuant to the terms and conditions set forth herein, any unsubscribed Shares remaining in the Offering in proportion to their respective pro rata ownership of the fully-diluted common stock of the Company prior to the Offering; and

WHEREAS, each Purchaser is willing to invest the maximum dollar amount set forth next to such Purchaser's name on the signature pages hereto to purchase Shares pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the covenants, agreements, representations and warranties set forth herein, the Company and each Purchaser agree as follows:

Section 1.  Sale and Purchase of the Shares.

(a)Offering.

(i)The Company shall offer the Shares to the Investors (as defined in the Company's Stockholders Agreement dated March 3, 2011, as amended (the “Stockholders Agreement”)), all other holders of equity in the Company (including, without limitation, warrant holders), certain non-stockholders, and officers and directors of the Company (with respect to such non-stockholders and officers 

and directors, as approved in all instances by the Requisite Investors).  Each Purchaser shall set forth next to its name on the signature page hereto the maximum dollar amount such Purchaser is willing to invest, and execute and deliver such signature page to the Company no later than 12:00 pm New York City time on March 23, 2012; provided, however, the Company may extend such date upon the approval of the Company's Board of Directors.

(ii)  To the extent that the Offering has not been fully subscribed, the Shares shall be allocated as follows:

(1)First, to the Purchasers, a portion of the Shares equal to the maximum dollar amount set forth next to such Purchaser's name on the signature page hereto.

(2)Second, to the Backstop Providers (or their designee(s)), who shall purchase the Shares that remain unsubscribed in the Offering in proportion to their proportional ownership of common stock of the Company prior to the commencement of the Offering.

(iii)To the extent that the Offering has been fully subscribed, the Shares shall be allocated as follows:

(1)First, to the Investors, a portion of the Shares equal to the quotient obtained by dividing (i) the number of shares of Series A Preferred Stock of the Company (the “Series A Preferred Stock”) held by such Investor by (ii) the total number of outstanding shares of Series A Preferred Stock.

(2)Second, to the extent that any Shares remain unsubscribed, to all other holders of equity of the Company (including, without limitation, common stockholders (other than those holders that were allocated and purchased Shares pursuant to Section 1(a)(v)), warrant holders that have not exercised their warrants in accordance with Section 1(a)(v), and the Investors) in proportion to the shares of common stock or common stock equivalents of the Company held by such equity holders.

(3)Third, to the extent that any Shares remain unsubscribed, to certain non-stockholders and officers and directors of the Company as approved in all instances by the Requisite Investors in such proportion as is determined by the Company in its sole discretion.

(4)Fourth, to the extent that any Shares remain unsubscribed, the Backstop Providers (or their designee(s)) shall purchase any Shares that remain unsubscribed in the Offering in proportion to their proportional ownership of common stock of the Company prior to the commencement of the Offering.

(iv)Notwithstanding anything set forth herein to the contrary, the Backstop Providers may, in all instances, whether in their capacities as Investors, Backstop Providers, or otherwise, designate for purchase by, or transfer to, any entity, entities or person(s) any or all Shares which such Backstop Providers have subscribed for purchase or purchased hereunder.

(v)Notwithstanding the foregoing, to the extent that the Offering has been fully 

subscribed, if a warrant holder exercises its warrants under that certain Warrant Agreement dated March 3, 2011, by and between the Company and The Bank of New York Mellon Trust Company, N.A., as warrant agent, prior to the date and time set forth in Section 1(a)(i) (or otherwise delivers to the Company an irrevocable commitment to effect such exercise prior to the Expiration Date), and that such warrant holder has timely delivered a commitment to subscribe for Shares in accordance with the terms and conditions of this Agreement, then such exercising warrant holder shall be allocated for purchase a portion of the Shares equal to the product of the Shares multiplied by the quotient obtained by dividing (a) the number of shares of common stock received by such warrant holder upon exercise of its warrants by (b) the total number of outstanding shares of common stock of the Company on a fully-diluted basis. Thereafter, the Shares shall be allocated in accordance with Section 1(a)(iii).

(b)Sale and Purchase.

(i)Subject to the terms and conditions hereof, at the First Closing (as defined below) the Company shall offer to sell up to 2,700,000 Shares, pursuant to the terms and conditions hereof, at a purchase price of $5.00 per Share.

(ii)Subject to the terms and conditions hereof, from time to time after the First Closing, the Company shall offer to sell up to 2,700,000 Shares, less any Shares sold pursuant to the First Closing, pursuant to the terms and conditions hereof and on the same terms and conditions of the Shares sold at the First Closing, at a purchase price of $5.00 per Share.

(c)Closing, Delivery and Payment.

(i)The closing contemplated pursuant to Section 1(b)(i) (the “First Closing”), shall take place at 10:00 a.m. on the date hereof, at the offices of Kelley Drye & Warren LLP, 333 W. Wacker, Suite 2600, Chicago, Illinois 60606.  From time to time after the First Closing until March 30, 2012 (or such date as extended upon the approval of the Company's Board of Directors) (the “Expiration Date”), the sales contemplated by Section 1(b)(ii) shall be held in one or more closings, at such time as the Company shall have notified the Purchasers (each, an “Additional Closing” and collectively, the “Additional Closings”).  The First Closing and the Additional Closings are sometimes referred to herein collectively as the “Closings” and individually as a “Closing.”  The date of any Closing shall be referred to as the “Closing Date.”

(ii)On a Closing, each Purchaser participating in such Closing shall deliver to the Company such Purchaser's purchase price by wire transfer of immediately available funds pursuant to the wire instructions set forth in Exhibit B.  The purchase price shall be the product of the number of Shares purchased by such Purchaser times $5.00 (with respect to each Purchaser, the “Purchase Price”).

Section 2.  Representations and Warranties of Each Purchaser.

Each Purchaser severally represents and warrants to, in each case as to itself only, the Company that:

(a)Such Purchaser acknowledges that, prior to the execution and delivery of this Agreement to the Company, such Purchaser has had an opportunity to review all of the Company's filings made with the Securities and Exchange Commission prior to making its decision to purchase the Shares, has 

had a full opportunity to ask questions of and receive answers from the Company and its management concerning the terms and conditions of an investment in the Company, and that such information is sufficient for Purchaser independently to evaluate the merits and risks of its investment.

(b)Such Purchaser is acquiring the Shares to be issued for its own account for investment purposes and not with a view toward, or for resale or transfer in connection with, the sale or distribution thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), that would be in violation of the Securities Act or any securities or “blue sky” laws of any state of the United States or other applicable law, and has no contract, agreement, undertaking or arrangement, and has no intention to enter into any contract, agreement, undertaking or arrangement to pledge such Shares or any part thereof (other than pledges to its own lenders).

(c)Such Purchaser has been advised by the Company that (i) the Shares are being privately placed by the Company pursuant to an exemption from registration provided under Section 4(2) of the Securities Act and/or Regulation D under the Securities Act or pursuant to Regulation S under the Securities Act and neither the offer nor sale of any Shares has been registered under the Securities Act or any state or foreign securities or “blue sky” laws; (ii) the Shares are characterized as “restricted securities” under the Securities Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that the undersigned must continue to bear the economic risk of the investment in its Shares unless the offer and sale of its Shares is subsequently registered under the Securities Act and all applicable state or foreign securities or “blue sky” laws or an exemption from such registration is available; (iii) it is not anticipated that there will be any public market for the Shares in the foreseeable future; (iv) when and if the Shares may be disposed of without registration in reliance on Rule 144 of the Securities Act (“Rule 144”), such disposition can be made only in limited amounts in accordance with the terms and conditions of such rule; (v) if the Rule 144 exemption is not available, public offer or sale of any Shares without registration will require the availability of another exemption under the Securities Act; (vi) a restrictive legend in a form satisfactory to the Company shall be placed on the certificates representing the Shares; and (vii) a notation shall be made in the appropriate records of the transfer agent for the Shares indicating that the Shares are subject to restrictions on transfer.

(d)Such Purchaser is either (i) an “accredited investor” within the meaning of Rule 501(a)(1), (2), (3), (4) or (7) of the Securities Act or (ii) a non-U.S. person within the meaning of Regulation S under the Securities Act (which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for non-U.S. beneficial owners (other than an estate or trust)) and is purchasing the Shares outside the United States in reliance upon Regulation S under the Securities Act and, in either case, has such knowledge, skill and experience in business, financial and investment matters so that the undersigned is capable of evaluating the merits, risks and consequences of an investment in the Shares and is able to bear the economic risk of loss of such investment, including the complete loss of such investment.

(e)Neither such Purchaser, nor its affiliates or any person acting on its or any of their behalf, has engaged, or will engage, in any form of general solicitation or general advertising (within the meaning of Rule 502(c) under the Securities Act) in connection with the Offering.

(f)Such Purchaser is not, to its knowledge, purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or, to such Purchaser's knowledge, any other general solicitation or general advertisement.

(g)(i) This Agreement has been duly and validly executed and delivered by such Purchaser and constitutes the valid, binding and enforceable agreement of such Purchaser except as enforceability may be limited by (A) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws relating to or affect creditor's rights generally and (B) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (ii) such Purchaser has all the requisite power and authority (and if applicable, capacity) to execute and deliver this Agreement and to perform its obligations hereunder.

(h)Such Purchaser, if an entity, is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was formed and all other jurisdictions where such qualification is necessary in light of such Purchaser's activities; such investment will not result in any violation of or conflict with any term of the organizational documents of such Purchaser or any law or regulation applicable to it; and such Purchaser has not been organized or reorganized for the specific purpose, or for the purpose among other purposes, of acquiring the Shares.

(i)Such Purchaser acknowledges that the Company is a company with a limited operating history.

(j)Each Purchaser acknowledges that the Backstop Providers are affiliates of the Company and that such Backstop Providers may, in accordance with the terms and conditions set forth in Section 3(h), be paid a commitment fee and/or a backstop fee by the Company in connection with the Offering.

(k)All information which such Purchaser has provided to the Company concerning its financial position, and the knowledge of financial and business matters of the person making the investment decision on its behalf, is correct and complete as of the date hereof and may be relied upon.

Section 3.  Representations and Warranties of the Company.  The Company hereby represents and warrants to each of the Purchasers as follows:

(a)Incorporation and Good Standing.  The Company is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was formed, and has the requisite organizational power and authorization to own or lease its properties and to carry on its businesses as now conducted and as presently proposed to be conducted.  The Company is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing could not reasonably be expected to have a material adverse effect on its financial condition, business, prospects or operations.

(b)Legal Power and Authority.  The Company has the requisite organizational power and authority to enter into and perform its obligations under this Agreement and the documents contemplated hereby, and to issue each of the Shares in accordance with the terms hereof and thereof.  The execution and delivery by the Company of this Agreement and the documents contemplated hereby and the performance of all of the obligations of the Company hereunder and thereunder have been duly authorized by the requisite corporate or other applicable proceedings and (other than such filings required under applicable securities or “Blue Sky” laws of the states of the United States) no further filing or recordation is required by the 

Company in connection therewith.

(c)Authorization and Binding Obligations.  This Agreement and the documents contemplated hereby, when executed and delivered, will be valid and binding obligations of the Company enforceable in accordance with their terms, except as the enforceability thereof may be limited by the availability of equitable principals or by bankruptcy, insolvency, reorganizations, moratorium or other similar laws effecting creditors' rights generally.

(d)The Shares.  The Company has all necessary power and authority to issue and deliver the Shares; the Shares have been duly authorized, and, when duly issued and delivered to Purchasers, the Shares will be duly and validly issued, fully paid and nonassessable and will be issued in compliance with federal and state securities laws.  None of the Shares will be issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company.

(e)Non-Contravention.  The Company's execution and delivery of this Agreement and the documents contemplated hereby and performance of the Company's obligations hereunder and thereunder, including the issuance and sale of the Shares (i) will not result in any violation of the provisions of the charter or by laws of the Company or any subsidiary, (ii) will not conflict with or constitute a breach of, or default or a Debt Repayment Triggering Event (as defined below) under, or result in the creation or imposition of any security interest, mortgage, pledge, lien, charge, encumbrance or adverse claim upon any property or assets of the Company or any of its subsidiaries pursuant to any material agreement, contract, lease, license, instrument, or other arrangement to which the Company is a party or by which the Company is bound or to which any of the Company's assets are subject and (iii) will not result in any violation of any law, rule, administrative regulation, order, judgment or administrative or court decree applicable to the Company or any subsidiary.  As used herein, a “Debt Repayment Triggering Event” means any event or condition that gives, or with the giving of notice or lapse of time would give, the holder of any note, debenture, mortgage, deed of trust, indenture, loan agreement, instrument or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries.

(f)Consents.  Other than (1) the filing of a Form D under the Securities Act with respect to the Shares as required under Regulation D, (2) such filings required under applicable securities or Blue Sky laws of the states of the United States, and (3) such filings as may be required under any rule or regulation promulgated by any U.S. regulatory authority, the Company and its subsidiaries are not required to obtain any consent, approval, authorization or order of, or make any filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency or any other person or entity in order for the Company to execute, deliver or perform any of its obligations under or contemplated hereby, in each case, in accordance with the terms hereof or thereof or to consummate the Offering.

(g)No General Solicitation.  Neither the Company, nor any of its affiliates, nor any person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Shares.

(h)Fees.  The Company shall pay to each Purchaser that commits to subscribe for Shares by 12:00 p.m. (New York City time) on March 23, 2012 (or such date as extended upon the approval of the Company's Board of Directors), a fee for committing to subscribe for the Shares (provided that such Purchaser 

actually purchases such Shares in accordance with the terms and conditions hereof), payable by the issuance of 518,984 warrants to purchase shares of common stock of the Company on the business day immediately following the Expiration Date (the “Commitment Fee Warrants”).  Each Commitment Fee Warrant shall be exercisable into one share of common stock of the Company at an exercise price of $3.00 per share and shall have a 10-year term.  Each such Purchaser that actually purchases Shares in accordance with the terms and conditions hereof shall receive a pro rata portion of the Commitment Fee Warrants based on the subscription amount timely committed and purchased by such Purchaser to the total commitments of all Purchasers in the Offering.  Additionally, the Company shall pay to the Backstop Providers a backstop fee for agreeing to purchase any Shares remaining in the Offering, payable by the issuance of 518,984 warrants to purchase shares of common stock of the Company (the “Backstop Fee Warrants”).  Each Backstop Fee Warrant shall be exercisable into one share of common stock of the Company at an exercise price of $3.00 per share and shall have a 10‐year term.  Each such Backstop Provider shall receive a pro rata portion of the Backstop Fee Warrants based on such Backstop Provider's existing ownership of common stock of the Company prior to the Offering.  Except for the foregoing fees, no agent, broker, investment banker, person or firm acting on behalf of or under the authority of the Company is or will be entitled to any broker's or finder's fee or any other fee or commission directly or indirectly in connection with the transactions contemplated herein.

Section 4.  Covenants.

(a)Authorization of Preferred Stock.  Within 40 days following the First Closing, the Company shall cause its articles of incorporation to be amended and restated at a validly called stockholders meeting to authorize an increase in the number of shares of preferred stock, par value $0.001 per share, of the Company from 20,000 shares to 100,000 shares, 13,500 of which will be designated as “Series B Preferred Stock,” having such rights, preferences, privileges and restrictions as set forth in Exhibit A attached hereto, which amended and restated articles of incorporation shall be in form and substance reasonably satisfactory to Requisite Investors.

(b)Exchange of Shares. 
(i)Following the authorization of the Company's amended and restated articles of incorporation in accordance with the terms and conditions set forth in Section 4(a), and the filing of such articles with the Secretary of State of the State of Nevada, each Share shall be exchangeable at the office of the Company (or any transfer agent for such stock) into such number of fully paid and nonassessable shares of Series B Preferred Stock as is determined by dividing the number of shares of common stock to be exchanged by 200.

(ii)Before any holder of Shares shall be entitled to exchange the same into shares of Series B Preferred Stock, he, she, or it shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or of any transfer agent for such stock, and shall give written notice to the Company, of the election to exchange the same and shall state therein the name or names in which the certificate or certificates for shares of Series B Preferred Stock are to be issued.  The Company shall, as soon as practicable thereafter, issue and deliver to such holder a certificate or certificates for the number of shares of Series B Preferred Stock to which such holder shall be entitled.

(c)Amendment to Stockholders Agreement.  Within 40 days following the First Closing, the Company and the Investors hereby agree to cause the Stockholders Agreement to be duly amended so that all of the Shares will be subject to, and receive all rights and privileges under, the Stockholders Agreement, 

including all registration rights described therein, upon conversion.

(d)Form D.  The Company agrees to file a Form D with respect to the Shares as required under Regulation D under the Securities Act and to comply with any applicable state securities and “Blue Sky” laws in connection with the sale of the Shares.

(e)Publicity.  Each Purchaser agrees that it will not issue any press release or otherwise make any public statement, filing or other communication regarding the Offering or the business, operations or financial condition of the Company without the prior written consent of the Company, except to the extent required by law or legal process, in which case the Purchaser shall provide the Company with prior written notice of such disclosure.  The Company agrees that it will not publicly disclose the name of any Purchaser or include the name of any Purchaser, without the prior written consent of such Purchaser, in any press release or other public statement, filing or other communication, except (i) in any registration statement in which such Purchaser is identified as a selling securityholder, or (ii) to the extent required by law or legal process and except for Form D required for this Offering, in which case the Company shall provide such Purchaser with prior notice of such disclosure.

(f)Information.  Each Purchaser covenants and agrees to promptly furnish to the Company any and all information concerning such Purchaser and its investment in the Company that the Company may from time to time reasonably request for the purpose of complying with any federal, state, local or foreign law, statute, rule, regulation or governmental or regulatory requirement, and each Purchaser warrants and represents that, at the time any such information is furnished to the Company, such information will be accurate and complete.

Section 5.  Conditions to the Company's Obligation to Sell.

The obligation of the Company hereunder to issue and sell the Shares to any Purchaser at the applicable Closing is subject to the satisfaction, at or before the applicable Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing such Purchaser with prior written notice thereof:

(a)Each Purchaser shall have executed this Agreement, in a form reasonably satisfactory to the Company, and delivered the same to the Company.

(b)Each Purchaser shall have delivered to the Company such Purchaser's Purchase Price at the Closing by wire transfer of immediately available funds pursuant to the wire instructions set forth in Exhibit B.

(c)Each Purchaser shall have executed an addendum to the Stockholders Agreement (if not currently a stockholder of the Company), and delivered the same to the Company.

(d)The representations and warranties of each Purchaser shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and each Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by 

this Agreement to be performed, satisfied or complied with by such Purchaser at or prior to the Closing Date.

(e)No injunction, restraining order, action or order of any nature by a governmental or regulatory authority shall have been issued, taken or made or no action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority of competent jurisdiction that would, prior to or as of the Closing Date, prevent or materially interfere with the consummation of the transactions contemplated herein.  In addition, no action, suit or proceeding before any court or any governmental agency shall have been commenced or threatened, no investigation by any governmental agency shall have been commenced and no action, suit or proceeding by any governmental agency shall have been threatened against any Purchaser or the Company (i) seeking to restrain, prevent or change the transactions contemplated herein or questioning the validity or legality of any of such transactions or (ii) which could reasonably be expected to have a material adverse effect on the Company's financial condition, business, prospects or operations.

Section 6.  Conditions to Purchaser's Obligation to Purchase.
The obligation of each Purchaser hereunder to purchase the Shares at the applicable Closing is subject to the satisfaction, at or before the applicable Closing Date, of each of the following conditions, provided that these conditions are for each Purchaser's sole benefit and may be waived by each Purchaser at any time in such Purchaser's sole discretion by providing the Company with prior written notice thereof.

(a)The Company shall have executed and delivered, to each Purchaser (i) this Agreement and (ii) the Shares being purchased by such Purchaser at the Closing pursuant to this Agreement, in each case, in form and substance reasonably satisfactory to such Purchaser.

(b)The representations and warranties of the Company contained herein shall be true and correct as of the Closing Date (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by the this Agreement to be performed, satisfied or complied with by the Company, as applicable, at or prior to the Closing Date.  Each Purchaser or its agent shall have received certificates, executed by an authorized officer of the Company, dated as of the Closing Date, to the foregoing effect.  The statements of the Company and its officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date.

(c)No injunction, restraining order, action or order of any nature by a governmental or regulatory authority shall have been issued, taken or made or no action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority of competent jurisdiction that would, prior to or as of the Closing Date, prevent or materially interfere with the consummation of the transactions contemplated herein; and no stop order suspending the qualification or exemption from qualification of any of the Shares in any jurisdiction shall have been issued and no proceeding for that purpose shall have been commenced or, to the knowledge of the Company after reasonable inquiry, be pending or contemplated as of the Closing Date.

(d)The Company shall have delivered to each Purchaser a Secretary's certificate certifying to (i) the incorporation and good standing of the Company  in its jurisdiction of incorporation; (ii) qualification by such entity as a foreign corporation and good standing issued by the Secretaries of State (or comparable office) of each of the jurisdictions in which the Company operates as of a date within 30 days of the Closing 

Date; and (iii) (A) the resolutions as adopted by the Company's Board of Directors authorizing this Agreement and the documents contemplated hereby and transactions contemplated hereunder and thereunder, and (B) the accuracy of attached copies of the charter and bylaws, or other organizational documents, of the Company and such other matters as reasonably requested by the Purchasers and as are customary for similar transactions.

(e)The Company shall have caused a person permitted by the Company's articles of incorporation to call a special meeting of stockholders to give notice to that effect in writing to the secretary of the Company for purposes of approving the Company's amended and restated articles of incorporation as set forth in Section 4(a).

Section 7.  Waiver of Preemptive Rights

The Investors and warrant holders (who exercised their warrants in accordance with Section 1(a)(v)) that execute this Agreement hereby waive, solely in connection with the Offering, the provisions of Section 3 of the Stockholders Agreement, including, but not limited to, the right (i) to receive a Preemptive Rights Notice (as defined therein), (ii) to have five business days after delivery of the Preemptive Rights Notice to elect to subscribe for the Shares, and (iii) to be entitled to purchase a pro rata portion of the Shares not subscribed to by the Investors who received the Preemptive Rights Notice. The waiver of the rights set forth in this Section 7 shall not be deemed to be a waiver of any other right, power or remedy of the Investors under the Stockholders Agreement or shall, except to the extent so waived, impair, limit or restrict the exercise of such right, power or remedy.

Section 8.  Miscellaneous.

(a)Notices.  Any notice or other communication required or permitted to be provided hereunder shall be in writing and shall be delivered in person or by first class mail (registered or certified, return receipt requested), facsimile, electronic mail, or overnight air courier guaranteeing next day delivery.  The address for such notices and communications shall be as follows:

If to the Company:
Platinum Energy Solutions, Inc.
2100 West Loop South, Suite 1601
Houston, TX  77027
Attention: Chief Financial Officer
Fax:  713-590-2827
E-mail:  clegler@platinumenergysolutions.com

with copies to (which shall not constitute delivery): 

Kelley Drye & Warren LLP
33 West Wacker Drive, 26th Floor
Chicago, IL  60606
Attention:  Timothy R. Lavender, Esq.

Fax:  312-857-7095
E-mail:  tlavender@kelleydrye.com

If to a Purchaser:

To the address set forth under such Purchaser's name on the signature pages hereto or such other address as may be designated in writing hereafter, in the same manner, by such person.

All notices and communications shall be deemed to have been duly given at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if sent by facsimile; when sent, if sent via electronic mail to the address set forth above provided that a mail delivery failure or similar message is not received by the sender; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.  Failure to provide a notice or communication to one party hereto or any defect in it shall not affect its sufficiency with respect to other parties hereto.

(b)Independent Nature of Purchaser's Obligations and Rights.  The obligations of each Purchaser under this Agreement are several and not joint with the obligations of each other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under this Agreement.  Nothing contained in this Agreement or in any document contemplated hereby to which it is a party, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchaser as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement or any document contemplated hereby.  Each Purchaser acknowledges that no other Purchaser will be acting as agent of such Purchaser in enforcing its rights under this Agreement.  Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

(c)Governing Law; Jurisdiction.  The internal law of the State of New York will govern and be used to construe this Agreement without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby.  No legal proceeding may be commenced, prosecuted or continued by any party hereto in any court other than the competent federal and state courts of the State of New York, which courts shall have jurisdiction over the adjudication of such matters, and the Company and each Purchaser hereby consents to the jurisdiction of such courts and personal service with respect thereto.

(d)Amendments and Waivers.  No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and Purchasers representing a majority of the Shares purchased or to be purchased, and any amendment to this Agreement made in conformity with the provisions of this Section 8(d) shall be binding on the Purchasers and all holders of the Shares purchased under this Agreement, as applicable.  No provision hereof may be waived other than by an instrument in writing signed by the party from whom such waiver is requested.

(e)Further Assurances.  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 any 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 hereunder.

(f)Entire Agreement.  This Agreement supersedes all other prior oral or written agreements among the parties hereto and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, none of the parties hereto makes any representation, warranty, covenant or undertaking with respect to such matters.

(g)Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party shall assign any of its rights or obligations hereunder without the prior written consent of the other party.

(h)Counterparts; Facsimile Copies.  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement.  In the event that any signature is delivered by facsimile transmission or electronic portable document format, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile or electronic signature were the original thereof.

(i)Severability.  If any provision of this Agreement shall be invalid, unenforceable, illegal or void in any jurisdiction, such invalidity, unenforceability, illegality or voidness shall not affect the validly or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.  In that case, the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision.  It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining provisions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(j)Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

(k)No Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

(l)Share Increments.  All Shares purchased hereunder shall be purchased in increments of 200 Shares.

[Signature Pages Follow]

IN WITNESS WHEREOF, the parties hereto have caused their respective signature page to this Stock Purchase Agreement to be duly executed as of the date set forth on such signature page.
	
			
	 
	 
	Platinum Energy Solutions, Inc.

	 
	 
	 

	 
	By:
	/s/ J. Clarke Legler, II

	 
	 
	Name:J. Clarke Legler, II

	 
	 
	Title:Chief Financial Officer

	
			
	 
	 
	PURCHASER

	 
	 
	CLEARLAKE CAPITAL PARTNERS II (MASTER), L.P.

	 
	 
	 

	 
	By:
	Clearlake Capital Partners II GP L.P.

	 
	Its:
	General Partner

	 
	 
	 

	 
	By:
	Clearlake Capital Partners LLC

	 
	Its:
	General Partner

	 
	 
	 

	 
	By:
	CCG Operations, LLC

	 
	Its:
	Managing Member

	 
	 
	 

	 
	By:
	/s/ José E. Feliciano

	 
	 
	Name:José E. Feliciano

	 
	 
	Title:Manager

	
			
	 
	Date:
	March 22, 2012

	 
	Address:
	233 Wilshire Blvd., Suite 800

	 
	 
	Santa Monica, CA 90401

                        
	
		
	 
	Maximum Amount Willing to Invest in Purchase of Shares (in U.S. Dollars):

$8,000,000

	
			
	 
	 
	PURCHASER

	 
	 
	LUCKY CHARM RESOURCES, INC.

	 
	 
	 

	 
	By:
	/s/ L. Charles Moncla, Jr.

	 
	 
	Name:  L. Charles Moncla, Jr.

	 
	 
	Title:  President

	
			
	 
	Date:
	3/21/12

	 
	Address:
	PO Box 131368

	 
	 
	Houston, TX 77219

            

	
		
	 
	Maximum Amount Willing to Invest in Purchase of Shares (in U.S. Dollars):

$7,000,000.00

	
			
	 
	 
	PURCHASER

	 
	 
	DO S1 Limited

	 
	 
	 

	 
	By:
	/s/ Shawn Brick

	 
	 
	Name:  Shawn Brick

	 
	 
	Title:  Head of Product Control

	
			
	 
	Date:
	03/23/2012

	 
	Address:
	5th FLOOR,

	 
	 
	33 GROSVENOR PLACE

	 
	 
	LONDON, SW17HY

	 
	 
	UK

                        
	
		
	 
	Maximum Amount Willing to Invest in Purchase of Shares (in U.S. Dollars):

$1,012,500

	
			
	 
	 
	PURCHASER

	 
	 
	KNIGHT CAPITAL HOLDINGS LLC

	 
	 
	 

	 
	By:
	/s/ Andrew M. Greenstein

	 
	 
	Name:  Andrew M. Greenstein

	 
	 
	Title:  Managing Director and Secretary

	
			
	 
	Date:
	3/23/2012

	 
	Address:
	545 WASHINGTON BLVD.

	 
	 
	JERSEY CITY, NJ 07310

	
		
	 
	Maximum Amount Willing to Invest in Purchase of Shares (in U.S. Dollars):

$100,000

	
			
	 
	 
	PURCHASER

	 
	 
	 

	 
	By:
	/s/ William Restrepo

	 
	 
	Name:  William Restrepo

	
			
	 
	Date:
	3/30/2012

	 
	Address:
	3219 OAKMONT DR.

	 
	 
	SUGAR LAND, TX 77479

                        

	
		
	 
	Maximum Amount Willing to Invest in Purchase of Shares (in U.S. Dollars):

$100,000.00

	
			
	 
	 
	PURCHASER

	 
	 
	 

	 
	By:
	/s/ Mervin Dunn

	 
	 
	Name:  Mervin Dunn

	
			
	 
	Date:
	4/5/2012

	 
	Address:
	4737 Yantis Drive R.

	 
	 
	New Albany, OH 43054

                        
	
		
	 
	Maximum Amount Willing to Invest in Purchase of Shares (in U.S. Dollars):

$100,000.00

Exhibit A
Series B Preferred Stock Description
Terms of Series B Preferred Stock

	
		
	Series B Preferred Terms:
	 

	 
	Dividends:  Holders of Series B Preferred Stock (“Series B Preferred Stock”) will be entitled to receive cumulative dividends at a rate of 5% per annum of the purchase price per share in preference to dividends to the holders of any Junior Securities (as defined below), payable, at the option of the Company, in cash or additional shares of Series B Preferred Stock (paid at the purchase price of such Series B Preferred during the 18-month period following the issuance of such Series B Preferred Stock, and thereafter at the fair market value of the Series B Preferred as determined by the Company's Board) on a quarterly basis, all subject to the terms of the Company's (a) indenture dated as of March 3, 2011, as amended, with The Bank of New York Mellon Trust Company, N.A., as to its senior notes, and (b) credit facility dated as of December 28, 2011 with JPMorgan Chase Bank, N.A.  If the Company has not completed an Initial Public Offering (as defined below) within 18 months of issuance of the Shares, the dividend rate will increase to 10% per annum.  For purposes of this term sheet, “Junior Securities” will mean all other series of capital stock of the Company when and if authorized by the board of directors, including, but not limited to the common stock of the Company and “Initial Public Offering” will mean the Company's first firm commitment underwritten public offering of its common stock (“Common Stock”) under the Securities Act.  For the purposes hereof, a Qualified IPO (as defined below) shall be deemed an Initial Public Offering.

	 
	 

	 
	Liquidation Preference and Ranking:  In the event of any liquidation or winding up of the Company, any sale of all or substantially all of the assets of the Company, or a merger, or a consolidation of the Company (“Liquidity Event”), the holders of the Series B Preferred Stock will be entitled to receive, in preference to the holders of Junior Securities and pari passu with the holders of Series A Preferred Stock of the Company, an amount equal to the greater of (i) 1x the original investment amount plus any accrued or declared but unpaid dividends, if any (“Liquidation Preference”) or (ii) the amount to be received by such holders in connection with such Liquidity Event upon conversion of the Series B Preferred Stock to Common Stock.

	 
	 

	 
	Voting Rights:  Series B Preferred Stock will have no voting rights.

	 
	 

	 
	Conversion:  Each share of Series B Preferred Stock will be convertible at any time, at the option of the holder, into shares of common stock.  The total number of shares of common stock into which Series B Preferred Stock may be converted will be determined by multiplying each share of Series B Preferred Stock to be converted by 200 (“Conversion Ratio”).

	 
	 

	 
	Automatic Conversion Upon Qualified IPO:  The Series B Preferred Stock will be automatically converted to common stock at the then applicable Conversion Ratio upon consummation of an initial public offering of common stock in a nationally recognized exchange with total proceeds available to the public of $50 million or more and an implied pre-money equity market capitalization of at least $125 million (“Qualified IPO”); provided, that such automatic conversion shall be conditioned upon either (i) a price per share of common stock issued in connection with the Qualified IPO of at least $5.00 or (ii) the determination of the holders of at least 60% of the Series B Preferred Stock.

	
		
	 
	 

	 
	Automatic Conversion into New Preferred:  The holders of at least 60% of the Series B Preferred Stock shall have the right to cause all holders of Series B Preferred Stock to convert such shares of Series B Preferred Stock into a new series of preferred stock ("New Preferred"), if the Company consummates a transaction for the sale of such New Preferred with 90 days following the issuance of the first Share by the Company.

	 
	 

	 
	Anti-Dilution Protection:  The Conversion Ratio will be subject to weighted average anti-dilution adjustments for capital reorganizations, reclassifications or other changes or equity issuances below the Conversion Ratio (other than Exempt Share issuances).  “Exempt Shares” means shares issued by the Company in connection with (i) the dividends on Series B Preferred Stock described above, (ii) conversion of the Series B Preferred Stock or any Junior Securities, (iii) public offerings, (iv) joint ventures, strategic alliances or acquisitions of other companies, (v) equipment leasing arrangements or loans to the Company by banks or financial institutions and (vi) equity issuances made to employees, consultants or directors pursuant to plans or other arrangements approved by the Board in connection with authorized carve-out transactions.  For purposes of the definition of “Exempt Shares”, the phrase “approved by the Board” shall mean approval by at least four-fifths of the members of the Board.

	Shareholder Rights:
	 

	 
	Preemptive Rights:  Each holder of Series B Preferred Stock will have preemptive rights on all offerings of equity securities or securities convertible or exchangeable into equity securities in order to maintain its fully-diluted equity ownership at the time of such preemptive rights offer.  Notwithstanding the provisions above, no preemptive rights will apply to (i) up to 1,044,816 shares of Common Stock issued, or deemed issued, pursuant to the Company's 2010 Omnibus Equity Incentive Plan, as adjusted each year pursuant to the terms thereby, (ii) except in subsection (i) above, equity compensation grants to (and exercises thereof by) employees, consultants or directors in connection with plans or other arrangements approved by the Board, (iii) the issuance of securities in connection with any joint venture, strategic alliance, acquisition or merger approved by the Board, (iv) securities issued or issuable by reason of a dividend, stock split, split-up, reclassification or reorganization or other similar event with respect to the capital stock of the Company, (v) securities issued by the Company in connection with any equipment leasing arrangement or debt financing from a bank or similar financial institution, or (vi) the issuance of shares of Common Stock issued in connection with an Qualified IPO  For purposes of this section, the phrase “approved by the Board” shall mean approval by at least four-fifths of the members of the Board.  The rights will terminate upon a Qualified IPO by the Company.

	 
	 

	 
	Drag Along Rights:  If a majority of the Company's stockholders or at least four-fifths of the members of the Board vote to pursue a Liquidity Event, all stockholders, including the Series B Preferred Stock, will be compelled to vote in favor of such action.

	 
	 

	 
	Tag Along Rights:  Each holder of Series B Preferred Stock shares will be entitled to sell their shares in a sale transaction with other selling shareholders on any sale of more than half of one percent (1/2%) of the voting equity securities of the Company by one or more of the Management Holders (as defined below). For the purpose of this term sheet, the term “Management Holder” will mean (a) any of (i) J. Clarke Legler, II; (ii) L. Charles Moncla, Jr.; and (iii) Milburn J. Duconte; and (b) any related party of any one or more of the persons listed in clause (a) above.

	 
	 

	
		
	 
	Registration Rights:  At the Company's cost, each holder of Series B Preferred Stock will be entitled to “piggy-back” registration rights on registrations of the Company, subject to the right of the Company and its underwriters to reduce in view of market conditions the number of shares of Series B Preferred Stock proposed to be registered in the offering.

	 
	 

	 
	Information Rights:  The holder of Series B Preferred Stock will have certain information rights with respect to the Company's finances, budget and operations, material litigation and otherwise, to be set forth in the definitive agreements.

	 
	 

	 
	Shareholder Rights of Preferred B Holders No Less Favorable Than Those of Other Holders.  The preemptive rights, tag along rights, drag along rights, registration rights and information rights granted to the holder of Series B Preferred Stock will on terms no less favorable than those granted to any holder of any other previously issued class or series of capital stock.

	 
	 

	 
	For the avoidance of doubt, in the event of any conflict between this Shareholder Rights section and the terms of the Stockholders Agreement, the terms of the Stockholders Agreement shall prevail.

Exhibit B
Company's Wire Instructions
JPMorgan Chase Bank, N.A.
ABA 111000614
Acct. Name: Platinum Energy Solutions Inc.
Acct. #: 908120819ex1020debenture.htm

EXHIBIT 10.20

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS 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 AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date_______________________

Original Conversion Price (subject to adjustment herein): $0.05

$_______________

8.0% TWO-YEAR CONVERTIBLE DEBENTURE

THIS 8.0% TWO-YEAR CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 8.0% Convertible Debentures of OXIS International, Inc., a Delaware corporation, (the “Company”), having its principal place of business at 468 N. Camden Drive, 2nd Floor, Beverly Hills, CA 90210, designated as its 8.0% Two-Year Convertible Debenture (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).

FOR VALUE RECEIVED, the Company promises to pay to ________________________ or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $_______________ on the last day of the month in which occurs the second anniversary of the Original Date of Issue (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, together with interest thereon accrued and unpaid to such date.  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 shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

  

1

  

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) 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 Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant 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 Significant 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 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant 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.

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Buy-In” shall have the meaning set forth in Section 4(c)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior

  

2

  

to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a two year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (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), or (e) the execution by the Company of an agreement to which the Company  is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” means the records of the Company regarding registration and transfers of this Debenture and lists the Person in whose name this Debenture is registered.

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Event of Default” shall have the meaning set forth in Section 8(a).

“Forbearance Agreement” means the Forbearance and StandStill Agreement, dated as of September___, 2011 among the Company and Bristol Investment Fund Ltd., as amended, modified or supplemented from time to time in accordance with its terms.

 “Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

 

“Mandatory Default Amount”  means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 100% of the outstanding principal amount of this Debenture, and

  

3

  

(b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” means the date of the first issuance of each of the Debentures, regardless of any transfers of any such Debenture and regardless of the number of instruments which may be issued to evidence such Debenture.

“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures and (b) the Indebtedness existing on September __, 2011.

“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien and (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (b).

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of May 1, 2012 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

“Successor Entity” shall have the meaning set forth in Section 5(e).

 

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE AMEX,

  

4

  

the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTC Bulletin Board or the Pink OTC Markets, Inc. (or any successors to any of the foregoing).

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

Section 2.                      Interest and Prepayment. No regularly scheduled interest payments shall be made on this Debenture. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the Principal Amount of this Debenture without the prior written consent of the Holder. Upon conversion of this Debenture pursuant to Section 4 hereof, all amounts of accrued and unpaid interest on the principal amount of this Debenture so converted shall be converted into the Company’s Common Stock upon the same terms as such principal amount.

Section 3.                      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 payable 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 for transfer to the Company 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

  

5

  

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 4.                      Conversion.

 

 

a)           Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, subject to filing the Increase Amendment, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof).  The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”).  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder.  To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion.  The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s).  The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

 

b)           Conversion Price.  The conversion price in effect on any Conversion Date shall be equal to $0.05, subject to adjustment herein (the “Conversion Price”).

	
  

	
c)

	
Mechanics of Conversion.

 

 

i.           Conversion Shares Issuable Upon Conversion of Principal Amount.  The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

i.

ii.           Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i)

  

6

  

the six month anniversary of the Original Issue Date of this Debenture or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture. On or after the earlier of (i) the six month anniversary of the Original Issue Date of this Debenture or (ii) the Effective Date, the Company shall use commercially reasonable efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

 

 

iii.           Failure to Deliver Certificates.  If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

 

 

iv.           Obligation Absolute; Partial Liquidated Damages.  The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder.  In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment.  In the

  

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absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion.  If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $100 per Trading Day (increasing to $200 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion.    Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  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.           Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii).  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 this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.  The Holder shall provide the Company written notice indicating the

  

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amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

 

 

vi.           Reservation of Shares Issuable Upon Conversion. Subject to filing the Increase Amendment, the Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture, as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture.  The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement.

vii.           Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture.  As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.           Transfer Taxes.  The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

d)           Holder’s Conversion Limitations.  The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the

  

9

  

applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, 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 conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination.  In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.   For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written 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 a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder.  The Holder, upon not

  

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less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply.  Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company.  The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

 

Section 5.                      Certain Adjustments.

 

 

a)           Stock Dividends and Stock Splits.  If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately 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.

 

 

b)           Subsequent Equity Sales.  If, at any time while this Debenture is outstanding,  the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions,

 

  

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floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price.  Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.  Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance.  If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”).  For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

 

c)           Subsequent Rights Offerings.  If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to the Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights, options 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 outstanding on the date of issuance of such rights, options or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP.  Such adjustment shall be made whenever such rights, options 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.

 

 

d)           Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a

  

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fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith.  In either case the adjustments shall be described in a statement delivered to the Holder describing 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.

 

 

e)           Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among

  

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the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction.  The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Debenture and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

 

f)           Calculations.  All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

g)           Notice to the Holder.

i.           Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after

  

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such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

 

ii.           Notice to Allow Conversion by Holder.  If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, 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 deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

h)           One-Time Adjustment.  If the average of the three lowest trading prices of the Company’s Common Stock during the twenty trading days preceding the sixth month anniversary of the Original Issue Date of the Debenture is below $0.05 per share (the "Trigger Price"), the Base Conversion Price shall be automatically adjusted to equal 85% of the Trigger Price.

  

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Section 6.                      RESERVED.

Section 7.                      Negative Covenants. As long as any portion of this Debenture remains outstanding, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

a)           other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, 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;

 

 

b)           other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)           amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d)           repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

e)           pay cash dividends or distributions on any equity securities of the Company;

f)           enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

g)           enter into any agreement with respect to any of the foregoing.

 

 

Section 8.                      Events of Default.

a)           “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order

  

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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) other fees owing on any Debenture or liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of defaults under clause (B) above, is not cured within 3 Trading Days;

 

 

ii.           the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (ix) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

iii.           except for any obligation described in the Forbearance Agreement, a default or event of default (subject to any grace or cure period provided 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 obligated (and not covered by clause (vi) below);

iv.           any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.           the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X)  shall be subject to a Bankruptcy Event;

vi.           except for any obligation set forth in the Forbearance Agreement, the Company or any Subsidiary shall default on 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 that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being

  

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declared due and payable prior to the date on which it would otherwise become due and payable;

vii.           the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.           the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.           the Company shall fail for any reason to deliver certificates to a Holder prior to the fifth Trading Day after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof;

x.           any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 30 calendar days; or

xi.           the Company fails to file the Required Filing with the Commission within thirty (30) days from the date hereof.

b)           Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture plus accrued but unpaid liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount.  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 an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.  Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company.  In connection with such acceleration described herein, 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 acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b).  No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

  

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Section 9.                      Miscellaneous.

 

 

a)           Notices.  Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a).  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, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement.  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 number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. 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 and liquidated damages 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 regardless of any difference in the scheduled maturity date of such Debentures.

 

 

c)           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, reasonably satisfactory to the Company.

d)           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 New York, without regard to

  

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the principles of conflict of laws thereof.  Each party agrees that all legal proceedings concerning the interpretation, 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 New York, Borough of Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York 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 such New York Courts, or such New York 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 other manner permitted by applicable 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 any 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 attorney’s fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

 

e)           Waiver and Amendments.  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 on any other occasion.  Any waiver by the Company or the Holder must be in writing.  This Debenture may only be modified, supplements or amended in a written instrument signed by the Company and the Holders holding at least 67% in interest of the Debentures then outstanding.

 

 

f)           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 the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. 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

  

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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 impede 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.

 

 

g)           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.

h)           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.

*********************

 

(Signature Pages Follow)

 

  

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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.

	
OXIS INTERNATIONAL, INC.

 

 

	
By:__________________________________________

     Name:

     Title:

Facsimile No. for delivery of Notices: _______________

	  
	  

  

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 8.0% Two-Year Convertible Debenture of OXIS International, Inc., a Delaware corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below.  If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:                                           

Account No:                                           

  

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Schedule 1

CONVERSION SCHEDULE

The 8.0% Two-Year Convertible Debentures in the aggregate principal amount of $____________ are issued by OXIS International, Inc., a Delaware corporation.  This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

	
 

Date of Conversion

(or for first entry, Original Issue Date)

	
 

Amount of Conversion

	
 

Aggregate Principal Amount Remaining Subsequent to Conversion

(or original Principal Amount)

	
 

Company Attest

	  	  	  	  
	  	  	  	  
	
 

 

 

	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  

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