THIS AMENDMENT IS DATED JANUARY 9, 2006 TO THE ORIGINAL AGREEMENT DATED AUGUST 12, 2005, BELOW. DEBENTURE AGREEMENT
Exhibit
4.2
THIS
AMENDMENT IS DATED JANUARY 9, 2006 TO THE ORIGINAL AGREEMENT DATED AUGUST 12,
2005, BELOW.
THE
SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY
NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED
OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED
THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
FACE
AMOUNT
$1,500,000
PRICE
$1,500,000
DEBENTURE
NUMBER
August
-
0000-000
XXXXXXXX
DATE
August
12, 2005
MATURITY
DATE
August
12, 2010
FOR
VALUE
RECEIVED, Hyperdynamics Corp, a Delaware corporation (the “Company”), hereby
promises to pay DUTCHESS PRIVATE EQUITIES FUND, II, LP ( “Holder”) by August 12,
2010 (the “Maturity Date”), the principal amount of One Million Five Hundred
Thousand Dollars ($1,500,000) U.S., and to pay interest and redemption on the
principal amount hereof, and any accrued penalties accrued, in such amounts,
at
such times and on such terms and conditions as are specified herein.
The
Debenture is subject to automatic conversion at the end of five (5) years from
the date of issuance at which time the Debenture outstanding will be
automatically converted based upon the formula set forth in Section 3.2 (c).
Article
1 Interest
The
Company shall pay ten percent (10%) annual coupon on the unpaid Face Amount
of
this Debenture (the “Debenture”) at such times and in such amounts as outlined
in this section. The Company will make mandatory prepaid payments, in advance,
on the interest (“Interest Payment”), with the minimum Interest Payments
outlined in Exhibit B for the first two (2) months, and herein incorporate
by
reference, in the amount of fifteen thousand dollars ($15,000) per month for
the
first two (2) months following Issuance Date. The first Interest Payment is
due
as outlined below in Article 2..
Any
monies paid to the Holder in excess of the interest due when paid shall be
credited toward the Face Amount of the Debenture..
Article
2 Method
of Payment
Section
2.1 Prior
to
the U.S. Securities and Exchange Commission ("SEC") declaring the registration
statement for the shares underlying the Debenture ("Registration Statement")
effective ("Effective Date").
Amortizing
payments will be made by the Company in satisfaction of this Debenture (each
a
"Payment," and collectively, the "Payments") shall be made monthly on the
twenty-ninth (29th) day of each month, or the next available business day,
while
there is an outstanding balance on the Debenture, to the Holder, in the amounts
("Payment Amount" and collectively, the "Payment Amounts") outlined below on
the
following schedule:
Payment
for Month 1 $15,000.00
due by August 29th, 2005 $15,000.00
Payment
for Month 2 due by September 29th,
2005
$15,000.00
Payment
for Month 3 and each month
thereafter
$87,888.18
Notwithstanding
any provision to the contrary in this Debenture, the Company may pay in full
to
the Holder the Face Amount, or any balance remaining thereof, in readily
available funds at any time and from time to time without penalty.
The
minimum Payments are outlined on Exhibit B, attached hereto and incorporate
by
reference.
Section
2.2 Subsequent
to the Effective Date.
Should
the closing bid price of the Company’s common stock be less than Fixed
Conversion Price as defined below in Section 3.2 (c), the Company shall make
Payments that are due hereunder.
If
the
Company’s closing bid price of its common stock is greater than the Fixed
Conversion Price as defined in Section 3.2 (c), The Holder, at its sole option,
shall be entitled to either a) request a Payment from the Company in the amounts
set forth in the table in Section 2.1 above; or, b) the Holder may elect to
convert a portion of the Debenture pursuant to Article 3 below in an amount
equal to the Payment Amount. In the event the Holder is unable to convert that
portion of the debenture equal to the Payment Amount during a calendar month,
the Company shall make a payment in an amount equal to the difference between
the amount converted by the Holder and the Payment Amount due for that month.
Nothing
contained in this Article 2 shall limit the amount the Holder can elect to
convert during a calendar month except as defined in Section 3.2
(i)
All
Payments made in this Article 2, shall be applied toward the Redemption Article
as outlined in Article 14, herein.
Article
3 Conversion
Section
3.1 Conversion
Privilege
(a) The
Holder of this Debenture shall have the right to convert it into shares of
Common Stock at any time following the Closing Date and which is before the
close of business on the Maturity Date, except as set forth in Section
3.1(c)
below. The number of shares of Common Stock issuable upon the conversion of
this
Debenture is
determined pursuant to Section 3.2
and
rounding the result to the nearest whole share.
(b) This
Debenture may not be converted, whether in whole or in part, except in
accordance with this Article 3.
(c) In
the
event all or any portion of this Debenture remains outstanding on the Maturity
Date, the unconverted
portion
of such Debenture will automatically be converted into shares of Common Stock
on
such date in the manner set forth in Section 3.2.
Section
3.2 Conversion
Procedure.
(a) Conversion
Procedures. The
Face
Amount of this Debenture may be converted, in whole or in part, any
time
following the Closing Date. Such conversion shall be effectuated by sending
to
the Company a facsimile or via electronic mail of the signed Notice of
Conversion which evidences Holder’s intention to convert the Debenture
indicated. The date on which the Notice of Conversion is effective (“Conversion
Date”) shall be deemed to be the date on which the Holder has delivered to the
Company a facsimile of the signed Notice of Conversion. . Notwithstanding the
above, any Notice of Conversion received by 5:00 P.M. EST, shall be deemed
to
have been received the previous business day,
with
receipt being via a confirmation of time of facsimile of the Holder.
(b) Common
Stock to be Issued.Upon
the
conversion of any Debenture and upon receipt by the Company of a facsimile
of
Holder’s signed Notice of Conversion the Company shall instruct its transfer
agent to issue stock certificates without restrictive legend or stop transfer
instructions, if at that time the Registration Statement has been declared
effective (or with proper restrictive legend if the Registration Statement
has
not as yet been declared effective), in such denominations to be specified
at
conversion representing the number of shares of Common Stock issuable upon
such
conversion, as applicable. The
Company shall act as Registrar and shall maintain an appropriate ledger
containing the necessary information with respect to each Debenture. The
Company warrants that no instructions, other than these instructions, have
been
given or will be given to the transfer agent and that the Common Stock shall
otherwise be freely resold, except as may be set forth herein.
(c) Conversion
Rate. Holder
is
entitled to convert the
Face
Amount of this Debenture, plus accrued interest, anytime following the Closing
Date, at the lesser of (i) the lowest closing bid price during the fifteen
(15)
days of full trading, defined as standard market hours from 9:30 AM to 4:00
PM
EST, partial trading days will not be counted for calculation purposes only
("Trading Days") prior to the Filing Date; or (ii) one dollar ($1.00). (“Fixed
Conversion Price”), also being referred to as the “Conversion Price”. No
fractional shares or scrip representing fractions of shares will be issued
on
conversion, but the number of shares issuable shall be rounded up, as the case
may be, to the nearest whole share. The Holder shall retain all rights of
conversions during any partial trading days.
(d) Nothing
contained in this Debenture shall be deemed to establish or require the payment
of interest to the Holder at a rate in excess of the maximum rate permitted
by
governing law. In the event that the rate of interest required to be paid
exceeds the maximum rate permitted by governing law, the rate of interest
required to be paid thereunder shall be automatically reduced to the maximum
rate permitted under the governing law and such excess shall be returned with
reasonable promptness by the Holder to the Company.
(e) It
shall
be the Company’s
responsibility to take all necessary actions and to bear all such costs to
issue
the Common Stock as provided herein, including the responsibility and cost
for
delivery of an opinion letter to the transfer agent, if so required. The person
in whose name the certificate of Common Stock is to be registered shall be
treated as a shareholder of record on and after the conversion date. Upon
surrender of any Debentures that are to be converted in part, the Company shall
issue to the Holder a new Debenture equal to the unconverted amount, if so
requested in writing by Holder.
(f) Within
five (5) business days after receipt of the documentation referred to above
in
Section 3.2(a),
the
Company shall deliver a certificate, in accordance with Section 3.2(c)
for
the number of shares of Common Stock issuable upon the conversion. In the event
the Company does not make delivery of the Common Stock, as instructed by Holder,
within five (5) business days after the Conversion Date, then in such event
the
Company shall pay to Holder three
percent (3%) in cash, of the dollar value of the Debentures being converted,
compounded daily,
per each day after the third (3rd) business day following the Conversion Date
that the Common Stock is not delivered to the Purchaser, as liquidated
damages.
The
Company acknowledges that its failure to deliver the Common Stock within five
(5) business days after the Conversion Date will cause the Holder to suffer
damages in an amount that will be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in this Debenture a provision
for liquidated damages. The parties acknowledge and agree that the liquidated
damages provision set forth in this section represents the parties’ good faith
effort to quantify such damages and, as such, agree that the form and amount
of
such liquidated damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its obligations
to deliver the Common Stock pursuant to the terms of this
Debenture.
To
the
extent that the failure of the Company to issue the Common Stock pursuant to
this Section 3.2(f)
is
due to the unavailability of authorized but unissued shares of Common Stock,
the
provisions of this Section 3.2(f)
shall
not apply but instead the provisions of Section 3.2(m)
shall
apply.
The
Company shall make any payments incurred under this Section 3.2(f)
in
immediately available funds within three (3) business days from the date the
Common Stock is fully delivered. Nothing herein shall limit a Holder’s right to
pursue actual damages or cancel the conversion for the Company’s failure to
issue and deliver Common Stock to the Holder within five (5) business days
after
the Conversion Date.
The
Company shall at all times reserve (or make alternative written arrangements
for
reservation or contribution of shares) and
have
available all Common Stock necessary to meet conversion of the Debentures by
all
Holders of the entire amount of Debentures then outstanding. If, at any time
Holder
submits
a Notice of Conversion and the Company does not have sufficient authorized
but
unissued shares of Common Stock (or alternative shares of Common Stock as may
be
contributed by Stockholders) available to effect, in full, a conversion of
the
Debentures (a “Conversion Default”, the date of such default being referred to
herein as the “Conversion Default Date”), the Company shall issue to the Holder
all of the shares of Common Stock which are available, and the Notice of
Conversion as to any Debentures requested to be converted but not converted
(the
“Unconverted Debentures”), may be deemed null and void upon written notice sent
by the Holder to the Company. The Company shall provide notice of such
Conversion Default (“Notice of Conversion Default”) to all existing Holders of
outstanding Debentures, by facsimile, within three (3) business days of such
default (with the original delivered by overnight or two day courier), and
the
Holder shall give notice to the Company by facsimile within five business days
of receipt of the Notice of Conversion Default (with the original delivered
by
overnight or two day courier) of its election to either nullify or confirm
the
Notice of Conversion.
The
Company agrees to pay to Holder of outstanding Debenture payments for a
Conversion Default (“Conversion Default Payments”) in the amount of (N/365) x
(.24) x the initial issuance price of the outstanding and/or tendered but not
converted Debentures held by each Holder where N = the number of days from
the
Conversion Default Date to the date (the “Authorization Date”) that the Company
authorizes a sufficient number of shares of Common Stock to effect conversion
of
all remaining Debentures. The Company shall send notice (“Authorization Notice”)
to Holder of outstanding Debenture that additional shares of Common Stock have
been authorized; stating the Authorization Date and the amount of Holder’s
accrued Conversion Default Payments. The accrued Conversion Default shall be
paid in cash or shall be convertible into Common Stock at the Conversion Rate,
upon written notice sent by the Holder to the Company, which Conversion Default
shall be payable as follows: (i) in the event Holder elects to take such payment
in cash, cash payments shall be made to such Holder of outstanding Debentures
by
the fifth (5th)
day of
the following calendar month, or (ii) in the event Holder elects to take such
payment in stock, the Holder may convert such payment amount into Common Stock
at the conversion rate set forth in Section
3.2(c)
at
any
time
after
the fifth (5th)
day of
the calendar month following the month in which the Authorization Notice was
received, until the expiration of the mandatory five (5) year conversion
period.
The
Company acknowledges that its failure to maintain a sufficient number of
authorized but unissued shares of Common Stock to effect in full a conversion
of
the Debenture will cause the Holder to suffer damages in an amount that will
be
difficult to ascertain. Accordingly, the parties agree that it is appropriate
to
include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties’ good faith effort to quantify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Debenture. Nothing herein shall limit the Holder’s
right to pursue actual damages for the Company’s failure to maintain a
sufficient number of authorized shares of Common Stock.
If,
by
the third (3rd) business day after the Conversion Date of any portion of the
Debenture to be converted (the “Delivery Date”), the transfer agent fails for
any reason to deliver the Common Stock upon conversion by the Holder and after
such Delivery Date, the Holder purchases, in an open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") solely in order to
make delivery in satisfaction of a sale of Common Stock by the Holder (the
"Sold
Shares"), which delivery such Holder
anticipated to make using the Common Stock issuable upon conversion (a
"Buy-In"), the Company shall pay to the Holder, in addition to any other amounts
due to Holder pursuant to this Debenture, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Covering Shares over (y)
the
net proceeds (after brokerage commissions, if any) received by the Holder from
the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount
to the Holder in immediately available funds within three (3) business days
of
written demand by the Holder. By way of illustration and not in limitation
of
the foregoing, if the Holder purchases shares of Common Stock having a total
purchase price (including brokerage commissions) of $11,000 to cover a Buy-In
with respect to shares of Common Stock it sold for net proceeds of $10,000,
the
Buy-In Adjustment Amount which the Company will be required to pay to the Holder
will be $1,000.
(g) Prospectus
and Other Documents. The
Company shall furnish to Holder such number of prospectuses and other documents
incidental to the registration of the shares of Common Stock underlying the
Debentures, including any amendment of or supplements thereto. Any filings
submitted via XXXXX will constitute fulfillment.
(h) Limitation
on Issuance of Shares.
If the
Company’s Common Stock becomes listed on the Nasdaq SmallCap Market after the
issuance of the Debenture, the Company may be limited in the number of shares
of
Common Stock it may issue by virtue of (X) the number of authorized shares
or
(Y) the applicable rules and regulations of the principal securities market
on
which the Common Stock is listed or traded, including, but not necessarily
limited to, NASDAQ Rule 4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be
applicable (collectively, the “Cap Regulations”). Without limiting the other
provisions thereof, (i)
the
Company will take all steps reasonably necessary to be in a position to issue
shares of Common Stock on conversion of the Debentures without violating the
Cap
Regulations and (ii) if, despite taking such steps, the Company still cannot
issue such shares of Common Stock without violating the Cap Regulations, the
holder of a Debenture which cannot be converted as result of the Cap Regulations
(each such Debenture, an “Unconverted Debenture”) shall have the right to elect
either of the following remedies:
(x)
if
permitted by the Cap Regulations, require the Company to issue shares of Common
Stock in accordance with such holder's Notice of Conversion at a conversion
purchase price equal to the average of the closing bid price per share of Common
Stock for any five (5) consecutive Trading Days (subject to certain equitable
adjustments for certain events occurring during such period) during the sixty
(60) Trading Days immediately preceding the Conversion Date; or
(y)
require the Company to redeem each Unconverted Debenture for an amount (the
“Redemption Amount”), payable in cash, equal to the sum of (i) one hundred
thirty-three percent (133%) of the principal of an Unconverted Debenture, plus
(ii) any accrued but unpaid interest thereon through and including the date
(the
“Redemption Date”) on which the Redemption Amount is paid to the
holder.
A
holder
of an Unconverted Debenture may elect one of the above remedies with respect
to
a portion of such Unconverted Debenture and the other remedy with respect to
other portions of the Unconverted Debenture. The Debenture shall contain
provisions substantially consistent with the above terms, with such additional
provisions as may be consented to by the Holder. The provisions of this section
are not intended to limit the scope of the provisions otherwise included in
the
Debenture.
(i) Limitation
on Amount of Conversion and Ownership.
Notwithstanding anything to the contrary in this Debenture, in no event shall
the Holder be entitled to convert that amount of Debenture, and in no event
shall the Company permit that amount of conversion, into that number of shares,
which when added to the sum of the number of shares of Common Stock beneficially
owned, (as such term is defined under Section 13(d) and Rule 13d-3 of the
Securities Exchange Act of 1934, as may be amended, (the “1934 Act”)), by the
Holder, would exceed 4.99% of the number of shares of Common Stock outstanding
on the Conversion Date, as determined in accordance with Rule 13d-1(j) of the
1934 Act. In the event that the number of shares of Common Stock outstanding
as
determined in accordance with Section 13(d) of the 1934 Act is different on
any
Conversion Date than it was on the Closing Date, then the number of shares
of
Common Stock outstanding on such Conversion Date shall govern for purposes
of
determining whether the Holder would be acquiring beneficial ownership of more
than 4.99% of the number of shares of Common Stock outstanding on such
Conversion Date.
(j) Legend.
The
Holder acknowledges that each certificate representing the Debentures, and
the
Common Stock unless registered pursuant to the Registration Rights Agreement,
shall be stamped or otherwise imprinted with a legend substantially in the
following form:
THE
SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) IF
AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
(m)
Prior
to conversion of the Debenture, if at any
time
the
conversion of all the Debentures and exercise of all the Warrants outstanding
would result in an insufficient number of authorized shares of Common Stock
being available to cover all the conversions, then in such event, the Company
will move to call and hold a shareholder’s meeting or have shareholder action
with written consent of the proper number of shareholders within thirty (30)
days of such event, or such greater period of time if statutorily required
or
reasonably necessary as regards standard brokerage house and/or SEC requirements
and/or procedures, for the purpose of authorizing additional shares of Common
Stock to facilitate the conversions. In such an event management of the Company
shall recommend to all shareholders to vote their shares in favor of increasing
the authorized number of shares of Common Stock. Management of the Company
shall
vote all of its shares of Common Stock in favor of increasing the number of
shares of authorized Common Stock. The Company represents and warrants that
under no circumstances will it deny or prevent Holder’s right to convert the
Debentures as permitted under the terms of this Subscription Agreement or the
Registration Rights Agreement. Nothing in this Section shall limit the
obligation of the Company to make the
payments set forth in Section 3.2(g).
The
investor, at his option, may request the company to authorize and issue
additional shares if the investor feels it is necessary for conversions in
the
future In
the
event the Company’s shareholder’s meeting does not result in the necessary
authorization, the Company shall redeem the outstanding Debentures for an amount
equal to (x) the sum of the principal of the outstanding Debentures plus accrued
interest thereon multiplied by (y) 133%.
Section
3.3 Fractional
Shares.
The
Company shall not issue fractional shares of Common Stock, or scrip representing
fractions of such shares, upon the conversion of this Debenture. Instead, the
Company shall round up or down, as the case may be, to the nearest whole
share.
Section
3.4 Taxes
on Conversion. The
Company shall pay any documentary, stamp or similar issue or transfer tax due
on
the issue of shares of Common Stock upon the conversion of this Debenture.
However, the Holder shall pay any such tax which is due because the shares
are
issued in a name other than its name.
Section
3.5 Company
to Reserve Stock. The
Company shall reserve the number of shares of Common Stock required pursuant
to
and upon the terms set forth in the Subscription Agreement to permit the
conversion of this Debenture.
All
shares of Common Stock which may be issued upon the conversion hereof shall
upon
issuance be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issuance thereof.
Section
3.6 Restrictions
on Sale. This
Debenture has not been registered under the Securities Act of 1933, as amended,
(the “Act”) and is being issued under Section 4(2) of the Act and Rule 506 of
Regulation D promulgated under the Act. This Debenture and the Common Stock
issuable upon the conversion thereof may
only be
sold
pursuant to registration under or an exemption from the Act.
Article
4 Mergers
The
Company shall not consolidate or merge into, or transfer all or substantially
all of its assets to, any person, unless such person assumes in writing the
obligations of the Company under this Debenture and immediately after such
transaction no Event of Default exists. Any reference herein to the Company
shall refer to such surviving or transferee corporation and the obligations
of
the Company shall terminate upon such written assumption.
Article
5 Security
This
Debenture is secured by a Security Agreement (the "Security Agreement") of
even
date herewith between the Company and the Holder.
Article
6 Defaults
and Remedies
Section
6.1 Events
of
Default. An
“Event
of Default” occurs if (a) the Company does not make the Payment of the principal
of this Debenture by conversion into Common Stock within five (5) business
days
of the Maturity Date, upon redemption or otherwise, (b) the Company does not
make a payment, other than a payment of principal, for a period of three (3)
business days thereafter, (c) any of the Company’s representations or warranties
contained in the Subscription Agreement or this Debenture were false when made
or the Company fails to comply with any of its other agreements in the
Transaction Documents (as defined in Article 16 below) and such failure
continues for a period of five (5) business days, (d) the Company pursuant
to or
within the meaning of any Bankruptcy Law (as hereinafter defined): (i) commences
a voluntary case; (ii) consents to the entry of an order for relief against
it
in an involuntary case; (iii) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all of its property
or
(iv) makes a general assignment for the benefit of its creditors or (v) a court
of competent jurisdiction enters an order or decree under any Bankruptcy Law
that: (A) is for relief against the Company in an involuntary case; (B) appoints
a Custodian of the Company or for all or substantially all of its property
or
(C) orders the liquidation of the Company, and the order or decree remains
unstayed and in effect for sixty (60) calendar days, (e) the Company’s Common
Stock is suspended or no longer listed on any recognized exchange including
electronic over-the-counter bulletin board for in excess of five (5) consecutive
Trading Days
(e) the
Company violates any terms and conditions of the Registration Rights Agreement
(f) the Registration Statement underlying the Debenture is not declared
effective by the SEC within twelve (12) months of the Issuance Date.
As
used
in this Section 6.1,
the term
“Bankruptcy Law” means Title 11 of the United States Code or any similar federal
or state law for the relief of debtors. The term “Custodian” means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
A
default under clause (c) above is not an Event of Default until the holders
of
at least one hundred percent (100%) of the aggregate principal amount of the
Debentures outstanding notify the Company of such default and the Company does
not cure it within five (5) business days after the receipt of such notice,
unless the Company commences to cure such default within such period, which
must
specify the default, demand that it be remedied and state that it is a “Notice
of Default”. Prior
to
the expiration of the time for curing a default as set forth in the preceding
sentence, the holders of a majority in aggregate principal amount of the
Debentures at the time outstanding (exclusive of Debentures then owned by the
Company or any subsidiary or affiliate) may, on behalf of the holders of all
of
the Debentures, waive any past Event of Default hereunder (or any past event
which, with the lapse of time or notice and lapse of time designated in
subsection (a), would constitute an Event of Default hereunder) and its
consequences, except a default in the payment of the principal of or interest
on
any of the Debentures. In the case of any such waiver, such default or Event
of
Default shall be deemed to have been cured for every purpose of this Debenture
and the Company and the holders of the Debentures shall be restored to their
former positions and rights hereunder, respectively; but no such waiver shall
extend to any subsequent or other default or impair any right consequent
thereon.
In
the
Event of Default, the Holder may elect to secure a portion of the Company's
assets not to exceed 200% of the Face Amount of the Note, in Pledged Collateral
(as defined in the Irrevocable Transfer Agent Agreement). The Holder may also
elect to garnishee Revenue from the Company in an amount that will repay the
Holder on the schedules outlined in this Agreement.
In
the
Event of Default, as outlined in this Agreement, the
Holder
can exercise its right to increase the Face
Amount of the Debenture by ten percent (10%) as an initial penalty and for
each
Event of Default under this Agreement. In addition, the Holder may elect to
increase the
Face
Amount by two and one-half percent (2.5%) per month (pro-rata for partial
periods) paid as a penalty for liquated damages ("Liquidated Damages"). The
Liquated Damages will be compounded daily. It is the intention and
acknowledgement of both parties that the Liquidated Damages not be deemed as
interest.
In
the
event of Default, specifically to Section 6.1 (f), the Holder may elect to
switch the Conversion Price of the Debenture as outlined in Section 3.2 (c)
above ("Default Conversion Price"). The Default Conversion Price shall be equal
to the lesser of a) the Fixed Conversion Price or b) seventy percent (70%)
of
the lowest closing bid price of the Common Stock during the fifteen (15) trading
days prior to conversion. Upon written notice being sent to the Company by
the
Holder of Default under Section 6.1 (f), and the Holder's election to exercise
the remedy to switch the conversion price to the Default Conversion Price,
the
Company shall immediately withdraw the Registration Statement. Further, the
Company agrees that the date of consideration for the Debenture shall remain
the
Issuance Date stated herein. The Company shall provide an opinion letter from
counsel within two (2) days of written request by the Holder stating that the
date of consideration for the Debenture is the Issuance Date. In the event
the
Company does not deliver the opinion letter within two business days, the
Default Conversion Price shall immediately decrease by two percent (2%) for
each
business day an opinion letter fails to be delivered. In the event that counsel
to the Company fails or refuses to render an opinion as required to issue the
Shares in accordance with this paragraph (either with or without restrictive
legends, as applicable), then the Company irrevocably and expressly authorizes
counsel to the Investor to render such opinion and shall authorize the Transfer
Agent shall accept and be entitled to rely on such opinion for the purposes
of
issuing the Shares. Any costs incurred by Holder for such opinion letter shall
be added to the Face Amount of the Debenture.
Section
6.2 Acceleration.
If
an
Event of Default occurs and is continuing, the Holder hereof by notice
to
the
Company may declare the remaining principal amount of this Debenture, together
with all accrued interest and any liquidated damages, to be due and payable.
Upon such declaration, the remaining principal amount shall be due and payable
immediately.
Section
6.3 Seniority, No
past
indebtedness of the Company is senior to this Debenture in right of payment,
whether with respect to interest, damages or upon liquidation or dissolution
or
otherwise. The Company shall be able to secure specific property or equipment
for the continuing operations of the Company.
Article
7 Registered
Debentures
Section
7.1 Record
Ownership. The
Company, or its attorney, shall maintain a register of the holders of the
Debentures (the “Register”) showing their names and addresses and the serial
numbers and principal amounts of Debentures issued to them. The Register may
be
maintained in electronic, magnetic or other computerized form. The Company
may
treat the person named as the Holder of this Debenture in the Register as the
sole owner of this Debenture. The Holder of this Debenture is the person
exclusively entitled to receive payments of interest on this Debenture, receive
notifications with respect to this Debenture, convert it into Common Stock
and
otherwise exercise all of the rights and powers as the absolute owner
hereof.
Section
7.2 Worn
or Lost Debentures. If
this
Debenture becomes worn, defaced or mutilated but is still substantially intact
and recognizable, the Company or its agent may issue a new Debenture in lieu
hereof upon its surrender. Where
the
Holder of this Debenture claims that the Debenture has been lost, destroyed
or
wrongfully taken, the Company shall issue a new Debenture in place of the
Debenture if the Holder so requests by written notice to the Company actually
received by the Company before it is notified that the Debenture has been
acquired by a bona fide purchaser and the Holder has delivered to the Company
an
indemnity bond in such amount and issued by such surety as the Company deems
satisfactory together with an affidavit of the Holder setting forth the facts
concerning such loss, destruction or wrongful taking and such other information
in such form with such proof or verification as the Company may request.
Article
8 Notice.
Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Debenture must be in writing and will be deemed
to
have been delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided a confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall
be:
If
to the
Company:
Xxxx
Xxxxx
0000
Xxxxxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxx 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
If
to the
Investor:
At
the
address listed in the Questionnaire.
Each
party shall provide five (5) business days prior notice to the other party
of
any change in address, phone number or facsimile number.
Article
9 Time
Where
this Debenture authorizes or requires the payment of money or the performance
of
a condition or obligation on a Saturday or Sunday or a public holiday, or
authorizes or requires the payment of money or the performance of a condition
or
obligation within, before or after a period of time computed from a certain
date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. A “business day” shall
mean a day on which the banks in New York are not required
or
allowed to be closed.
Article
10 No
Assignment
This
Debenture shall not be assignable.
Article
11 Rules
of
Construction.
In
this
Debenture, unless the context otherwise requires, words in the singular number
include the plural, and in the plural include the singular, and words of the
masculine gender include the feminine and the neuter, and when the sense so
indicates, words of the neuter gender may refer to any gender. The numbers
and
titles of sections contained in the Debenture are inserted for convenience
of
reference only, and they neither form a part of this Debenture nor are they
to
be used in the construction or interpretation hereof. Wherever, in this
Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding
upon
the Company and the Holder of this Debenture.
Article
12 Governing
Law
The
validity, terms, performance and enforcement of this Debenture shall be governed
and construed by the provisions hereof and in accordance with the laws of the
Commonwealth of Massachusetts applicable to agreements that are negotiated,
executed, delivered and performed solely in the Commonwealth of Massachusetts.
Article
13 Litigation
DISPUTES
SUBJECT TO ARBITRATION GOVERNED BY MASSACHUSETTS LAW
All
disputes arising under this agreement shall be governed by and interpreted
in
accordance with the laws of the Commonwealth of Massachusetts, without regard
to
principles of conflict of laws. The parties to this agreement will submit all
disputes arising under this agreement to arbitration in Boston, Massachusetts
before a single arbitrator of the American Arbitration Association (“AAA”). The
arbitrator shall be selected by application of the rules of the AAA, or by
mutual agreement of the parties, except that such arbitrator shall be an
attorney admitted to practice law in the Commonwealth of Massachusetts. No
party
to this agreement will challenge the jurisdiction or venue provisions as
provided in this section.
Article
14 Redemption
The
Holder shall have the right to be redeemed from the Debenture, in whole or
in
part, at a price equal to one hundred and twenty-five percent (125%) of the
outstanding principal amount of the Debenture, including accrued interest (and
penalties if applicable). Any Payments, as defined in Article 2 above, shall
apply to the Redemption Amount. The Investor also holds the right to use the
existing equity line to redeem the Debenture
Article
15 Investor
Warrants
As
an
additional inducement to Holder, the Company shall issue a warrant to purchase
five hundred thousand (500,000) shares of its common stock exercisable at the
strike prices outlined in the Warrant Agreement, attached hereto and
incorporated by reference, to Holder.
Article
16 Transaction
Documents
The
Company agrees that contemporaneously with the execution and delivery of this
Debenture, the parties hereto are executing and delivering a Registration Rights
Agreement, Subscription Agreement, Warrant Agreement, Security Agreement and
the
Irrevocable Transfer Agent Agreement (collectively, the "Transaction Documents")
pursuant to which the Company has agreed to provide certain rights and
obligations as defined in the documents.
Article
17 Intentionally
Omitted
Article
18 Insider
Sales
The
Company shall cause its officers, insiders, directors, and affiliates or other
related parties under control of the Company, to refrain from selling or
otherwise disposing any Common Stock in the open market, while there is an
outstanding balance on the Debenture. Failure to do so will result in an Event
of Default Remedies pursuant to Article 6 can be taken by the Holder.
Article
19 Waiver
The
Holder's delay or failure at any time or times hereafter to require strict
performance by Company of any undertakings, agreements or covenants shall not
waiver, affect, or diminish any right of the Holder under this Agreement to
demand strict compliance and performance herewith. Any waiver by the Holder
of
any Event of Default shall not waive or affect any other Event of Default,
whether such Event of Default is prior or subsequent thereto and whether of
the
same or a different type. None of the undertakings, agreements and covenants
of
the Company contained in this Agreement, and no Event of Default, shall be
deemed to have been waived by the Holder, nor may this Agreement be amended,
changed or modified, unless such waiver, amendment, change or modification
is
evidenced by an instrument in writing specifying such waiver, amendment, change
or modification and signed by the Holder.
Article
20 Waiver
of Jury Trial.
AS
A
MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE
PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS
ASSOCIATED WITH THIS TRANSACTION.
*.*.*
IN
WITNESS WHEREOF, the Company has duly executed this Debenture as of the date
first written above and duly authorized to sign on behalf of:
By:/s/Xxxx
Xxxxx
Name: Xxxx
Xxxxx
Title:
Chief
Executive Officer
DUTCHESS
PRIVATE EQUITIES FUND, II, L.P.
BY
ITS
GENERAL PARTNER DUTCHESS
CAPITAL
MANAGEMENT, LLC
By: /s/Xxxxxxx
X.
Xxxxxxxx
Name:
Xxxxxxx X. Xxxxxxxx
Title:
A
Managing Member
Exhibit
A
(INCLUDED
IN DEBENTURE AGREEMENT DATED AUGUST 12, 2005 BETWEEN THE COMPANY AND THE
INVESTOR)
EXHIBIT
B
MINIMUM PAYMENT SCHEDULE
(INCLUDED
IN DEBENTURE AGREEMENT DATED AUGUST 12, 2005 BETWEEN THE COMPANY AND THE
INVESTOR)
