THIS NOTE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE
"SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES
ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES
OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S PROMULGATED UNDER
THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO
REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND THE SELLER WILL BE PROVIDED WITH OPINION OF COUNSEL
OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
EXEMPTIONS ARE AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES
MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.
DEBENTURE
XXXXXXXX.XXX INC.
2000 8% Convertible Debenture
Due June 12 , 2003
No.0001 $ 2,500,000
This Debenture is issued by XxxXxxxx.xxx Inc., ( the "Company") to CALP II
Limited Partnership, a Bahamas Corporation (together with its successors and
assigns, the "Holder") pursuant to exemptions from registration under the U.S.
Securities Act of 1933, as amended.
ARTICLE I
1.01 Principal and Interest. For value received, on June 12, 2003 (the
"Maturity Date"), the Company hereby promises to pay to the order of the Holder,
at the offices of Thomson Kernaghan & Co. Limited, 000 Xxx Xxxxxx, Xxxxx Xxxxx,
Xxxxxxx, Xxxxxxx X0X0X0, Xxxxxx, in lawful money of the United States of America
and in immediately available fund the principal sum of $ 2,500,000 together with
interest on the unpaid principal of this Debenture at the rate of 8% per year
(computed on the basis of a 365 day year and the actual days elapsed) from the
date of this Debenture until paid.
1.02. Conversion. The Holder is entitled, at its option, to convert at any
time and from time to time, until payment in full of this Debenture, all or any
part of the principal amount of the Debenture, plus accrued interest, into
shares (the "Conversion Shares") of the Company's common stock, $0.00001 par
value ("Common Stock"), at the price per share (the "Conversion Price") equal to
the lesser of $1.31 and (ii) 75% of the average of the five (5) lowest closing
bid
1
prices of the Common Stock on the Principal market quoted by Bloomberg L.P. (the
"Closing Bid Price") during the 20 trading days immediately preceding the
Conversion Date (the "Conversion Price"). As used herein, "Principal Market"
shall mean the Nasdaq Bulletin Board System, Nasdaq Small Cap Market, or
American Stock Exchange. If the Common Stock is not traded on a Principal
Market, the Closing Bid Price shall mean, the reported Closing Bid Price for the
Common Stock, as furnished by the National Association of Securities Dealers,
Inc., for the applicable periods. No fraction of shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. To convert this Debenture,
the holder hereof shall deliver written notice thereof, substantially in the
form of Exhibit A to this Debenture, with appropriate insertions (the
"Conversion Notice"), to the Company at its address set forth above. The date
upon which the conversion shall be effective (the "Conversion Date") shall be
deemed to be the date set forth in the Conversion Notice, provided that the
Company delivers the Conversion Shares within three (3) business days after
receipt of a Conversion Notice, otherwise, the holder shall have the right to
revoke the Conversion Notice, or to specify the date on which it actually
receives the Conversion Shares as the Conversion Date.
1.02 Reservation of Common Stock. The Company shall reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of this Debenture, such number of shares
of Common Stock as shall from time to time be sufficient to effect such
conversion, based upon the Conversion Price. If at any time the Company does not
have a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its stockholder within 30 days
of that time for the sole purpose of increasing in the number of authorized
shares of Common Stock.
1.03 Registration Rights. The Company is obligated to register the resale
of the Conversion Shares under the Securities Act of 1933, as amended, pursuant
to the terms of a Registration Rights Agreement between the Company and the
Holder of even date herewith.
1.04 Interest Payments. The interest so payable will be paid at the time
of maturity or conversion to the person in whose name this Debenture is
registered. At the time such interest is payable, the Company, in its sole
discretion, may elect to pay interest in cash (via wire transfer or certified
funds) or in the form of Common Stock. In the event of default, as described in
Article III Section 3.01 hereunder, the Holder, may elect that the interest be
paid in cash (via wire transfer or certified funds) or in the form of Common
Stock. If paid in the form of Common Stock, the amount of stock to be issued
will be calculated as follows: the value of the stock shall be the Closing Bid
Price on: (i) the date the interest payment is due; or (ii) if the interest
payment is not made when due, the date the interest payment is made. A number of
shares of Common Stock with a value equal to the amount of interest due shall be
issued. No fractional shares will be issued; therefore, in the event that the
value of the Common Stock per share does not equal the total interest due, the
Company will pay the balance in cash.
1.05 Paying Agent and Registrar. Initially, the Company will act as paying
agent and registrar. The Company may change any paying agent, registrar, or
Company-registrar by giving
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the Holder not less than 10 days' written notice of its election to do so,
specifying the name, address, telephone number and facsamile number of the
Paying Agent or Registrar. The Company may act in any such capacity.
1.06 Subordinated Nature of Debenture. This Debenture and all payments
hereon, including principal or interest, shall be subordinate and junior in
right of payment to all accounts payable of the Company incurred in the ordinary
course of business and or bank debt of the Company not to exceed $500,000.
ARTICLE II
2.01 Amendments and Waiver of Default. The Debenture may be amended with
the consent of the Holder. Without the consent of the Holder, the Debenture may
be amended to cure any ambiguity, defect or inconsistency, to provide for
assumption of the Company obligations to the Holder or to make any change that
does not adversely affect the rights of the Holder.
ARTICLE III
3.01 Events of Default. An Event of Default is defined as follows: (a)
failure by the Company to pay amounts due hereunder within two (2) days of the
Maturity Date; (b) failure by the Company to advise its transfer agent to issue
Common Stock to the Holder within two (2) business days of the Company's receipt
of the attached Notice of Conversion from Holder; (c) failure by the Company for
thirty (30) days after notice to it to comply with any of its other agreements
in the Debenture; (d) events of bankruptcy or insolvency; (e) a breach by the
Company of its obligations under the Registration Rights Agreement, dated June
12 , 2000, by and between the Company and the Holder. (the "Registration Rights
Agreement"). The Holder may not enforce the Debenture except as provided herein.
3.02 Failure to Issue Unrestricted Common Stock. As indicated in Article
III Section 3.01, a breach by the Company of its obligations under the
Registration Rights Agreement shall be deemed an Event of Default, which if not
cured within ten (10) days, shall entitle the Investor(s) accelerated full
repayment of all debentures outstanding. The Company acknowledges that failure
to honor a Notice of Conversion shall cause hardship to the Investor(s).
3.03 Security. As collateral for these Debentures the Company shall
deposit two million (2,000,000) shares of common stock in a segregated account
with Xxxxxxxx Xxxxxxxxx & Company, Ltd. In an Event of Default, the Holder shall
be entitled to foreclose on said shares. Upon conversion of the Debentures said
shares will be returned to the Company pro-rata in accordance with the
conversion amount .
3
ARTICLE IV
4.01 Rights and Terms of Conversion. This Debenture, in whole or in part,
may be converted at any time following the date of closing, into shares of
Common Stock at a price equal to the Conversion Price.
4.02 Mandatory Conversion. Provided that a Registration Statement is then
in effect for the Conversion Shares and the Company is not then in default under
this Debenture or the Securities Purchase Agreement, and subject to the
limitations contained in paragraph 4.04 of this Debenture, the Company shall
have the right to require the Holder to convert unpaid principal of and accrued
interest on this Debenture, by giving the Holder not less than 5 days' prior
written notice of the amount to be converted, up to the maximum amount in any
consecutive 15 day period based upon the Average Closing Bid Price and and the
Average Daily Trading Volume during the 20 trading days preceding the date of
such notice, as set forth in the table below, less the amounts thereof
voluntarily converted during such 30 day period:
20-Day Avg. Daily 20-Day Avg. Daily 20-Day Avg. Daily 20-Day Avg. Daily 20-Day Avg. Daily
Trading Volume Trading Volume Trading Volume Trading Volume Trading Volume
---------------------------------------------------------------------------------------------------
Avg. Closing
Bid Price 30,000-49,999 50,000-99,999 100,000-149,999 150,000-199,999 200,000-Above
---------------------------------------------------------------------------------------------------
$1.00-$1.49 $30,000 $75,000 $150,000 $225,000 $300,000
$1.50-1.99 $45,000 $112,500 $225,000 $337,500 $450,000
$2.00-$2.49 $60,000 $150,000 $300,000 $450,000 $600,000
$2.50-$2.99 $75,000 $187,500 $375,000 $562,500 $750,000
$3.00-Above $90,000 $225,000 $450,000 $675,000 $900,000
4.03 Reissuance of Debenture. When the Holder elects to convert a part of
the Debenture, then the Company shall reissue a new Debenture in the same form
as this Debenture to reflect the new principal amount.
4.04 Limitation on Right and Power to Exercise. Any provision in this
Debenture or any other document to the contrary not withstanding, the Holder
shall not have the right or power to convert this Debenture into Common Stock,
either in whole or in part, and any attempt to do so shall be void, if, after
having given effect to such conversion, the Holder shall be or shall be deemed
to be the beneficial owner of 10% or more of the then outstanding Common Stock
within the meaning or for the purposes of Section 13(d) or 13(g) of the U.S.
Securities Exchange Act of 1934, as amended, or as the term "beneficial owner"
is defined in Rule 13d-3 of the U.S. Securities and Exchange Commission or
otherwise.
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4.05 Termination of Conversion Rights. The Holder's right to convert the
Debenture into the Common Stock in accordance with paragraph 4.01 shall
terminate on June 12 , 2003 shall be automatically converted on that date in
accordance with the formula set forth in Section 4.01 hereof, and the
appropriate shares of common stock and amount of interest shall be issued to the
Holder.
ARTICLE V
5.01 Antidilution. In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock dividend on the
outstanding Common Stock, the conversion price in effect immediately prior to
such subdivision or the issuance of such dividend shall be proportionately
decreased, and in case the Company shall at any time combine the outstanding
shares of Common Stock, the conversion price in effect immediately prior to such
combination shall be proportionately increased, effective at the close of
business on the date of such subdivision, dividend or combination as the case
may be.
So long as any of the principal of or interest on this Note remains unpaid
and unconverted, the Company shall not, without the prior consent of the holder,
issue or sell (i) any Common Stock without consideration or for a consideration
per share less than its fair market value determined immediately prior to its
issuance, or (ii) issue or sell any warrant, option, right, contract, call, or
other security or instrument granting the holder thereof the right to acquire
Common Stock without consideration or for a consideration per share less than
than such Common Stock's fair market value determined immediately prior to its
issuance.
ARTICLE VI
6.01 Notice. Notices regarding this Debenture shall be sent to the parties
at the following addresses, unless a party notifies the other parties, in
writing, of a change of address:
If to the Company: XXXXXXXX.XXX INC.
0000Xxxxxxx Xxxx 0xx Xxxxx
Xxxxxxxxxxx, XX 00000.
Attention: President
If to Holder: CALP II LIMITED PARTNERSHIP
C/x Xxxxxxxx Xxxxxxxxx and Company, Ltd.
000 Xxx Xxxxxx 00xx Xxxxx
Xxxxxxx, Xxxxxxx X0X0X0
6.02 Governing Law. This Debenture shall be deemed to be made under and
shall be construed in accordance with the laws of the State of New York without
giving effect to the principals of conflict of laws thereof. Each of the parties
consents to the jurisdiction of the U.S.
5
District Court sitting in the Southern District of the State of New York or the
state courts of the State of New York sitting in Manhattan in connection with
any dispute arising under this Debenture and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens to the bringing of any such proceeding in such jurisdictions.
6.03 Severability. The invalidity of any of the provisions of this
Debenture shall not invalidate or otherwise affect any of the other provisions
of this Debenture, which shall remain in full force and effect.
6.04 Entire Agreement and Amendments. This Debenture represents the entire
agreement between the parties hereto with respect to the subject matter hereof
and there are no representations, warranties or commitments, except as set forth
herein. This Debenture may be amended only by an instrument in writing executed
by the parties hereto.
6.05 Counterparts. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
Company as executed this Debenture as of June 12, 2000.
ATTEST: XXXXXXXX.XXX INC.
/s/ (illegible) By: /s/ Xxxxxxx Xxxxxxxxx
-------------------------------- ----------------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: Chief Operating Officer
6
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to Convert the Note)
TO: XXXXXXXX.XXX
The undersigned hereby irrevocably elects to convert $________________ of the
principal amount of the above Note into Shares of Common Stock of XxxXxxxx.xxx
Inc., according to the conditions stated therein, as of the Conversion Date
written below.
Conversion Date
-----------------------------------------------------
Applicable Conversion Price
-----------------------------------------
Signature
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Name
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Address:
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