DEBENTURE
NEITHER THESE SECURITIES NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE 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 RULE 504 OF REGULATION D PROMULGATED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS.
US
$150,000
December 31, 2008
8% CONVERTIBLE DEBENTURE DUE DECEMBER
31, 2008
THIS DEBENTURE of Cozumel Corporation, a
Delaware corporation (the “Company”) in the aggregate
principal amount of One Hundred Fifty Thousand Dollars
(US $150,000), is designated as its $150,000, 8% Convertible
Debenture due December 31, 2005 (the
“Debentures”).
FOR VALUE RECEIVED, the Company promises
to pay to Arrakis Select, Ltd.or its registered assigns (the
“Holder”), the principal sum of One Hundred Fifty
Thousand Dollars (US $150,000), on or prior to December 31, 2005
(the “Maturity Date”) and to pay interest to the Holder
on the principal sum at the rate of eight percent (8%) per annum.
Interest shall accrue daily commencing on the Original
Issuance Date (as defined in Section 1 below) in the form of
cash or common stock of the Company selected by the Holder subject
to the provisions of Section 2(b) hereof, until payment in full of
the principal sum, together with all accrued and unpaid interest,
has been made or duly provided for. If at any time after the
Original Issuance Date an Event of Default has occurred and is
continuing, interest shall accrue at the rate of fifteen percent
(15%) per annum from the date of the Event of Default and the
applicable cure period through and including the date of payment.
Interest due and payable hereunder shall be paid to the
person in whose name this Debenture (or one or more successor
Debentures) is registered on the records of the Company regarding
registration and transfers of the Debentures (the “Debenture
Register”); provided , however , that the
Company’s obligation to a transferee of this Debenture shall
arise only if such transfer, sale or other disposition is made in
accordance with the terms and conditions hereof and of applicable
securities laws. A transfer of the right to receive principal
and interest under this Debenture shall be transferable only
through an appropriate entry in the Debenture Register as provided
herein.
If the Company in order to consummate a
merger (the “Merger”) enters into a merger agreement or
similar agreement with other parties (the “Merger
Partners”), the Merger Partners will effective upon the
consummation of any such Merger assume all of the obligations,
jointly and severally, with the Company, under this Debenture and
substitute the Company’s Common Stock, into which this
Debenture is convertible, for common stock of such Merger Partner
(“MP Common Stock”). If the Merger occurs,
then (i) references herein to Company Common Stock shall be
references to MP Common Stock and (ii) any references the Company
shall be read as references to the MP that issued the MP Common
Stock as if this Debenture were issued on the date hereof by the MP
that issued the MP Common Stock and the Company shall have no
further obligations to issue shares of Common Stock hereunder.
For the benefit of the Holder, the Company shall use its best
efforts to effectuate the intentions of this paragraph.
If there is a Merger all of the
provisions of this Debenture (specifically including Section 4)
shall be read and interpreted as if this Debenture was issued by
the Merger Partner issuing the MP Common Stock on the date hereof
and this Debenture was initially convertible into MP Common
Stock.
This Debenture is subject to the
following additional provisions:
Section 1 .
Definitions . As used in this Agreement, the
following terms shall have the following meanings:
“Adjusted Conversion Price”
means the lesser of the Fixed Conversion Price or the Floating
Conversion Price one day prior to the record date set for the
determination of stockholders entitled to receive dividends,
distributions, rights or warrants as provided for in Sections
4(c)(ii), (iii) and (iv).
“Company” shall mean the
Company or in the event there is a Merger, shall mean such
Merger Partner that issues the MP Common Stock.
“Common Stock” shall mean the
Common Stock of the Company, par value $.001, and in the event
there is a Merger, shall mean the MP Common Stock (as adjusted for
any reverse splits, forward splits, combination, reclassification
or stock dividend).
“Conversion Date” shall have
the meaning set forth in Section 4(a) hereof.
“Conversion Ratio” means, at
any time, a fraction, the numerator of which is the then
outstanding principal amount represented by the Debentures plus
accrued but unpaid interest thereon, and the denominator of which
is the conversion price at such time.
“Fixed Conversion Price”
shall have the meaning set forth in Section 4(c)i
hereof.
“Floating Conversion Price”
shall have the meaning set forth in Section 4(c)i
hereof.
“Maximum Conversion” shall
have the meaning set forth in Section 4(c)(i) hereof.
“Notice of Conversion” shall
have the meaning set forth in Section 4(a) hereof.
“Original Issuance Date”
shall mean the date of the first issuance of this Debenture
regardless of the number of transfers hereof.
Section 2 .
Denominations of Debentures; Interest
on Debentures . The
Debentures are exchangeable for an equal aggregate principal amount
of Debentures of different authorized denominations, as requested
by the Holder surrendering the same, but shall not be issuable in
denominations of less than integral multiplies of One Thousand
Dollars (US$1,000.00). No service charge to the Holder will
be made for such registration of transfer or exchange.
Section 3 .
Events of Default and
Remedies .
I.
“Event of Default,” when used
herein, means any one of the following events (whatever the reason
and whether any such event shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or
order of any court, or any order, rule or regulation of any
administrative or governmental body):
(a)
any default in the payment of the
principal of or interest on this Debenture as and when the same
shall become due and payable either at the Maturity Date, by
acceleration, conversion, or otherwise;
(b)
the Company shall fail to observe or
perform any other covenant, agreement or warranty contained in, or
otherwise commit any breach of, this Debenture, and such failure or
breach shall not have been remedied within five (5) Business Days
of its receipt of notice of such failure or breach;
(c)
the occurrence of any event or breach or
default by the Company hereunder and , if there is a cure period,
such failure or breach shall not have been remedied within the cure
period provided for therein;
(d)
the Company or any of its Subsidiaries
shall commence a voluntary case under the United States Bankruptcy
Code as now or hereafter in effect or any successor thereto (the
“Bankruptcy Code”); or an involuntary case is commenced
against the Company under the Bankruptcy Code and the petition is
not controverted within thirty (30) days, or is not dismissed
within sixty (60) days, after commencement of the case; or a
“custodian” (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or any substantial part of
the property of the Company or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or there is commenced against the Company
any such proceeding which remains undismissed for a period of sixty
(60) days; or the Company is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or
proceeding is entered; or the Company suffers any appointment of
any custodian or the like for it or any substantial part of its
property which continues undischarged or unstayed for a
period of thirty (30) days; or the Company makes a general
assignment for the benefit of creditors; or the Company shall fail
to pay, or shall state in writing that it is unable to pay its
debts generally as they become due; or the Company shall call a
meeting of its creditors with a view to arranging a composition or
adjustment of its debts; or the Company shall by any act or failure
to act indicate its consent to, approval of or acquiescence in any
of the foregoing; or any corporate or other action is taken by the
Company for the purpose of effecting any of the
foregoing;
(e)
the Company shall default in any of its
obligations under any mortgage, indenture or instrument under which
there may be issued, or by which there may be secured or evidenced,
any indebtedness of the Company in an amount exceeding One Hundred
Thousand Dollars ($100,000.00), whether such indebtedness now
exists or shall hereafter be created and such default shall result
in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and
payable;
(f)
the Company shall have its Common Stock
deleted or delisted, as the case may be, from the American Stock
Exchange, OTCBB or other national securities exchange or market on
which such Common Stock is listed for trading or suspended from
trading thereon, and shall not have its Common Stock relisted or
have such suspension lifted, as the case may be, within ten (10)
Trading Days of such deletion or delisting;
(g)
notwithstanding anything herein to the
contrary, but subject to the limitations set forth in the
Debentures, the Company shall fail to deliver share certificates
representing the shares of Common Stock to be issued upon
conversion of the Debentures within three (3) Business Days after
to the Company’s receipt of notice;
(h)
the Company shall issue a press release,
or otherwise make publicly known, that it is not honoring a
properly executed and duly delivered Notice of Conversion complying
with the terms of this Debenture, for any reason whatsoever;
and
(i)
the Company issues or enters into an
agreement to issue any convertible security, any equity line of
credit, or any security issued pursuant to Rule 504 of Regulation D
promulgated under the Securities Act, other than to the Purchaser
or any of its Affiliates or assigns, during the period commencing
on the date hereof and ending on the five year anniversary of the
Post-Closing Date.
II. (a)
If any Event of Default occurs, and
continues beyond a cure period, if any, then the Holder may, by
written notice to the Company, accelerate all of the payments due
under this Debenture by declaring all amounts so due under this
Debenture, whereupon the same shall become immediately due and
payable without presentment, demand, protest or other notice of any
kind, all of which are waived by the Company, notwithstanding
anything contained herein to the contrary, and the Holder may
immediately and without expiration of any additional grace period
enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by the Holder at any time
prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right
consequent thereon. This shall include, but not be limited to
the right to temporary, preliminary and permanent injunctive relief
without the requirement of posting any bond or
undertaking.
(b)
The Holder may thereupon proceed to
protect and enforce its rights either by suit in equity and/or by
action at law or by other appropriate proceedings whether for the
specific performance (to the extent permitted by law) of any
covenant or agreement contained in this Debenture or in aid of the
exercise of any power granted in this Debenture, and proceed to
enforce the payment of any of the Debentures held by it, and to
enforce any other legal or equitable right of such
Holder.
(c)
Except as expressly provided for herein,
the Company specifically (i) waives all rights it may have
(A) to notice of nonpayment, notice of default, demand,
presentment, protest and notice of protest with respect to any of
the obligations hereunder or the shares of Common Stock and
(B) notice of acceptance hereof or of any other action taken
in reliance hereon, notice and opportunity to be heard before the
exercise by the Holder of the remedies of self-help, set-off, or
other summary procedures and all other demands and notices of any
type or description except for cure periods, if any; and (ii)
releases the Holder, its officers, directors, agents, employees and
attorneys from all claims for loss or damage caused by any act or
failure to act on the part of the Holder, its officers, attorneys,
agents, directors and employees except for gross negligence or
willful misconduct.
(d)
As a non-exclusive remedy, upon the
occurrence of an Event of Default, the Holder may convert the
remaining principal amount of the Debentures and accrued interest
thereon at the lesser of the Fixed Conversion Price or the Floating
Conversion Price upon giving a Notice of Conversion to the Company.
Except as otherwise provided herein, the Company shall not
have the right to object to the conversion or the calculation of
the applicable conversion price, absent manifest error.
III.
To effectuate the terms and provision of
this Debenture, the Holder may give notice of any default to the
Attorney-in-Fact as set forth herein and give a copy of such notice
to the Company and its counsel, simultaneously, and request the
Attorney-in-Fact to comply with the terms of this Debenture
and all agreements entered into on behalf of the
Company.
Section 4 .
Conversion .
(a)
The unpaid principal amount of this
Debenture shall be convertible into shares of Common Stock at the
Conversion Ratio as defined above, and subject to the Limitation on
Conversion described in subsection (k), at the option of the
Holder, in whole or in part, at any time, commencing on the
Original Issuance Date. Such shares of Common Stock shall be
under restriction pursuant to Rule 144 of the Securities Act.
Any conversion under this Section 4(a) shall be for a
minimum principal amount of $1,000.00 of the Debentures plus the
interest accrued and due thereon. The Holder shall effect
conversions by surrendering the Debenture to be converted to the
Company Agent, together with the form of notice attached hereto as
Appendix I (“Notice of Conversion”) in the manner
set forth in Section 4(j) hereof. Each Notice of
Conversion shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected
(the “Conversion Date”) which date shall not be less
than two (2) Business Days after the date on which the Notice of
Conversion is delivered to the Company. Subject to the last
paragraph of Section 4(b) hereof, each Notice of Conversion,
once given, shall be irrevocable. If the Holder is converting
less than all of the principal amount represented by the Debentures
tendered by the Holder in the Notice of Conversion, the Company
shall deliver to the Holder a new Debenture for such principal
amount as has not been converted within two (2) Business Days of
the Conversion Date. Upon conversion in full of the
Debentures or upon the Maturity Date, the Holder shall return the
Debentures to the Company for cancellation.
(b)
Not later than two (2) Business Days
after the Conversion Date, the Company shall deliver to the Holder
(i) a certificate or certificates representing the number of shares
of Common Stock being acquired upon the conversion of the
Debentures, and once the Debentures so converted in part shall have
been surrendered to the Company, the Company shall deliver to the
Holder Debentures in the principal amount of the Debentures not yet
converted; provided , however , that the Company
shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon conversion of the Debentures, until
the Debentures are either delivered for conversion to the Company
or any transfer agent for the Debentures or Common Stock, or the
Holder notifies the Company that such Debentures have been lost,
stolen or destroyed and provides an affidavit of loss and an
agreement reasonably acceptable to the Company indemnifying the
Company from any loss incurred by it in connection with such loss,
theft or destruction. In the case of a conversion pursuant to
a Notice of Conversion, if such certificate or certificates are not
delivered by the date required under this Section 4(b), the Holder
shall be entitled, upon providing written notice to the Company at
any time on or before its receipt of such certificate or
certificates thereafter, to rescind such conversion, in which
event, the Company shall immediately return the Debentures tendered
for conversion.
(c)
The conversion price for the Debentures
in effect on any Conversion Date shall be the lesser
of (a) $0.01 (the “Fixed Conversion Price”)
and (b) one hundred percent (100%) of the average of the
three (3) lowest closing bid prices per share of the Common Stock
during the forty (40) Trading Days immediately preceding the
Conversion Date (the “Floating Conversion Price”);
provided , however , that the aggregate maximum
number of shares of Common Stock that the First Debenture and
Second Debenture may be converted into shall be Three Million
(3,000,000) shares (the “Maximum Conversion”); and
further provided , however , that upon the Maximum
Conversion, the Company may, at its option (a) increase the Maximum
Conversion or redeem the unconverted amount of the Debentures
in whole or in part at one hundred twenty five percent (125%) of
the unconverted amount of such Debentures being redeemed plus
accrued interest thereon. For purposes of determining the closing
bid price on any day, reference shall be to the closing bid price
for a share of Common Stock on such date on the OTCBB (or such
other exchange, market, or other system that the Common Stock is
then traded on), as reported on Bloomberg, L.P. (or similar
organization or agency succeeding to its functions of reporting
prices).
(ii)
If the Company, at any time while any of
the Debentures are outstanding, (a) shall pay a stock dividend
or otherwise make a distribution or distributions on shares of its
Common Stock payable in shares of its capital stock (whether
payable in shares of its Common Stock or of capital stock of any
class), (b) subdivide outstanding shares of Common Stock into
a larger number of shares, (c) combine outstanding shares of
Common Stock into a smaller number of shares, or (d) issue by
reclassification any shares of capital stock of the Company, the
Fixed Conversion Price as applied in Section 4(c)(i) shall be
multiplied by a fraction, the numerator of which shall be the
number of shares of Common Stock of the Company outstanding
immediately before such event and the denominator of which shall be
the number of shares of Common Stock outstanding immediately after
giving
