Exhibit 10.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
TRANSMERIDIAN EXPLORATION
INCORPORATED
CONVERTIBLE PROMISSORY
NOTE
|
|
|
|
|
U.S. [
]
|
|
Houston, Texas
|
|
No.:
PN-2005-[ ]
|
|
August 30, 2005
|
FOR VALUE RECEIVED
, the undersigned, Transmeridian
Exploration Incorporated, a Delaware corporation (the “
Company ”), hereby promises to pay to the order of [
] or any future holder of this convertible promissory note (the
“ Payee ”), at the principal office of the Payee
set forth herein, or at such other place as the holder may
designate in writing to the Company, the principal sum of up to [
] Dollars (U.S. $[
]), or such other amount as may be outstanding hereunder, together
with all accrued but unpaid interest, in such coin or currency of
the United States of America as at the time shall be legal tender
for the payment of public and private debts and in immediately
available funds, as provided in this convertible promissory note
(the “ Note ”).
1. Principal and Interest
Payments .
(a) The Company shall repay in full
the entire principal balance then outstanding under this Note on
the first to occur (the “ Maturity Date ”) of:
(i) the Payment Date; or (ii) the acceleration of the obligations
as contemplated by this Note. The “Payment Date” shall
be December 15, 2005.
(b) Interest on the outstanding
principal balance of this Note shall accrue at a rate of ten
percent (10%) per annum, compounded quarterly. Interest on the
outstanding principal balance of the Note shall be computed on the
basis of the actual number of days elapsed and a year of three
hundred and sixty (360) days and shall be payable on the Maturity
Date. Furthermore, upon the occurrence of an Event of Default, then
to the extent permitted by law, the Company will pay interest to
the Payee, payable on demand, on the outstanding principal balance
of the Note from the date of the Event of Default until payment in
full at the rate of twelve percent (12%) per annum.
(c) The Company may not prepay the
outstanding principal amount of this Note prior to the Maturity
Date without the written consent of the Payee; provided, however,
that after the Conversion Date (as defined below), the Company may
prepay the outstanding principal amount of this Note together with
interest accrued thereon or, if only a portion of this Note shall
have been converted, any new note issued with respect to the
principal amount not converted.
(d) Whenever any payment to be made
shall be due on a Saturday, Sunday or a public holiday under the
laws of the State of Texas, such payment may be due on the next
succeeding business day and such next succeeding day shall be
included in the calculation of the amount of accrued interest
payable on such date.
2. Conversion of Note
.
(a) On the date of the consummation
by the Company of an offering of the Company’s equity
securities (which for purposes of this Section 2 includes any
securities convertible into or exercisable for any of the
Company’s capital stock, but does not include any Exempt
Securities, as defined below), this Note and all accrued and unpaid
interest thereon shall be convertible, in whole or in part and at
the option of the Payee, into a number of shares of such equity
securities equal to the quotient obtained by dividing (i) the
product of (x) the principal amount of this Note being converted by
the Payee (together with all accrued and unpaid interest thereon)
and (y) 1.10, by (ii) the price per security at which such equity
securities are sold to other investors in such offering. The
Company shall notify the Payee of the proposed closing date of any
such offering no less than 3 business days, but no more than 5
business days, prior to such date
(b) In the event that the Payee
elects to convert all or a portion of the Note pursuant to Section
2(a), the Payee shall surrender the Note to the Company, along with
a written notice to the Company, in the manner specified in Section
9 hereof, at least 1 day prior to the date on which conversion is
sought to become effective (the “Conversion Date”) that
such Payee elects to convert the Note or a specified portion
thereof on the Conversion Date, and such notice shall specify the
names (and addresses) in which certificates for Conversion Shares
(as defined below) are to be issued.
(c) If the Note is surrendered for
conversion pursuant to Section 2(b), then promptly after the
Conversion Date, the Company shall deliver or cause to be delivered
to the Payee certificates representing the number of fully paid and
non-assessable shares of the applicable equity securities (the
“Conversion Shares”), into which the Note may be
converted. Such conversion shall be deemed to have been made
immediately prior to the close of business on the Conversion Date,
so that the rights of the Payee as a holder of the Note shall cease
with respect to the Note at such time (including, without
limitation, the right to receive the principal amounts of the Note
other than in the form of Conversion Shares), interest shall cease
to accrue hereon and the person or persons entitled to receive the
Conversion Shares deliverable upon conversion of the Note shall be
treated for all purposes as having become the record holders of
such Conversion Shares at such time. If this Note shall have been
converted in part, the Company shall, at the time of delivery of
the certificate or certificates representing Conversion
2
Shares, deliver to the Payee a new
Note evidencing the rights of the Payee with respect to the
remaining principal amount (and all accrued and unpaid interest
thereon), which new Note shall in all other respects be identical
with this Note, or at the request of the Payee, appropriate
notation may be made on this Note and the same returned to the
Payee. If the Company intentionally and willfully fails to deliver
to the Payee such certificate or certificates pursuant to this
Section 2(c) (free of any restrictions on transfer or legends, if
such shares have been registered) in accordance herewith, prior to
the tenth (10 th ) Business Day after the receipt by
the Company of (i) a written notice of Payee’s election to
convert this Note, and (ii) this Note (the “Date of
Receipt”), the Company shall pay to such Payee, in cash, on a
per diem basis, an amount equal to 2% of the value of the
undelivered Conversion Shares or shares of Common Stock issuable
upon conversion of the Conversion Shares if the Conversion Shares
do not consist of Common Stock (based on the current market price
of the Common Stock on the Date of Receipt) per month until such
delivery takes place.
(d) The Company covenants that it
will at all times reserve and keep available out of its authorized
shares of capital stock, solely for purpose of issue or delivery
upon conversion of the Note as herein provided, such number of
Conversion Shares as shall then be issuable or deliverable upon the
conversion of the Note and such number of shares of Common Stock as
shall then be issuable upon conversion of the Conversion Shares, if
applicable. The Company covenants that all Conversion Shares which
shall be so issuable or deliverable (and all shares of Common Stock
issuable upon conversion of the Conversion Shares, if applicable)
shall, when issued or delivered, be duly and validly issued and
fully paid and non-assessable.
(e) Notwithstanding anything
contained in this Note to the contrary, the number of Conversion
Shares (if the Conversion Shares consist of the Company’s
common stock, par value $0.0006 per share (the “Common
Stock”) and otherwise the number of shares of Common Stock
issuable upon conversion of the Conversion Shares), together with
the number of shares of Common Stock issuable upon exercise of the
warrants issued pursuant to the Purchase Agreement (as defined
below) (such warrants, the “Warrants”, and such shares
of Common Stock issuable upon exercise thereof, the “Warrant
Shares”), shall not exceed 19.99% of the number of shares of
Common Stock outstanding on the Closing Date, subject to
appropriate adjustment for stock splits, stock dividends, or other
similar recapitalizations affecting the Common Stock (the
“Maximum Common Stock Issuance”), unless the issuance
of shares hereunder and thereunder in excess of the Maximum Common
Stock Issuance shall first be approved by the Company’s
stockholders in accordance with applicable law and the By-laws and
Certificate of Incorporation of the Company. If at any point in
time and from time to time (each a “Trigger Date”), the
number of Conversion Shares or shares of Common Stock issuable upon
conversion of the Conversion Shares, as applicable, together with
the number of Warrant Shares, would exceed the Maximum Common Stock
Issuance but for this Section 2(e), then the Company shall promptly
call a shareholders meeting to request shareholder approval for the
issuance of Common Stock hereunder and thereunder in excess of the
Maximum Common Stock Issuance. Following any approval by the
shareholders of such an additional issuance, the Note shall be
convertible into the number of shares of Common Stock determined
pursuant to this Note without regard to the limitations provided in
this Section 2(e).
3
(f) The Company shall use
commercially reasonable efforts to consummate an offering of its
equity securities prior to the Maturity Date. If the Company does
consummate such an offering and the Payee elects to convert this
Note or any portion of this Note pursuant to Section 2(a), then
Payee shall participate in such transaction on substantially
identical terms to those on which the other investors in such
transaction participate, including, without limitation, warrant
coverage, if applicable. Without limiting the generality of the
foregoing, the Payee shall benefit from the registration and other
rights granted to the other investors in such an offering with
respect to the Conversion Shares, or the shares of Common Stock
issuable upon conversion of the Conversion Shares, as
applicable.
(g) “ Exempt Securities
” means any shares of Common Stock issued by the Company
after the date of issuance of this Note that are: (i) Warrant
Shares; (ii) shares issued or issuable pursuant to anti-dilution
provisions of the Series A Cumulative Convertible Preferred Stock
of the Company (the “Preferred Stock”); (iii) shares
issued or issuable upon the conversion of the Preferred Stock; (iv)
shares issued or issuable upon the exercise of any warrants or
options outstanding as of the date of the issuance of this Note;
(v) shares of Common Stock or Common Stock Equivalents (as defined
in the Warrants) issued in connection with a bona-fide strategic
transaction, partnership, joint venture or acquisition, except for
shares of Common Stock or Common Stock Equivalents issued in
connection with a transaction involving the entity that, as of the
date of the Purchase Agreement (as defined below), owns a 50%
interest in the Company’s principal operating subsidiary in
Kazakhstan or (vi) shares of Common Stock issued in connection with
any stock-based compensation plans of the Company in existence as
of the date of the issuance of this Note, or any issuance (at
issuance or exercise prices at or above fair market value) of
Common Stock, stock awards or options under, or the exercise of
options granted pursuant to, any Board approved emplo
