NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS
DEBENTURE IS 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.
No. 3 Original Issue Date:
September 21, 2001
$399,285.62
PHOENIX INTERNATIONAL INDUSTRIES, INC.
12% SECURED CONVERTIBLE DEBENTURE
DUE MARCH 31, 2003
THIS DEBENTURE is one of a series of duly authorized and
issued debentures of Phoenix International Industries, Inc., a
Florida corporation, having a principal place of business at
0000 Xxxxxxx Xxxxx, Xxxx Xxxx Xxxxx, Xxxxxxx 00000 (the "Company"),
designated as its 12% Secured Convertible Debentures, in the
aggregate principal amount of One Million Five Hundred and Sixty
Three Thousand, Six Hundred and Fifty Six Dollars and Eighty Three
Cents ($1,563,656.83) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to New
Millennium Capital Partners II, LLC or its registered assigns (the
"Holder"), the principal sum of Three Hundred and Ninety Nine
Thousand, Two Hundred and Eighty Five Dollars and Sixty Two Cents
($399,285.62), on March 31, 2003 or such earlier date as the
Debentures are required or permitted to be repaid as provided
hereunder (the "Maturity Date") and to pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of
this Debenture at the rate of 12% per annum, payable on a quarterly
basis on March 31, June 30, September 30 and December 31 of each year
while such Debentures are outstanding commencing on December 31, 2001
and on each Conversion Date (as defined herein) (each an "Interest
Payment Date") for such principal amount, commencing on the earlier
to occur of a Conversion Date for such principal amount and
September 30, 2001, in cash or, if permitted hereunder, shares of
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Common Stock (as defined in Section 6). Subject to the terms and
conditions herein, the decision whether to pay interest hereunder in
shares of Common Stock or cash shall be at the discretion of the
Company. Not less than five Trading Days (as defined in Section 6)
prior to the Maturity Date or an Interest Payment Date, the Company
shall provide the Holder with written notice of its election to pay
interest hereunder in cash or in shares of Common Stock. The Company
may indicate in such notice that the election contained in such
notice shall continue for later periods until revised. Failure to
timely provide such written notice shall be deemed an election by the
Company to pay the interest on such Maturity Date or Interest Payment
Date in shares of Common Stock. If interest is paid by the Company
in shares of its Common Stock, then the number of shares of Common
Stock issuable on account of such interest shall equal the cash
amount of such interest on such Interest Payment Date or Maturity
Date divided by the Conversion Price (as defined below) on such date.
Interest shall be calculated on the basis on a 360-day year and shall
accrue daily commencing on the Original Issue Date (as defined in
Section 6) until payment in full of the principal sum, together with
all accrued and unpaid interest and other amounts which may become
due hereunder, has been made. Interest hereunder will be paid to the
Person (as defined in Section 6) in whose name this Debenture is
registered on the records of the Company regarding registration and
transfers of Debentures (the "Debenture Register"). All overdue
accrued and unpaid interest to be paid in cash hereunder shall entail
a late fee at the rate of 15% per annum ("Late Fee") (or such lower
maximum amount of interest permitted to be charged under applicable
law) which will accrue daily, from the date such interest is due
hereunder through and including the date of payment.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No
service charge will be made for such registration of transfer or
exchange.
Section 2. This Debenture has been issued subject to
certain investment representations of the original Holder set forth
in the Purchase Agreement (as defined in Section 6) and may be
transferred or exchanged only in compliance with the Purchase
Agreement. Prior to due presentment to the Company for transfer of
this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 6) in whose name this Debenture is
duly registered on the Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the
contrary.
Section 3. Events of Default.
------------------
(a) "Event of Default", wherever used herein, means
any one of the following events (whatever the reason and whether it
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):
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(i) any default in the payment of the
principal of, interest (including any Late Fees) on or liquidated
damages in respect of, any Debentures, free of any claim of
subordination, as and when the same shall become due and payable
(whether by acceleration or otherwise);
(ii) the Company shall fail to observe or
perform any other covenant or agreement contained in, or otherwise
commit any breach of any of the Transaction Documents (as defined in
Section 6), and such failure or breach shall not have been remedied
within five days after the date on which notice of such failure or
breach shall have been given;
(iii) the Company or any of its subsidiaries
shall commence, or there shall be commenced against the Company or
any such subsidiary a case under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor
thereto, 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 any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 60 days;
or the Company or any subsidiary thereof is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or the Company or any subsidiary
thereof 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 60 days; or the Company or any subsidiary
thereof makes a general assignment for the benefit of creditors; or
the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become
due; or the Company or any subsidiary thereof shall call a meeting of
its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or the Company or any subsidiary thereof
shall by any act or failure to act expressly indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate
or other action is taken by the Company or any subsidiary thereof for
the purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its
obligations under any other Debenture or any mortgage, credit
agreement or other facility, indenture agreement, factoring agreement
or other instrument under which there may be issued, or by which
there may be secured or evidenced any indebtedness for borrowed money
or money due under any long term leasing or factoring arrangement of
the Company in an amount exceeding $25,000, 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;
(v) the Common Stock shall not be eligible for
quotation on and quoted for trading on the OTC Bulletin Board ("OTC')
or listed for trading on the Nasdaq SmallCap Market, New York Stock
Exchange, American Stock Exchange or the Nasdaq National Market
(each, a "Subsequent Market") and shall not again be eligible for and
quoted or listed for trading thereon within five Trading Days;
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(vi) the Company shall be a party to any Change
of Control Transaction (as defined in Section 6), shall agree to sell
or dispose all or in excess of 33% of its assets in one or more
transactions (whether or not such sale would constitute a Change of
Control Transaction), or shall redeem or repurchase more than a de
minimis number of shares of Common Stock or other equity securities
of the Company (other than redemptions of Underlying Shares (as
defined in Section 6));
(vii) an Underlying Shares Registration
Statement (as defined in Section 6) shall not have been declared
effective by the Commission (as defined in Section 6) on or prior to
the 90th day after the Original Issue Date;
(viii) if, during the Effectiveness Period
(as defined in the Registration Rights Agreement (as defined in
Section 6)), the effectiveness of the Underlying Shares Registration
Statement lapses for any reason or the Holder shall not be permitted
to resell Registrable Securities (as defined in the Registration
Rights Agreement) under the Underlying Shares Registration Statement,
in either case, for more than five consecutive Trading Days or an
aggregate of eight Trading Days (which need not be consecutive
Trading Days);
(ix) an Event (as defined in the Registration
Rights Agreement) shall not have been cured to the satisfaction of
the Holder prior to the expiration of thirty days from the Event Date
(as defined in the Registration Rights Agreement) relating thereto
(other than an Event resulting from a failure of an Underlying Shares
Registration Statement to be declared effective by the Commission on
or prior to the 120th day after the Original Issue Date, which shall
be covered by Section 3(a)(vii));
(x) the Company shall fail for any reason to
deliver certificates to a Holder prior to the third Trading Day after
a Conversion Date pursuant to and in accordance with Section 4(b) or
the Company shall provide notice to the Holder, including by way of
public announcement, at any time, of its intention not to comply with
requests for conversions of any Debentures in accordance with the
terms hereof; and
(xi) the Company shall fail for any reason to
deliver the payment in cash pursuant to a Buy-In (as defined herein)
within five days after notice is claimed delivered hereunder.
(b) If any Event of Default occurs and is
continuing, the full principal amount of this Debenture (and, at the
Holder's option, all other Debentures then held by such Holder),
together with interest and other amounts owing in respect thereof, to
the date of acceleration shall become at the Holder's election,
immediately due and payable in cash. The aggregate amount payable
upon an Event of Default shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the
product of (A) the number of Underlying Shares issued in respect of
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conversions hereunder within thirty days of the date of a declaration
of an Event of Default and then held by the Holder and (B) the Per
Share Market Value (as defined in Section 6) on the date prepayment
is due or the date the full prepayment price is paid, whichever is
greater. Interest shall accrue on the prepayment amount hereunder
from the seventh day after such amount is due (being the date of an
Event of Default) through the date of prepayment in full thereof at
the rate of 15% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law), to accrue daily from the
date such payment is due hereunder through and including the date of
payment. All Debentures and Underlying Shares for which the full
prepayment price hereunder shall have been paid in accordance
herewith shall promptly be surrendered to or as directed by the
Company. The Holder need not provide and the Company hereby waives
any presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any 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 Xxxxxx at any time prior
to payment hereunder and the Holder shall have all rights as a
Debenture holder until such time, if any, as the full payment under
this Section shall have been received by it. No such rescission or
annulment shall affect any subsequent Event of Default or impair any
right consequent thereon. In addition, upon the occurrence of an
Event of Default, the Holder may take such actions and enforce such
rights as permitted under the Security Agreement.
Section 4. Conversion.
-----------
(A) This Debenture shall be convertible
into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time, after the Original Issue
Date (subject to the limitations on conversion set forth in Section
4(a)(ii) hereof). The number of shares of Common Stock issuable
upon a conversion hereunder shall be determined by adding the sum of
(i) the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted and (y) the Conversion Price
(as defined herein), and (ii) the amount equal to (I) the product of
(x) the outstanding principal amount of this Debenture to be
converted and (y) the product of (1) the quotient obtained by
dividing .12 by 360 and (2) the number of days for which such
principal amount was outstanding, divided by (II) the Conversion
Price on the Conversion Date, provided, that if the Company shall
have timely elected to pay the interest due on a Conversion Date in
cash pursuant to the terms hereof, subsection (ii) shall not be used
in the calculation of the number of shares of Common Stock issuable
upon a conversion hereunder.
(B) Notwithstanding anything to the
contrary contained herein, if on any Conversion Date:
(1) the number of shares of Common
Stock at the time authorized, unissued and unreserved for all
purposes, or held as treasury stock, is insufficient to pay interest
hereunder in shares of Common Stock;
(2) the Underlying Shares issuable
for such conversion (including any interest payable in shares) (x)
are not registered for resale pursuant to an effective Underlying
Shares Registration Statement and (y) may not be sold without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities
Act (as defined in Section 6);
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(3) the Common Stock is not listed
or quoted for trading on the OTC or on a Subsequent Market;
(4) the Company has failed to timely
satisfy its conversion obligations hereunder; or
(5) the issuance of such shares of
Common Stock would result in a violation of Sections 4(a)(ii),
then, the Company may not pay interest in kind and must pay
interest in cash by delivering, within three Trading Days of each
applicable Conversion Date, an amount in cash equal to the product of
(a) the outstanding principal amount of the Debentures to be
converted on such Conversion Date and (b) the product of (x) the
quotient obtained by dividing .12 by 360 and (y) the number of days
for which such principal amount was outstanding.
(C) This Debenture shall be convertible
into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time, after the Original Issue
Date (subject to the limitations on conversion set forth in Section
4(a)(ii) hereof). The Holder shall effect conversions by delivering
to the Company a completed notice substantially in the form attached
hereto as Exhibit A (a "Conversion Notice"). The Conversion Notice
shall set forth the remaining principal amount of this Debenture and
all accrued and unpaid interest thereon subsequent to the conversion
at issue. The date on which a Conversion Notice is delivered is the
"Conversion Date." Unless the Holder is converting the entire
principal amount outstanding under this Debenture, the Holder is not
be required to physically surrender this Debenture to the Company in
order to effect conversions. Subject to Section 4(b), each
Conversion Notice, once given, shall be irrevocable. Conversions
hereunder shall have the effect of lowering the outstanding principal
amount of this Debenture plus all accrued and unpaid interest thereon
in an amount equal to the applicable conversion, which shall be
evidenced by notations made in the Conversion Notice. The Holder and
the Company shall maintain records showing the principal amount
converted and the date of such conversions. In the event of any
dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error.
(ii) Certain Conversion Restrictions.
--------------------------------
(A) Notwithstanding anything to the
contrary contained herein, the number of shares of Common Stock that
may be acquired by the Holder upon conversion of this Debenture (or
otherwise in respect hereof) shall be limited to the extent necessary
to insure that, following such conversion (or other issuance), the
total number of shares of Common Stock then beneficially owned by
such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999%
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(the "Maximum Percentage") of the total number of issued and
outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such conversion). For such
purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of a Notice of Conversion
hereunder will constitute a representation by the Holder that it has
evaluated the limitation set forth in this paragraph and determined
that issuance of the full number of shares of Common Stock requested
in such Notice of Conversion is permitted under this paragraph. By
written notice to the Company, the Holder may waive the provisions of
this Section, but (i) any such waiver or increase will not be
effective until the 61st day after such notice is delivered to the
Company, and (ii) any such waiver will apply only to the Holder and
not to any other holder of Debentures.
(B) Notwithstanding anything to the
contrary contained herein, the number of shares of Common Stock that
may be acquired by the Holder upon conversion of this Debenture (or
otherwise in respect hereof) shall be limited to the extent necessary
to insure that, following such conversion (or other issuance), the
total number of shares of Common Stock then beneficially owned by
such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 9.999%
(the "Additional Maximum Percentage") of the total number of issued
and outstanding shares of Common Stock (including for such purpose
the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of a Notice of Conversion
hereunder will constitute a representation by the Holder that it has
evaluated the limitation set forth in this paragraph and determined
that issuance of the full number of shares of Common Stock requested
in such Notice of Conversion is permitted under this paragraph. By
written notice to the Company, the Holder may waive the provisions of
this Section, but (i) any such waiver or increase will not be
effective until the 61st day after such notice is delivered to the
Company, and (ii) any such waiver will apply only to the Holder and
not to any other holder of Debentures.
(C) A Holder may not convert Debentures
or receive shares of Common Stock as payment of interest hereunder to
the extent such conversion or receipt of such interest payment would
result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act (as defined in Section 6) and the rules
promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon
conversion of, and payment of interest on, the Debentures held by
such Holder after application of this Section. If the Holder has
delivered a Conversion Notice for a principal amount of Debentures
that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in
excess of the permitted amount hereunder, the Company shall notify
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the Holder of this fact and shall honor the conversion for the
maximum principal amount permitted to be converted on such Conversion
Date in accordance with the periods described in Section 4(b) and, at
the option of the Holder, either retain any principal amount tendered
for conversion in excess of the permitted amount hereunder for future
conversions or return such excess principal amount to the Holder. In
the event of a merger or consolidation of the Company with or into
another Person, this paragraph shall not apply with respect to a
determination of the number of shares of common stock issuable upon
conversion in full of the Debenture if such determination is
necessary to establish the securities or other assets which the
holders of Common Stock shall be entitled to receive upon the
effectiveness of such merger or consolidation. The provisions of
this Section 4(a)(ii)(A) may be waived by the Holder upon not less
than 61 days prior notice to the Company.
(D) A Holder may not convert Debentures
or receive shares of Common Stock as payment of interest hereunder to
the extent such conversion or receipt of such interest payment would
result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act and the rules promulgated thereunder) in excess
of 9.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of interest
on, the Debentures held by such Holder after application of this
Section. If the Holder has delivered a Conversion Notice for a
principal amount of Debentures that, without regard to any other
shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder,
the Company shall notify the Holder of this fact and shall honor the
conversion for the maximum principal amount permitted to be converted
on such Conversion Date in accordance with the periods described in
Section 4(b) and, at the option of the Holder, either retain any
principal amount tendered for conversion in excess of the permitted
amount hereunder for future conversions or return such excess
principal amount to the Holder. In the event of a merger or
consolidation of the Company with or into another Person, this
paragraph shall not apply with respect to a determination of the
number of shares of common stock issuable upon conversion in full of
the Debenture if such determination is necessary to establish the
securities or other assets which the holders of Common Stock shall be
entitled to receive upon the effectiveness of such merger or
consolidation. The provisions of this Section 4(a)(ii)(B) may be
waived by the Holder upon not less than 61 days prior notice to the
Company.
(iii) Not later than five Trading Days after any
Conversion Date, (i) the Company shall deliver to the Holder a
certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those required by
Section 3.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock issuable upon such conversion in accordance
with the terms hereof), and (ii) if accrued interest is paid in cash,
the Company will deliver to the Holder a bank check, payable to
Holder, in the amount of accrued and unpaid interest. If requested
by a Holder, the Company will use its best efforts to deliver
conversion shares electronically through the Depository Trust
Corporation or another established clearing corporation performing
similar functions. If shares of Common Stock issuable following a
Conversion Notice are not delivered to or as directed by the Holder
by the fifth Trading Day after a Conversion Date, the Holder shall be
entitled by written notice to the Company at any time on or before
its receipt of such shares, to rescind such conversion, in which
event the Company shall immediately return to the Holder a Debenture
in principal amount equal to the principal amount, interest and all
other amounts due in respect of the Conversion Notice (provided the
Holder is converting the entire principal amount outstanding under
this Debenture).
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(iv) If the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to
Section 4(b)(i) by the fifth Trading Day after the Conversion Date,
the Company shall pay to such Holder, in cash, as liquidated damages
and not as a penalty, $5,000 for each Trading Day after such fifth
Trading Day until such certificates are delivered. Nothing herein
shall limit a Xxxxxx's right to pursue actual damages or declare an
Event of Default pursuant to Section 3 herein for the Company's
failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder
shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such
rights shall not prohibit the Holders from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.
Further, if the Company shall not have delivered any cash due in
respect of conversions of Debentures or as payment of interest
thereon by the fifth Trading Day after the Conversion Date, the
Holder may, by notice to the Company, require the Company to issue
shares of Common Stock pursuant to Section 4(c), except that for such
purpose the Conversion Price applicable thereto shall be the lesser
of the Conversion Price on the Conversion Date and the Conversion
Price on the date of such Holder demand. Any such shares will be
subject to the provision of this Section.
(v) In addition to any other rights available
to the Holder, if the Company fails for any reason to deliver to the
Holder such certificate or certificates pursuant to Section 4(b)(i)
by the fifth Trading Day after the Conversion Date, and if after such
fifth Trading Day the Holder purchases (in an open market transaction
or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Underlying Shares which the Holder anticipated
receiving upon such conversion (a "Buy-In"), then the Company shall
(A) pay in cash to the Holder (in addition to any remedies available
to or elected by the Holder) the amount by which (x) the Holder's
total purchase price (including brokerage commissions, if any) for
the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2)
the market price of the Common Stock at the time of the sale giving
rise to such purchase obligation and (B) at the option of the Holder,
either reissue Debentures in principal amount equal to the principal
amount of the attempted conversion or deliver to the Holder the
number of shares of Common Stock that would have been issued had the
Company timely complied with its delivery requirements under Section
4(b)(i). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of Debentures with respect to which the market
price of the Underlying Shares on the date of conversion was a total
of $10,000 under clause (A) of the immediately preceding sentence,
the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In. Notwithstanding
anything contained herein to the contrary, if a Holder requires the
Company to make payment in respect of a Buy-In for the failure to
timely deliver certificates hereunder and the Company timely pays in
full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 4(b)(ii) in respect of the
certificates resulting in such Buy-In.
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(vi) The conversion price (the "Conversion
Price") in effect on any Conversion Date shall be the lesser of (1)
$0.08 (the "Initial Conversion Price"), and (2) 50% of the average of
the lowest three inter-day trading prices (which need not occur on
consecutive Trading Days) during the twenty Trading Days immediately
preceding the applicable Conversion Date (which may include Trading
Days prior to the Original Issue Date), provided, that such twenty
Trading Day period shall be extended for the number of Trading Days
during such period in which: (A) trading in the Common Stock is
suspended by, or not traded on, the OTC or a Subsequent Market on
which the Common Stock is then listed, or (B) after the date declared
effective by the Commission, the Underlying Shares Registration
Statement is either not effective or the Prospectus included in the
Underlying Shares Registration Statement may not be used by the
Holder for the resale of Underlying Shares.
(vii) If the Company, at any time while the
Debentures are outstanding: (a) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) 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 Initial Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number
of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the
case of a subdivision, combination or re-classification.
(viii) If the Company, at any time while
Debentures are outstanding, shall issue rights, options or warrants
to all holders of Common Stock (and not to Holders) entitling them to
subscribe for or purchase shares of Common Stock at a price per share
less than the Per Share Market Value at the record date mentioned
below, then the Conversion Price shall be multiplied by a fraction,
of which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of
which the numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of shares which
the aggregate offering price of the total number of shares so offered
would purchase at such Per Share Market Value. Such adjustment shall
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be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
However, upon the expiration of any such right, option or warrant to
purchase shares of the Common Stock the issuance of which resulted in
an adjustment in the Conversion Price pursuant to this Section, if
any such right, option or warrant shall expire and shall not have
been exercised, the Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Conversion Price made
pursuant to the provisions of this Section after the issuance of such
rights or warrants) had the adjustment of the Conversion Price made
upon the issuance of such rights, options or warrants been made on
the basis of offering for subscription or purchase only that number
of shares of the Common Stock actually purchased upon the exercise of
such rights, options or warrants actually exercised.
(ix) If the Company or any subsidiary thereof,
as applicable with respect to Common Stock Equivalents (as defined
below), at any time while Debentures are outstanding, shall issue
shares of Common Stock or rights, warrants, options or other
securities or debt that are convertible into or exchangeable for
shares of Common Stock ("Common Stock Equivalents") entitling any
Person to acquire shares of Common Stock at a price per share less
than the Conversion Price (if the holder of the Common Stock or
Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights issued in connection with such issuance,
be entitled to receive shares of Common Stock at a price less than
the Conversion Price, such issuance shall be deemed to have occurred
for less than the Conversion Price), then, at the sole option of the
Holder, either (i) the Conversion Price shall be multiplied by a
fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
shares of Common Stock or such Common Stock Equivalents plus the
number of shares of Common Stock which the offering price for such
shares of Common Stock or Common Stock Equivalents would purchase at
the Conversion Price, and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior
to such issuance plus the number of shares of Common Stock so issued
or issuable, or (2) the Conversion Price shall be replaced with the
conversion, exchange or purchase price for such Common Stock
Equivalents (including any reset provisions thereof), provided, that
for purposes hereof, all shares of Common Stock that are issuable
upon conversion, exercise or exchange of Common Stock Equivalents
shall be deemed outstanding immediately after the issuance of such
Common Stock Equivalents. Such adjustment shall be made whenever
such shares of Common Stock or Common Stock Equivalents are issued.
However, upon the expiration of any Common Stock Equivalents the
issuance of which resulted in an adjustment in the Conversion Price
pursuant to this Section, if any such Common Stock Equivalents shall
expire and shall not have been exercised, the Conversion Price shall
immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section
after the issuance of such Common Stock Equivalents) had the
adjustment of the Conversion Price made upon the issuance of such
Common Stock Equivalents been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such Common Stock Equivalents
actually exercised. The Company shall notify the Holder in writing,
no later than the business day following the issuance of any Common
Stock or Common Stock Equivalent subject to this section, indicating
therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms.
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(x) If the Company, at any time while
Debentures are outstanding, shall distribute to all holders of Common
Stock (and not to Holders) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security, then in
each such case the Conversion Price at which Debentures shall
thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed
for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per
Share Market Value determined as of the record date mentioned above,
and of which the numerator shall be such Per Share Market Value on
such record date less the then fair market value at such record date
of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock
as determined by the Board of Directors in good faith. In either
case the adjustments shall be described in a statement provided to
the Holders of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date mentioned above.
(xi) In case of any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the
Common Stock is converted into other securities, cash or property,
the Holders shall have the right thereafter to, at their option, (A)
convert the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing
hereunder in respect of this Debenture only into the shares of stock
and other securities, cash and property receivable upon or deemed to
be held by holders of the Common Stock following such
reclassification or share exchange, and the Holders of the Debentures
shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the
Company into which the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing
hereunder in respect of this Debenture could have been converted
immediately prior to such reclassification or share exchange would
have been entitled or (B) require the Company to prepay the aggregate
of its outstanding principal amount of Debentures, plus all interest
and other amounts due and payable thereon, at a price determined in
accordance with Section 3(b). The entire prepayment price shall be
paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(xii) All calculations under this Section 4
shall be made to the nearest cent or the nearest 1/100th of a share,
as the case may be. No adjustments in either the Conversion Price or
the Initial Conversion Price shall be required if such adjustment is
less than $0.01, provided, however, that any adjustments which by
reason of this Section are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(xiii) Whenever either the Initial
Conversion Price or the Conversion Price is adjusted pursuant to any
of Section 4(c)(ii) - (v), the Company shall promptly mail to each
Holder a notice setting forth the Initial Conversion Price or
Conversion Price (as applicable) after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
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(xiv) If (A) the Company shall declare a
dividend (or any other distribution) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock; (C) the Company shall authorize the
granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class or
of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the
Common Stock, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets
of the Company, of any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; (E) the
Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in
each case, the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of the Debentures,
and shall cause to be mailed to the Holders at their last addresses
as they shall appear upon the stock books of the Company, at least 20
calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange, provided, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such
notice. Holders are entitled to convert Debentures during the 20-day
period commencing the date of such notice to the effective date of
the event triggering such notice.
(xv) In case of any (1) merger or consolidation
of the Company with or into another Person, or (2) sale by the
Company of more than one-half of the assets of the Company in one or
a series of related transactions, a Holder shall have the right to
(A) exercise any rights under Section 3(b), (B) convert its aggregate
principal amount of Debentures then outstanding into the shares of
stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such merger,
consolidation or sale, and such Holder shall be entitled upon such
event or series of related events to receive such amount of
securities, cash and property as the shares of Common Stock into
which such aggregate principal amount of Debentures could have been
converted immediately prior to such merger, consolidation or sales
would have been entitled, or (C) in the case of a merger or
consolidation, require the surviving entity to issue to the Holder
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convertible debentures with a principal amount equal to the aggregate
principal amount of Debentures then held by such Holder, plus all
accrued and unpaid interest and other amounts owing thereon, which
newly issued convertible debentures shall have terms identical
(including with respect to conversion) to the terms of this
Debenture, and shall be entitled to all of the rights and privileges
of a Holder of Debentures set forth herein and the agreements
pursuant to which the Debentures were issued. In the case of clause
(C), the conversion price applicable for the newly issued shares of
convertible preferred stock or convertible debentures shall be based
upon the amount of securities, cash and property that each share of
Common Stock would receive in such transaction and the Conversion
Price in effect immediately prior to the effectiveness or closing
date for such transaction. The terms of any such merger, sale or
consolidation shall include such terms so as to continue to give the
Holders the right to receive the securities, cash and property set
forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such
events.
(b) The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued shares
of Common Stock solely for the purpose of issuance upon conversion of
the Debentures and payment of interest on the Debentures, each as
herein provided, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders, not
less than such number of shares of the Common Stock as shall (subject
to any additional requirements of the Company as to reservation of
such shares set forth in the Purchase Agreement) be issuable (taking
into account the adjustments and restrictions of Section 4(b)) upon
the conversion of the outstanding principal amount of the Debentures
and payment of interest hereunder. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue,
be duly and validly authorized, issued and fully paid, nonassessable
and, if the Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public
sale in accordance with such Underlying Shares Registration
Statement.
(c) Upon a conversion hereunder the Company shall
not be required to issue stock certificates representing fractions of
shares of the Common Stock, but may if otherwise permitted, make a
cash payment in respect of any final fraction of a share based on the
Per Share Market Value at such time. If the Company elects not, or
is unable, to make such a cash payment, the Holder shall be entitled
to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.
(d) The issuance of certificates for shares of the
Common Stock on conversion of the Debentures shall be made without
charge to the Holders thereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay
any tax that may be payable in respect of any transfer involved in
the issuance and delivery of any such certificate upon conversion in
a name other than that of the Holder of such Debentures so converted
and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that
such tax has been paid.
(e) Any and all notices or other communications or
deliveries to be provided by the Holders hereunder, including,
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without limitation, any Conversion Notice, shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail,
postage prepaid, addressed to the Company, at 0000 Xxxxxxx Xxxxx,
Xxxx Xxxx Xxxxx, Xxxxxxx 00000, Facsimile No.: (000) 000-0000,
attention Chief Financial Officer, or such other address or facsimile
number as the Company may specify for such purposes by notice to the
Holders delivered in accordance with this Section, with a copy to
(other than for Conversion Notices) X. Xxx Xxxxxxxx, Esq. (facsimile
number (000) 000-0000). Any and all notices or other communications
or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to each Holder at the
facsimile telephone number or address of such Holder appearing on the
books of the Company, or if no such facsimile telephone number or
address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section
prior to 6:30 p.m. (New York City time), (ii) the date after the date
of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section
later than 6:30 p.m. (New York City time) on any date and earlier
than 11:59 p.m. (New York City time) on such date, (iii) four days
after deposit in the United States mail, (iv) the Business Day
following the date of mailing, if sent by nationally recognized
overnight courier service, or (v) upon actual receipt by the party to
whom such notice is required to be given.
Section 5. Optional Prepayment.
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(a) Subject to Section 5(b) below, the Company shall
have the right, exercisable during the first thirty days after the
Original Issue Date only, in accordance with the terms hereof and
upon ten Trading Days' prior written notice to the Holders to be
prepaid (an "Optional Prepayment Notice"), to prepay all or any
portion of the outstanding principal amount of the Debentures which
has not previously been repaid or for which Conversion Notices have
not previously been delivered. The prepayment price applicable to
prepayments under this Section 5(a) shall equal the Prepayment Price
and shall be paid in cash. Any such prepayment shall be free of any
claim of subordination. The tenth Trading Day after receipt by the
Holders of an Optional Prepayment Notice is referred to herein as the
("Optional Prepayment Date")
(b) If any portion of the Prepayment Price shall not
be paid by the Company by the second (2nd) Trading Day following the
Optional Prepayment Date, the Prepayment Price shall be increased by
15% per annum (or such lesser maximum amount that is permitted to be
paid by applicable law) to accrue daily from the date such interest
is due hereunder through and including the date of payment (which
amount shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of the Prepayment Price remains unpaid
through the expiration of the Optional Prepayment Date, the Holder
subject to such prepayment may elect by written notice to the Company
to either (x) demand conversion in accordance with the formula and
the time period therefor set forth in Section 4 of any portion of the
principal amount of Debentures for which the Prepayment Price, plus
accrued liquidated damages and accrued interest thereon, has not been
paid in full (the "Unpaid Prepayment Principal Amount"), in which
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event the applicable Per Share Market Value shall be the lower of the
Per Share Market Value calculated on the Optional Prepayment Date and
the Per Share Market Value as of the Holder's written demand for
conversion, or (y) invalidate ab initio such optional prepayment,
notwithstanding anything herein contained to the contrary. If the
Holder elects option (x) above, the Company shall, within five
Trading Days after such election is deemed delivered hereunder,
deliver to the Holder the shares of Common Stock issuable upon
conversion of the Unpaid Prepayment Principal Amount subject to such
conversion demand and otherwise perform its obligations hereunder
with respect thereto. If the Holder elects option (y) above, the
Company shall promptly, and in any event not later than three Trading
Days from receipt of notice of such election, return to the Holder
new Debentures for the full Unpaid Prepayment Principal Amount and
shall no longer have any prepayment rights under this Debenture. If,
upon an election under option (x) above, the Company fails to deliver
certificates representing the shares of Common Stock issuable upon
conversion of the Unpaid Prepayment Principal Amount within the time
period set forth in this Section, the Company shall pay to the Holder
in cash, as liquidated damages and not as a penalty, $5,000 per day
until the Company delivers such certificates to the Holder.
Section 6. Definitions. For the purposes hereof, the
------------
following terms shall have the following meanings:
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or
is under common control with a Person, as such terms are used in and
construed under Rule 144. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed
to be an Affiliate of such Purchaser.
"Business Day" means any day except Saturday, Sunday and
any day which shall be a federal legal holiday in the United States
or a day on which banking institutions in the State of New York or
Florida are authorized or required by law or other government action
to close.
"Change of Control Transaction" means the occurrence of
any of (i) an acquisition after the date hereof by an individual or
legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal
or beneficial ownership of capital stock of the Company, by contract
or otherwise) of in excess of 33% of the voting securities of the
Company, (ii) a replacement at one time or over time of more than
one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of
the board of directors on the date hereof (or by those individuals
who are serving as members of the board of directors on any date
whose nomination to the board of directors was approved by a majority
of the members of the board of directors who are members on the date
hereof), (iii) the merger of the Company with or into another entity
that is not wholly-owned by the Company, consolidation or sale of 50%
or more of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to
which the Company is a party or by which it is bound, providing for
any of the events set forth above in (i), (ii) or (iii).
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"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $.001 par value per
share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended and the rules and regulations promulgated thereunder.
"Mandatory Prepayment Amount" for any Debentures shall
equal the sum of (i) the greater: of (A) 130% of the principal amount
of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, and (B) the principal amount of Debentures to be prepaid,
plus all accrued and unpaid interest thereon, divided by the
Conversion Price on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise due or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever price is less, multiplied by the
Per Share Market Value on (x) the date the Mandatory Prepayment
Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever price is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in
respect of such Debentures.
"Original Issue Date" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of
any Debenture and regardless of the number of instruments which may
be issued to evidence such Debenture.
"Per Share Market Value" means on any particular date
(a) the closing bid price per share of Common Stock on such date on
the Subsequent Market on which the shares of Common Stock are then
listed or quoted (as reported by Bloomberg L.P. at 4:15 PM (New York
time) for the closing sales price for regular session trading on such
day), or if there is no such price on such date, then the closing bid
price on the Subsequent Market on the date nearest preceding such
date (as reported by Bloomberg L.P. at 4:15 PM (New York time) for
the closing sales price for regular session trading on such day), or
(b) if the shares of Common Stock are not then listed or quoted on a
Subsequent Market, the closing bid price for a share of Common Stock
in the OTC, as reported by the National Quotation Bureau Incorporated
or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if
the shares of Common Stock are not then reported by the National
Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of
the "Pink Sheet" quotes for the relevant conversion period, as
determined in good faith by the Holder, or (d) if the shares of
Common Stock are not then publicly traded the fair market value of a
share of Common Stock as determined by an Appraiser selected in good
faith by the Holders of a majority in interest of the principal
amount of Debentures then outstanding.
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"Person" means a corporation, an association, a
partnership, organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
"Prepayment Price" for any Debentures shall equal the sum
of (i) the greater of (A) 130% of the principal amount of Debentures
to be prepaid, plus all accrued and unpaid interest thereon, and (B)
the principal amount of Debentures to be prepaid, plus all accrued
and unpaid interest thereon, divided by the Conversion Price on (x)
the date the Mandatory Prepayment Amount is demanded or otherwise due
or (y) the date the Mandatory Prepayment Amount is paid in full,
whichever is less, multiplied by the Per Share Market Value on (x)
the date the Mandatory Prepayment Amount is demanded or otherwise due
or (y) the date the Mandatory Prepayment Amount is paid in full,
whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such Debentures.
"Purchase Agreement" means the Secured Convertible
Debenture Purchase Agreement, dated as of the Original Issue Date, to
which the Company and the original Holder are parties, as amended,
modified or supplemented from time to time in accordance with its
terms.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated as of the Original Issue Date, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Security Agreement" means the Security Agreement dated as
of the Original Issue Date, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the shares of
Common Stock are traded on the OTC or on such Subsequent Market on
which the shares of Common Stock are then listed or quoted, or (b) if
the shares of Common Stock are not listed on a Subsequent Market, a
day on which the shares of Common Stock are traded in the over-the-
counter market, as reported by the OTC, or (c) if the shares of
Common Stock are not quoted on the OTC, a day on which the shares of
Common Stock are quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices);
provided, that in the event that the shares of Common Stock are not
listed or quoted as set forth in (a), (b) and (c) hereof, then
Trading Day shall mean any day except a Business Day.
"Transaction Documents" shall have the meaning set forth
in the Purchase Agreement.
"Underlying Shares" means the shares of Common Stock
issuable upon conversion of Debentures and as payment of interest in
accordance with the terms hereof.
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"Underlying Shares Registration Statement" means a
registration statement meeting the requirements set forth in the
Registration Rights Agreement, covering among other things the resale
of the Underlying Shares and naming the Holder as a "selling
stockholder" thereunder.
Section 7. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the
principal of, interest and liquidated damages (if any) on, this
Debenture at the time, place, and rate, and in the coin or currency,
herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures
now or hereafter issued under the terms set forth herein. As long as
there are Debentures outstanding, the Company shall not and shall
cause it subsidiaries not to, without the consent of the Holders, (i)
amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Holders; (ii)
repay, repurchase or offer to repay, repurchase or otherwise acquire
shares of its Common Stock or other equity securities other than as
to the Underlying Shares to the extent permitted or required under
the Transaction Documents; or (iii) enter into any agreement with
respect to any of the foregoing. The Company may only voluntarily
prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to
any of the rights of a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and to
the extent converted into shares of Common Stock in accordance with
the terms hereof.
Section 9. If this Debenture shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated
Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed debenture, a new Debenture for the principal amount of this
Debenture so mutilated, lost, stolen or destroyed but only upon
receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested,
all reasonably satisfactory to the Company.
Section 10. No 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 will not and will not permit any of its subsidiaries to,
directly or indirectly, enter into, create, incur, assume or suffer
to exist any indebtedness of any kind, on or with respect to any of
its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom that is senior in
any respect to the Company's obligations under the Debentures.
Section 11. This Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of
law thereof. Each party agrees that all legal proceedings concerning
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the interpretations, enforcement and defense of the transactions
contemplated by this Debenture (whether brought against a party
hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state
and federal courts sitting in the City of New York, Borough of
Manhattan. Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to
the enforcement of the any of this Debenture), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper.
Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Debenture and
agrees that such service shall constitute good and sufficient service
of process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto (including its affiliates,
agents, officers, directors and employees) hereby irrevocably waives,
to the fullest extent permitted by applicable law, any and all right
to trial by jury in any legal proceeding arising out of or relating
to this Debenture or the transactions contemplated hereby. If either
party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its
attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.
Section 12. Any waiver by the Company or the Holder of
a breach of any provision of this Debenture shall not operate as or
be construed to be a waiver of any other breach of such provision or
of any breach of any other provision of this Debenture. The failure
of the Company or the Holder to insist upon strict adherence to any
term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
Section 13. If any provision of this Debenture is
invalid, illegal or unenforceable, the balance of this Debenture
shall remain in effect, and if any provision is inapplicable to any
person or circumstance, it shall nevertheless remain applicable to
all other persons and circumstances. If it shall be found that any
interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum
permitted rate of interest. The Company covenants (to the extent that
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it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion
of the principal of or interest on the Debentures as contemplated
herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this indenture,
and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay
or impeded the execution of any power herein granted to the Holder,
but will suffer and permit the execution of every such as though no
such law has been enacted.
Section 14. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day.
Section 15. The payment obligations under this
Debenture and the obligations of the Company to the Holder arising
upon the conversion of all or any of the Debentures in accordance
with the provisions hereof are secured pursuant to the Security
Agreement (as defined in the Purchase Agreement).
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Secured
Convertible Debenture to be duly executed by a duly authorized
officer as of the date first above indicated.
PHOENIX INTERNATIONAL INDUSTRIES, INC.
By:
-----------------
Name: Xxxxxx Xxxxxxx
Title: Chief Executive Officer
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EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal and, if specified,
interest under the 12% Secured Convertible Debenture of Phoenix
International Industries, Inc. (the "Company") due eighteen months
from issuance into shares of common stock, $.001 par value per share
(the "Common Stock"), of the Company according to the conditions
hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
G By the delivery of this Notice of Conversion the undersigned
represents and warrants to the Company that its shares ownership
of the Company's Common Stock does not exceed the amounts
determined in accordance with Section 13(d) of the Exchange Act,
specified under Section 4(a)(ii) of this Debenture.
Conversion calculations:
---------------------------------------
Date to Effect Conversion
-----------------------------------------------------------
Principal Amount of Debentures to be Converted
-----------------------------------------------
Number of shares of Common Stock to be Issued
-----------------------------------------------------------
Applicable Conversion Price
-----------------------------------------------------------
Signature
Name
------------------
Address ---------------
---------------
Aggregate Principal Amount Remaining
Subsequent to Conversion
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