Convertible 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 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.
________________________________________________________________
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Date:
October___, 2008
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$9,000,000
|
Convertible
Debenture
THIS
DEBENTURE (this “Debenture”)
is
duly authorized and validly issued by China Bio Energy Holding Group Co., Ltd.
(the “Company”),
and
designated as a Convertible Debenture. This Debenture shall bear no interest.
This
Debenture is issued pursuant to a Securities Purchase Agreement (the
“Purchase
Agreement”),
dated
the date hereof, between the Company and Vision Opportunity China LP (the
“Payee”),
( a
copy of which is available for inspection at the Company’s principal office.
Notwithstanding any provision to the contrary contained herein, this Debenture
is subject to those terms, conditions, covenants and agreements contained in
the
Purchase Agreement that are expressly applicable to the Debentures. Any
transferee of this Debenture, by its acceptance hereof, assumes the obligations
of the Payee in the Purchase Agreement with respect to the conditions and
procedures for transfer of this Debenture. Capitalized terms used herein and
not
otherwise defined, shall have the respective meanings ascribed thereto in the
Purchase Agreement.
1. Conversion
of Debenture.
A. Automatic
Conversion.
The
entire principal amount of this Debenture (the “Principal
Amount”)
shall
automatically be converted at an initial conversion price of $3.65 (the
“Initial
Conversion Price”)
into
2,465,753 shares of Series B Convertible Preferred Stock, par value $0.001
per share (the “Preferred
Shares”),
upon
the date (the “Effective
Date”)
of the
filing and effectiveness of (i) an amendment to the Company’s Certificate of
Incorporation to increase the authorized shares of preferred stock, par value
$0.001 per share of the Company, from 1,000,000 shares to 10,000,000 shares,
and
(ii) the Certificate of Designation (the “Conversion
Conditions”).
B. Adjustment
of Conversion Price.
i. In
case
the Company shall, prior to the conversion of this Debenture, (a) declare a
dividend or make a distribution on its outstanding shares of Common Stock,
par
value $0.0001 per share (the “Common
Stock”),
in
shares of Common Stock, (b) subdivide or reclassify its outstanding shares
of
Common Stock into a greater number of shares, (c) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue
by reclassification of shares of the Common Stock any shares of capital stock
of
the Company, then the Conversion Price in effect at the time of such dividend
or
distribution or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying the Initial Conversion Price by a fraction, the denominator
of
which shall be the number of shares of Common Stock outstanding after giving
effect to such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Such adjustment
shall be made successively whenever any event listed above shall occur.
ii. In
case
the Company, prior to the conversion of this Debenture, makes a dividend or
distribution consisting exclusively of cash to holders of the Common Stock,
the
Conversion Price, shall be decreased by multiplying the conversion price in
effect on the record date for the determination of stockholders entitled to
such
distribution by a fraction, of which:(A) the numerator shall be the Conversion
Price on such record date less the amount of cash to be distributed per share
of
Common Stock; and (B) the denominator shall be the Conversion Price on such
record date.
iii. If
during
the period which terminates on the earlier of (i) one year after the date hereof
(the “Full
Ratchet Period”),
and
(ii) the date of the automatic conversion of this Debenture , the Company shall
issue or sell any additional shares of Common Stock (otherwise than as provided
in the foregoing subclause (i) of this Clause B or pursuant to Common Stock
Equivalents (as hereafter defined) granted or issued prior to the date hereof
)
(“Additional
Shares of Common Stock”)
at a
price per share less than the Conversion Price then in effect or without
consideration, then the Conversion Price upon each such issuance shall be
reduced to a price equal to the consideration per share paid for such Additional
Shares of Common Stock.. The provisions of this Clause B(iii) shall apply if
the
Company, prior to the conversion of this Debenture or during the Full Ratchet
Period, shall (a) issue any securities convertible into or exchangeable for,
directly or indirectly, Common Stock (“Convertible
Securities”),
other
than the Series B Preferred Stock, or (b) issue or sell any rights or warrants
or options to purchase any such Common Stock or Convertible Securities
(collectively, the “Common
Stock Equivalents”).
If
the price per share for which Additional Shares of Common Stock may be issuable
pursuant to any such Convertible Securities or Common Stock Equivalent shall
be
less than the applicable Conversion Price then in effect, or if, after any
such
issuance of Common Stock Equivalents, the price per share for which Additional
Shares of Common Stock may be issuable thereafter is amended or adjusted, and
such price as so amended shall be less than the applicable Conversion Price
in
effect at the time of such amendment or adjustment, then the applicable
Conversion Price upon each such issuance or amendment shall be adjusted as
provided in the first sentence of this Clause B(iii). No adjustment shall be
made to the Conversion Price upon the issuance of any Common Stock pursuant
to
the exercise, conversion or exchange of any Convertible Security or Common
Stock
Equivalent where an adjustment to the Conversion Price was made as a result
of
the issuance or purchase of such Convertible Security or Common Stock
Equivalent.
iv. This
Clause B(iv) shall only be applicable in the event this Debenture has not
automatically converted. If during the period which begins on the termination
of
the Full Ratchet Period and ends on the earlier of (a) the one (1) year
anniversary of the Full Ratchet Period, and (b) the date of the automatic
conversion of this Debenture, the Company shall issue or sell any Additional
Shares of Common Stock or Common Stock Equivalents (otherwise than as provided
in the foregoing subclause (i) ) of this Clause B) at a price per share less
than the then-applicable Conversion Price, or without consideration, the
Conversion Price shall be adjusted to that price (rounded to the nearest cent)
determined by multiplying the Conversion Price by a fraction: (1) the numerator
of which shall be equal to the sum
of (A)
the number of shares of Outstanding Common Stock immediately prior to the
issuance of such Additional Shares of Common Stock plus
(B) the
number of shares of Common Stock (rounded to the nearest whole share) which
the
aggregate consideration for the total number of such Additional Shares of Common
Stock so issued would purchase at a price per share equal to the outstanding
Conversion Price in effect immediately prior to such issuance; and (2) the
denominator of which shall be equal to the number of shares of Outstanding
Common Stock immediately after the issuance of such Additional Shares of Common
Stock. No adjustment of the Conversion Price shall be made upon the issuance
of
any Additional Shares of Common Stock which are issued pursuant to the exercise
of any warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Common Stock Equivalents,
if any such adjustment shall previously have been made upon the issuance of
such
warrants or other rights or upon the issuance of such Common Stock Equivalents
(or upon the issuance of any warrant or other rights therefore).
v. Superseding
Adjustment.
If, at
any time after any adjustment of the Conversion Price then in effect shall
have
been made pursuant to Clause B(iii) or (iv) as the result of any issuance of
Common Stock Equivalents, and such Common Stock Equivalents, or the right of
conversion or exchange in such Common Stock Equivalents, shall expire, and
all
of such or the right of conversion or exchange with respect to all of such
Common Stock Equivalents shall not have been converted or exercised, then such
previous adjustment shall be rescinded and annulled and the Conversion Price
then in effect shall be adjusted to the Conversion Price in effect immediately
prior to the issuance of such Common Stock Equivalents, subject to any further
adjustments pursuant to this Clause B.
C. Issuance
of Preferred Shares.
As
promptly as is practicable on or near the Effective Date, the Company shall
deliver to the Payee at its address appearing on the records of the Company
a
written notice of the imminent conversion of this Debenture (the “Conversion
Notice”),
requesting surrender of this Debenture for cancellation and written instructions
regarding the registration and delivery of certificates for the Preferred
Shares. In the event the Payee receives a Conversion Notice, the Payee shall
be
required to surrender this Debenture for cancellation within five (5) trading
days of the Conversion Notice (the “Conversion
Date”),
but
the failure of the Payee so to surrender this Debenture shall not affect the
conversion of the outstanding Principal Amount into Preferred Shares. No later
than five (5) trading days after the Company’s receipt of the Debenture for
cancellation, the Company shall deliver the Preferred Shares to the Payee.
If
the Debenture is not surrendered due to loss, an affidavit of lost Debenture
shall be provided by the holder. No holder of this Debenture shall be entitled
upon conversion of this Debenture to have the Preferred Shares registered in
the
name of another person or entity without first complying with all applicable
restrictions on the transfer of this Debenture. In the event the Payee does
not
provide the Company with written instructions regarding the registration and
delivery of certificates for the Preferred Shares, the Company shall within
five
(5) trading days after the Conversion Date, issue such shares in the name of
the
Payee and shall forward such certificates to the Payee at its address appearing
on the records of the Company. The person entitled to receive the Preferred
Shares shall be deemed to have become the holder of record of such shares at
the
close of business on the Effective Date and the person entitled to receive
share
certificates for the Preferred Shares shall be regarded for all corporate
purposes on and after the Effective Date as the record holder of the number
of
Preferred Shares to which it is entitled upon the conversion. The Company may
rely on record ownership of this Debenture for all corporate purposes,
notwithstanding any contrary notice. After the Effective Date, this Debenture
shall, until surrendered to the Company, only represent the right to receive
the
Preferred Shares; provided, however, that the Company shall have no obligation
to issue the Preferred Conversion Shares until the Payee has delivered either
this Debenture or an affidavit of loss.
D. Cash
Payments.
No
fractional shares (or scrip representing fractional shares) of Preferred Shares
shall be issued upon conversion of this Debenture. In the event that the
conversion of the Principal Amount of this Debenture would result in the
issuance of a fractional share of Preferred Shares, the Company shall pay a
cash
adjustment in lieu of such fractional share to the holder of this Debenture
based upon the Conversion Price.
E. No
Prepayment.
The
Principal Amount of this Debenture may not be prepaid.
F. Failure
to Convert.
In the
event that the Conversion Conditions have not been satisfied, so that the
automatic conversion of this Debenture is not effected by December 10, 2008,
the
Company shall be liable to pay, as liquidated damages, and not as a penalty,
interest on the then outstanding principal amount of this Debenture at a rate
of
fifteen percent (15%) per annum, payable quarterly in arrears, until such time
that the Conversion Conditions have been satisfied. At any time after December
10, 2008, in the sole discretion and at the option of the Holder, the Holder
may
demand that this Debenture convert, at the Conversion Price then in effect,
into
shares of Common Stock, subject to the ownership cap and exercise restriction
set forth in Clause
G
below.
G. Ownership
Cap and Exercise Restriction in Optional Conversion.
The
Company shall not effect any optional conversion of this Debenture into shares
of Common Stock as provided in Clause F above, to the extent that, after giving
effect to the conversion, the Holder and/or its affiliates would beneficially
own in excess of the Beneficial Ownership Limitation. For purposes of this
Clause
G,
beneficial ownership shall be calculated in accordance with Section 13(d) of
the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”)
and
the rules and regulations promulgated thereunder. To the extent that the
limitation contained in this Clause
G
applies,
the determination of whether this Debenture is convertible and of how many
shares of Common Stock are issued shall be in the sole discretion of such
Holder. In the event less than the total number of shares of Common Stock
issuable upon the optional conversion of this Debenture, shall be issuable
as a
result of the Beneficial Ownership Limitation, the Holder shall submit to the
Company no later than the Conversion Date, written notice of the amount of
this
Debenture that shall be converted and the number of shares of Common Stock
to be
issued (the “Notice
of Issuance”)
and
the submission of a Notice of Issuance shall be deemed to be such Holder’s
determination of whether this Debenture may be converted and how many shares
of
Common Stock are issuable upon conversion, in each case subject to such
aggregate percentage limitations. To ensure compliance with this restriction,
each Holder will be deemed to represent to the Company each time it delivers
a
Notice of Issuance that such Notice of Issuance has not violated the
restrictions set forth in this paragraph. 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 Clause
G,
in
determining the number of outstanding shares of the Company’s Common Stock, a
Holder may rely on the number of outstanding shares of Common Stock as stated
in
the most recent of the following: (A) the Company’s most recent Form 10-Q or
Form 10-K, as the case may be, (B) a more recent public announcement by the
Company or (C) a more recent 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 (2) trading
days confirm orally and in writing to such 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 of securities
of
the Company by such Holder since the date as of which such number of outstanding
shares of Common Stock was reported. The “Beneficial
Ownership Limitation”
shall
be 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Preferred Stock (on an as
converted basis) issuable upon conversion of this Debenture held by the
applicable Holder. The Beneficial Ownership Limitation provisions of this
Clause
G
may be
waived by a Holder, at the election of such Holder, upon not less than 61 days’
prior notice to the Company. The provisions of this paragraph shall be construed
and implemented in a manner otherwise than in strict conformity with the terms
of this Clause
G
to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein contained
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.
2. Amendments
and Waivers.
The
provisions of this Debenture may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented
to
by the Company and the Payee.
3. Miscellaneous
A. Registered
Holder.
The
Company may consider and treat the person in whose name this Debenture shall
be
registered as the absolute owner thereof for all purposes whatsoever and the
Company shall not be affected by any notice to the contrary. In case of transfer
of this Debenture by operation of law, the transferee agrees to notify the
Company of such transfer and of its address, and to submit appropriate evidence
regarding such transfer so that this Debenture may be registered in the name
of
the transferee. This Debenture is transferable only on the books of the Company
by the Payee, in person or by attorney, on the surrender hereof, duly endorsed.
Communications sent to any registered owner shall be effective as against all
holders or transferees of the Debenture not registered on the books of the
Company at the time of sending the communication.
B. Governing
Law.
This
Debenture shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts
of
law principles which would result in the application of the substantive law
of
another jurisdiction.
C. Notices.
Any
notice, demand, request, waiver or other communication required or permitted
to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery by telex (with correct answer back received), telecopy or facsimile
at
the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business
day
during normal business hours where such notice is to be received) or (b) on
the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur.
If
sent
to Payee, notices shall be sent to the address set forth in the Purchase
Agreement.
If
sent
to the Company, notices shall be sent to:
|
c/o
Xi'an Baorun Industrial Development Co. Ltd.
Dongxin
Century Square, 7th Floor
Xi'an
East Xxxx Xxxx-tech Industrial Development Park
Shaanxi
Province, P.R. China
Attn:
Xx. Xxx Xxxxxxxx
Tel:
00 00 00000000
Fax:
00 00 00000000
|
|
with
copies to (which shall not constitute notice):
|
Loeb
& Loeb
000
Xxxx Xxxxxx
Xxx
Xxxx, XX00000
Attn:
Xxxxxxxx X. Xxxxxxxx
Tel:
000.000.0000
Fax:
212.407-4990
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D. Parties
in Interest.
All
covenants, agreements and undertakings in this Debenture binding upon the
Company or the Payee shall bind and inure to the benefit of the successors
and
permitted assigns of the Company and the Payee, respectively, whether so
expressed or not.
X. Xxxxxx
of Jury Trial.
THE
PAYEE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY
RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS DEBENTURE OR
ANY
OTHER DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH,
OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN), OR ACTIONS OF THE PAYEE OR THE COMPANY. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PAYEE’S PURCHASING THIS DEBENTURE.
F. Usury
Saving Provision.
All
payment obligations arising under this Debenture are subject to the express
condition that at no time shall the Company be obligated or required to pay
interest at a rate which could subject the Holder of this Debenture to either
civil or criminal liability as a result of being in excess of the maximum rate
which the Company is permitted by law to contract or agree to pay. If by the
terms of this Debenture, the Company is at any time required or obligated to
pay
interest at a rate in excess of such maximum rate, the applicable rate of
interest shall be deemed to be immediately reduced to such maximum rate, and
interest thus payable shall be computed at such maximum rate, and the portion
of
all prior interest payments in excess of such maximum rate shall be applied
and
shall be deemed to have been payments in reduction of
principal.
IN
WITNESS WHEREOF, the Company has caused this Debenture to be signed in its
name
by its duly authorized officer.
| CHINA BIO ENERGY HOLDING GROUP CO., LTD. | ||
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By
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Name:
Xx. Xxx Xxxxxxxx
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Title:
Chief Executive Officer
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