EXHIBIT 4.3
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: April 1, 2006
Original Conversion Price (subject to adjustment herein): $2.525
$1,800,000
AMENDED 10% CONVERTIBLE SECURED DEBENTURE
DUE JUNE 27, 2007
THIS 10% CONVERTIBLE SECURED DEBENTURE is one of a series of duly
authorized and issued 10% Convertible Secured Debentures of Velocity Asset
Management Inc., a Delaware corporation, having a principal place of business at
00 X. Xxxxxxxx Xxxxxxxx, Xxxxxx, XX 00000 (the "Company") and X. Xxxxxx Inc., a
New Jersey corporation, having a principal place of business at 0000 Xxxxx 000X,
Xxxx, Xxx Xxxxxx 00000 (the "JHolder", and the Company and the JHolder, each a
"Seller" and collectively the "Seller"), designated as, to each Seller, its 10%
Convertible Secured Debenture, due June 27, 2007 (this debenture, the
"Debenture" and collectively with the other such series of debentures, the
"Debentures").
FOR VALUE RECEIVED, the Sellers, jointly and severally, promise to pay
to DKR Soundshore Oasis Holding Fund Ltd. or its registered assigns (the
"Holder"), or shall have paid pursuant to the terms hereunder, the principal sum
of $1,800,000 by June 27, 2007, or such earlier date as this Debenture is
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 in accordance with the provisions
hereof. This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
1
"Alternate Consideration" shall have the meaning set forth in
Section 5(d).
"Asset Sale" means a sale by the Sellers of any asset or
Collateral (as defined in the Security Agreement), either real
property, personal property or otherwise, including, but not limited
to, the assets listed on Schedule 2 hereto, including receipt of
payment on any obligations owed to the Sellers on such assets (by way
of example, if a Seller receives payment on a third party obligation,
whether debt or otherwise owed to such Seller, such payment for
purposes of this Debenture shall constitute an Asset Sale).
"Base Conversion Price" shall have the meaning set forth in
Section 5(b).
"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 are
authorized or required by law or other government action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the
date hereof 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 Sellers,
by contract or otherwise) of in excess of 33% of the voting securities
of the Company, or (ii) the Sellers merge into or consolidate with any
other Person, or any Person merges into or consolidates with a Seller
and, after giving effect to such transaction, the stockholders of the
applicable Seller immediately prior to such transaction own less than
66% of the aggregate voting power of the applicable Seller or the
successor entity of such transaction, or (iii) either Seller sells or
transfers its assets, as an entirety or substantially as an entirety,
to another Person and the stockholders of the Company immediately prior
to such transaction own less than 66% of the aggregate voting power of
the acquiring entity immediately after the transaction, (iv) a
replacement at one time or within a three year period of more than
one-half of the members of the Seller'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),
or (v) the execution by a Seller 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) through (iv).
"Common Stock" means the common stock, par value $.001 per
share, of the Company and stock of any other class of securities into
which such securities may hereafter have been reclassified or changed
into.
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"Conversion Date" shall have the meaning set forth in Section
4(a).
"Conversion Price" shall have the meaning set forth in Section
4(b).
"Conversion Shares" means the shares of Common Stock issuable
upon conversion of this Debenture or as payment of interest in
accordance with the terms.
"Debenture Register" shall have the meaning set forth in
Section 2(c).
"Dilutive Issuance" shall have the meaning set forth in
Section 5(b).
"Dilutive Issuance Notice" shall have the meaning set forth in
Section 5(b).
"Effectiveness Period" shall have the meaning given to such
term in the Registration Rights Agreement.
"Equity Conditions" unless waived by a Holder as to a
particular event (which waiver shall apply only as to such event and
only as to such Holder) as of the date of such event, shall mean,
during the period in question, (i) the Company shall have duly honored
all conversions and redemptions scheduled to occur or occurring by
virtue of one or more Notice of Conversions of the Holder, if any, (ii)
all liquidated damages and other amounts owing to the Holder in respect
of this Debenture shall have been paid, (iii) there is an effective
Registration Statement pursuant to which the Holder is permitted to
utilize the prospectus thereunder to resell all of the shares issuable
pursuant to the Transaction Documents (and the Company believes, in
good faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iv) the Common Stock is trading on the Trading
Market and all of the shares issuable pursuant to the Transaction
Documents are listed for trading on a Trading Market (and the Company
believes, in good faith, that trading of the Common Stock on a Trading
Market will continue uninterrupted for the foreseeable future), (v)
there is a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock for the issuance of all of the shares
issuable pursuant to the Transaction Documents, (vi) there is then
existing no Event of Default or event which, with the passage of time
or the giving of notice, would constitute an Event of Default, (vii)
the issuance of the shares in question (or, in the case of a
redemption, the shares issuable upon conversion in full of the
redemption amount) to the Holder would not violate the limitations set
forth in Section 4(c) and (viii) no public announcement of a pending or
proposed Fundamental Transaction, Change of Control Transaction or
acquisition transaction has occurred that has not been consummated.
"Event of Default" shall have the meaning set forth in Section
8.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Fundamental Transaction" shall have the meaning set forth in
Section 5(d).
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"Interest Conversion Rate" means the lesser of 90% of (a) the
average of the 10 Closing Prices immediately prior to the applicable
Interest Payment Date and (b) the average of the 10 Closing Prices
immediately prior to the date the applicable interest payment shares
are issued and delivered if after the Interest Payment Date.
"Interest Conversion Shares" shall have the meaning set forth
in Section 2(a).
"Interest Notice Period" shall have the meaning set forth in
Section 2(a).
"Interest Payment Date" shall have the meaning set forth in
Section 2(a).
"Interest Share Amount" shall have the meaning set forth in
Section 2(a).
"Late Fees" shall have the meaning set forth in Section 2(d).
"Mandatory Default Amount" shall equal the sum of (i) the
greater of: (A) 130% of the principal amount of this Debenture to be
prepaid, plus all accrued and unpaid interest thereon, or (B) the
principal amount of this Debenture to be prepaid, plus all other
accrued and unpaid interest hereon, divided by the Conversion Price on
(x) the date the Mandatory Default Amount is demanded or otherwise due
or (y) the date the Mandatory Default Amount is paid in full, whichever
is less, multiplied by the Closing Price on (x) the date the Mandatory
Default Amount is demanded or otherwise due or (y) the date the
Mandatory Default Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in
respect of this Debenture.
"Monthly Conversion Period" shall have the meaning set forth
in Section 6(b) hereof.
"Monthly Conversion Price" shall have the meaning set forth in
Section 6(b) hereof.
"Monthly Redemption" shall mean the redemption of this
Debenture pursuant to Section 6(b) hereof.
"Monthly Redemption Amount" shall mean, as to a Monthly
Redemption, $150,000.
"Monthly Redemption Date" means the 1st of each month,
commencing on June 1, 2006 and ending upon the full redemption of this
Debenture.
"Monthly Redemption Notice" shall have the meaning set forth
in Section 6(b) hereof.
"Monthly Redemption Period" shall have the meaning set forth
in Section 6(b) hereof.
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"Monthly Redemption Share Amount" shall have the meaning set
forth in Section 6(b) hereof.
"New York Courts" shall have the meaning set forth in Section
9(d).
"Notice of Conversion" shall have the meaning set forth in
Section 4(a).
"Optional Redemption" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Amount" shall mean the sum of (i) 100% of
the principal amount of the Debenture then outstanding, (ii) accrued
but unpaid interest and (iii) all liquidated damages and other amounts
due in respect of the Debenture.
"Optional Redemption Date" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Notice" shall have the meaning set forth
in Section 6(a).
"Optional Redemption Notice Date" shall have the meaning set
forth in Section 6(a).
"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.
"Permitted Indebtedness" shall mean (a) the Indebtedness
existing on the Original Issue Date and set forth on Schedule 3.1(gg)
attached to the Purchase Agreement, (b) lease obligations and purchase
money Indebtedness of up to $2,000,000, in the aggregate, incurred in
connection with the acquisition of capital assets and lease obligations
with respect to newly acquired or leased assets and (c) Indebtedness
incurred after the Original Issue Date pursuant to which the holders
thereof shall have entered into a written subordination agreement
satisfactory to the Holder, which Indebtedness shall have a maturity
date after the Maturity Date hereof and shall have such other terms and
conditions as are reasonably satisfactory to the Holder.
"Permitted Lien" shall mean the individual and collective
reference to the following: (a) Liens for taxes, assessments and other
governmental charges (including, without limitation, in connection with
workers' compensation and unemployment insurance) or levies not yet due
or Liens for taxes, assessments and other governmental charges or
levies being contested in good faith and by appropriate proceedings for
which adequate reserves (in the good faith judgment of the management
of the Sellers) have been established in accordance with GAAP, (b)
Liens imposed by law which were incurred in the ordinary course of
business, such as carriers', warehousemen's and mechanics' Liens,
statutory landlords' Liens, and other similar Liens arising in the
ordinary course of business, and (x) which do not individually or in
the aggregate materially detract from the value of such property or
assets or materially impair the use thereof in the operation of the
business of the Sellers and its consolidated Subsidiaries or (y) which
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are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
property or asset subject to such Lien, (c) Liens incurred in
connection with Permitted Indebtedness under clause (b) thereunder
provided that such Liens are not secured by assets of the Sellers or
its Subsidiaries other than the assets so acquired or leased and (d)
Liens incurred in connection with Permitted Indebtedness under clause
(a) thereunder.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Pre-Redemption Conversion Shares" shall have the meaning set
forth in Section 6(a) hereof.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of October 27, 2005, to which the Sellers 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 date of the Purchase Agreement, 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 Statement" means a registration statement
meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Conversion
Shares and naming the Holder as a "selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Subsidiary" shall have the meaning given to such term in the
Purchase Agreement.
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"Trading Market" means any of the following markets or
exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the Nasdaq Capital Market, the American Stock
Exchange, the New York Stock Exchange, the Nasdaq National Market or
the OTC Bulletin Board.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
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Section 2. Interest.
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a) Payment of Interest in Cash or Kind. The Sellers
shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 10% per
annum, payable monthly on first day of each calendar month, beginning
on the first such date after the Original Issue Date, on each Monthly
Redemption Date (as to that principal amount then being redeemed), on
each Conversion Date (as to that principal amount then being
converted), on each Optional Redemption Date (as to the principal
amount in full being redeemed) and on the Maturity Date (except that,
if any such date is not a Business Day, then such payment shall be due
on the next succeeding Business Day) (each such date, an "Interest
Payment Date"), in cash or shares of Common Stock at the Interest
Conversion Rate, or a combination thereof (the amount to be paid in
shares, the "Interest Share Amount"); provided, however, payment in
shares of Common Stock may only occur if (i) during the 10 Trading Days
immediately prior to the applicable Interest Payment Date (the
"Interest Notice Period") and through and including the date such
shares of Common Stock are issued to the Holder all of the Equity
Conditions, unless waived by the Holder in writing, have been met and
the Company shall have given the Holder notice in accordance with the
notice requirements set forth below and (ii) as to such Interest
Payment Date, prior to the such Interest Notice Period (but not more 5
Trading Days prior to the commencement of the Interest Notice Period),
the Company shall have delivered to the Holder's account with The
Depository Trust Company a number of shares of Common Stock to be
applied against such Interest Share Amount equal to the quotient of (x)
the applicable Interest Share Amount divided by (y) the then Conversion
Price (the "Interest Conversion Shares").
b) Company's Election to Pay Interest in Kind. 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. Prior to the commencement of an Interest
Notice Period, the Company shall provide the Holder with written notice
of its election to pay interest hereunder on the applicable Interest
Payment Date either in cash, shares of Common Stock or a combination
thereof (the Company may indicate in such notice that the election
contained in such notice shall continue for later periods until
revised) and the Interest Share Amount as to the applicable Interest
Payment Date. During any Interest Notice Period, the Company's election
(whether specific to an Interest Payment Date or continuous) shall be
irrevocable as to such Interest Payment Date. Subject to the
aforementioned conditions, failure to timely provide such written
notice shall be deemed an election by the Company to pay the interest
on such Interest Payment Date in cash. At any time the Company delivers
a notice to the Holder of its election to pay the interest in shares of
Common Stock, the Company shall file a prospectus supplement pursuant
to Rule 424 or shall file a Current Report on Form 8-K disclosing such
election. The aggregate number of shares of Common Stock otherwise
issuable to the Holder on an Interest Payment Date shall be reduced by
the number of Interest Conversion Shares previously issued to the
Holder in connection with such Interest Payment Date.
c) Interest Calculations. Interest shall be calculated
on the basis of a 360-day year and shall accrue daily commencing on the
Original Issue Date until payment in full of the principal sum,
together with all accrued and unpaid interest and other amounts which
7
may become due hereunder, has been made. Payment of interest in shares
of Common Stock (other than the Interest Conversion Shares issued prior
to an Interest Notice Period) shall otherwise occur pursuant to Section
4(d)(ii) and only for purposes of the payment of interest in shares,
the Interest Payment Date shall be deemed the Conversion Date. Interest
shall cease to accrue with respect to any principal amount converted,
provided that the Company in fact delivers the Conversion Shares within
the time period required by Section 4(d)(ii). Interest hereunder will
be paid to the Person in whose name this Debenture is registered on the
records of the Company regarding registration and transfers of this
Debenture (the "Debenture Register"). Except as otherwise provided
herein, if at any time the Company pays interest partially in cash and
partially in shares of Common Stock to the holders of the Debentures,
then such payment shall be distributed ratably among the holders of the
Debentures based on their (or their predecessor's) then principal
amount of Debentures pursuant to the Purchase Agreement.
d) Late Fee. All overdue accrued and unpaid interest to
be paid hereunder shall entail a late fee at the rate of 18% per annum
(or such lower maximum amount of interest permitted to be charged under
applicable law) ("Late Fees") which will accrue daily, from the date
such interest is due hereunder through and including the date of
payment. Notwithstanding anything to the contrary contained herein, if
on any Interest Payment Date the Company has elected to pay interest in
Common Stock and is not able to pay accrued interest in the form of
Common Stock because it does not then satisfy the conditions for
payment in the form of Common Stock set forth above, then the Sellers,
in lieu of delivering either shares of Common Stock pursuant to this
Section 2 or paying the regularly scheduled cash interest payment,
shall deliver, within three Trading Days of each applicable Interest
Payment Date, an amount in cash equal to the product of the number of
shares of Common Stock otherwise deliverable to the Holder in
connection with the payment of interest due on such Interest Payment
Date and the highest VWAP during the period commencing on the Interest
Payment Date and ending on the Trading Day prior to the date such
payment is made. If any Interest Conversion Shares are issued to the
Holder in connection with an Interest Payment Date and are not applied
against an Interest Share Amount, then the Holder shall promptly return
such excess shares to the Company.
e) Prepayment. Except as otherwise set forth in this
Debenture including, but not limited to, Section 6(a), the Sellers may
not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
---------- ----------------------------------------
a) Different Denominations. 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.
b) Investment Representations. This Debenture has been
issued subject to certain investment representations of the original
Holder set forth in the Purchase Agreement and may be transferred or
8
exchanged only in compliance with the Purchase Agreement and applicable
federal and state securities laws and regulations.
c) Reliance on Debenture Register. Prior to due
presentment to the Sellers for transfer of this Debenture, the Sellers
and any agent of the Sellers may treat the Person 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 Sellers nor any such agent shall be affected by notice to
the contrary.
Section 4. Conversion.
---------- ----------
a) Voluntary Conversion. At any time after the Original
Issue Date until this Debenture is no longer outstanding, 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 (subject to the limitations on conversion set forth in Section
4(d) hereof). The Holder shall effect conversions by delivering to the
Company the form of Notice of Conversion attached hereto as Annex A (a
"Notice of Conversion"), specifying therein the principal amount of
this Debenture to be converted and the date on which such conversion is
to be effected (a "Conversion Date"). If no Conversion Date is
specified in a Notice of Conversion, the Conversion Date shall be the
date that such Notice of Conversion is received hereunder. To effect
conversions hereunder, the Holder shall not be required to physically
surrender this Debenture to the Company unless the entire principal
amount of this Debenture plus all accrued and unpaid interest thereon
has been so converted. Conversions hereunder shall have the effect of
lowering the outstanding principal amount of this Debenture in an
amount equal to the applicable conversion. The Holder and the Company
shall maintain records showing the principal amount converted and the
date of such conversions. The Company shall deliver any objection to
any Notice of Conversion promptly, but in no event later than 2
Business Days after receipt of such notice. In the event of any dispute
or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any
assignee, by acceptance of this Debenture, acknowledge and agree that,
by reason of the provisions of this paragraph, following conversion of
a portion of this Debenture, the unpaid and unconverted principal
amount of this Debenture may be less than the amount stated on the face
hereof. Subject to the Holder's right to rescind pursuant to Section
4(d)(iii), Notices of Conversion shall be irrevocable.
b) Conversion Price. The conversion price in effect on
any Conversion Date shall be equal to $2.525 (subject to adjustment
herein)(the "Conversion Price").
c) Xxxxxx's Restriction on Conversion. The Company shall
not effect any conversion of this Debenture, and the Holder shall not
have the right to convert any portion of this Debenture, pursuant to
Section 4(a) or otherwise, to the extent that after giving effect to
such conversion, the Holder (together with the Holder's Affiliates), as
set forth on the applicable Notice of Conversion, would beneficially
own in excess of 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to such conversion. For
9
purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its Affiliates shall include
the number of shares of Common Stock issuable upon conversion of this
Debenture with respect to which the determination of such sentence is
being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) conversion of the remaining,
nonconverted portion of this Debenture beneficially owned by the Holder
or any of its Affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of the
Company (including, without limitation, any other Debentures or the
Warrants) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by the Holder or
any of its Affiliates. Except as set forth in the preceding sentence,
for purposes of this Section 4(c)(ii), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder. To the extent that the
limitation contained in this section applies, the determination of
whether this Debenture is convertible (in relation to other securities
owned by the Holder) and of which a portion of this Debenture is
convertible shall be in the sole discretion of such Holder. To ensure
compliance with this restriction, the Holder will be deemed to
represent to the Company each time it delivers a Notice of Conversion
that such Notice of Conversion has not violated the restrictions set
forth in this paragraph and the Company shall have no obligation to
verify or confirm the accuracy of such determination. 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
Section 4(c)(ii), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding shares
of Common Stock as reflected in (x) the Company's most recent Form
10-QSB or Form 10-KSB, as the case may be, (y) a more recent public
announcement by the Company or (z) any other 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 the
Holder, the Company shall within two Trading Days confirm orally and in
writing to the 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 or
exercise of securities of the Company, including this Debenture, by the
Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The provisions of this
Section 4(c) may be waived by the Holder, at the election of the
Holder, upon not less than 61 days' prior notice to the Company, and
the provisions of this Section 4(c) shall continue to apply until such
61st day (or such later date, as determined by the Holder, as may be
specified in such notice of waiver). The provisions of this paragraph
shall be implemented in a manner otherwise than in strict conformity
with the terms of this Section 4(c) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the
intended 4.99% beneficial ownership limitation herein contained or to
make changes or supplements necessary or desirable to properly give
effect to such 4.99% limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Debenture. The
holders of Common Stock of the Company shall be third party
beneficiaries of this Section 4(c) and the Company may not waive this
Section 4(c) without the consent of holders of a majority of its Common
Stock.
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d) Mechanics of Conversion
i. Conversion Shares Issuable Upon Conversion
of Principal Amount. The number of shares of Common Stock
issuable upon a conversion hereunder shall be determined by
the quotient obtained by dividing (x) the outstanding
principal amount of this Debenture to be converted by (y) the
Conversion Price. i.
ii. Delivery of Certificate Upon Conversion. Not
later than five Trading Days after any Conversion Date, the
Company will deliver or cause to be delivered to the Holder
(A) a certificate or certificates representing the Conversion
Shares which shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase
Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of this Debenture
(including, if the Company has given continuous notice
pursuant to Section 2(b) for payment of interest in shares of
Common Stock at least 20 Trading Days prior to the date on
which the Conversion Notice is delivered to the Company,
shares of Common Stock representing the payment of accrued
interest otherwise determined pursuant to Section 2(a) but
assuming that the Interest Payment Period is the 10 Trading
Days period immediately prior to the date on which the
Conversion Notice is delivered to the Company and excluding
for such issuance the condition that the Company deliver
Interest Conversion Shares as to such interest payment) and
(B) a bank check in the amount of accrued and unpaid interest
(if the Company is required to pay accrued interest in cash).
The Company shall, if available and if allowed under
applicable securities laws, use its best efforts to deliver
any certificate or certificates required to be delivered by
the Company under this Section electronically through the
Depository Trust Corporation or another established clearing
corporation performing similar functions.
iii. Failure to Deliver Certificates. If in the
case of any Notice of Conversion such certificate or
certificates are not delivered to or as directed by the
applicable 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
certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately
return the certificates representing the principal amount of
this Debenture tendered for conversion.
iv. Obligation Absolute; Partial Liquidated
Damages. If the Company fails for any reason to deliver to the
Holder such certificate or certificates pursuant to Section
4(d)(ii) by the fifth Trading Day after the Conversion Date,
the Sellers, jointly and severally, shall pay to such Holder,
in cash, as liquidated damages and not as a penalty, for each
$1000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day after 5 Trading Days after
such damages begin to accrue) for each Trading Day after such
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fifth Trading Day until such certificates are delivered. The
Company's obligations to issue and deliver the Conversion
Shares upon conversion of this Debenture in accordance with
the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same,
any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by
the Holder or any other Person of any obligation to the
Company or any violation or alleged violation of law by the
Holder or any other person, and irrespective of any other
circumstance which might otherwise limit such obligation of
the Company to the Holder in connection with the issuance of
such Conversion Shares; provided, however, such delivery shall
not operate as a waiver by the Company of any such action the
Company may have against the Holder. In the event the Holder
of this Debenture shall elect to convert any or all of the
outstanding principal amount hereof, the Company may not
refuse conversion based on any claim that the Holder or any
one associated or affiliated with the Holder has been engaged
in any violation of law, agreement or for any other reason,
unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of this Debenture shall
have been sought and obtained and the Company posts a surety
bond for the benefit of the Holder in the amount of 150% of
the principal amount of this Debenture outstanding, which is
subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Holder to
the extent it obtains judgment. In the absence of an
injunction precluding the same, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly
noticed conversion. Nothing herein shall limit a Xxxxxx's
right to pursue actual damages or declare an Event of Default
pursuant to Section 8 herein for the Company's failure to
deliver Conversion Shares 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
Holder from seeking to enforce damages pursuant to any other
Section hereof or under applicable law.
v. Compensation for Buy-In on Failure to Timely
Deliver Certificates Upon Conversion. 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(d)(ii) by the fifth Trading
Day after the Conversion Date, and if after such third Trading
Day the Holder is required by its brokerage firm to purchase
(in an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by such Holder of the
Conversion Shares which the Holder anticipated receiving upon
such conversion (a "Buy-In"), then the Sellers, jointly and
severally, 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
actual sale price of the Common Stock at the time of the sale
(including brokerage commissions, if any) giving rise to such
12
purchase obligation and (B) at the option of the Holder,
either reissue (if surrendered) this Debenture in a 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(d)(ii). 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 this Debenture with
respect to which the actual sale price of the Conversion
Shares at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase obligation
was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Sellers shall be required to pay the
Holder $1,000. The Holder shall provide the Sellers 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 a
payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in
full such amount, the Company shall not be required to pay
such Holder partial liquidated damages under Section 4(d)(iv)
in respect of the certificates resulting in such Buy-In.
vi. Reservation of Shares Issuable Upon
Conversion. 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 this Debenture and payment of interest on this
Debenture, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of
persons other than the Holder (and the other holders of the
Debentures), not less than such number of shares of the Common
Stock as shall (subject to any additional requirements of the
Company as to the reservation of such shares and the terms and
conditions set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of
Section 5) upon the conversion of the outstanding principal
amount of this Debenture 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
Registration Statement is then effective under the Securities
Act, registered for public sale in accordance with such
Registration Statement.
vii. Fractional Shares. 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 VWAP at
such time. If the Company elects not, or is unable, to make
such a cash payment, the Holder shall be entitled to receive,
13
in lieu of the final fraction of a share, one whole share of
Common Stock.
viii. Transfer Taxes. The issuance of certificates
for shares of the Common Stock on conversion of this Debenture
shall be made without charge to the Holder hereof 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 this Debenture 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.
Section 5. Certain Adjustments.
---------- --------------------
a) Stock Dividends and Stock Splits. If the Company, at
any time while this Debenture is outstanding: (A) pays a stock dividend
or otherwise makes a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall
not include any shares of Common Stock issued by the Company pursuant
to this Debenture, including as interest thereon), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares
of Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital
stock of the Company, then the 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
immediately before such event and of which the denominator shall be the
number of shares of Common Stock outstanding immediately 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.
b) Subsequent Equity Sales. If the Company or any
Subsidiary thereof, as applicable, at any time while this Debenture is
outstanding, shall offer, sell, grant any option to purchase or offer,
sell or grant any right to reprice its securities, or otherwise dispose
of or issue (or announce any offer, sale, grant or any option to
purchase or other disposition) any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock, at
an effective price per share less than the then Conversion Price (such
lower price, the "Base Conversion Price" and such issuances
collectively, a "Dilutive Issuance"), as adjusted hereunder (if the
holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or
14
otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share which is less than the
Conversion Price, such issuance shall be deemed to have occurred for
less than the Conversion Price on such date of the Dilutive Issuance),
then the Conversion Price shall be reduced to equal the Base Conversion
Price. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of (i) an
Exempt Issuance or (ii) the Secondary Offering if this Debenture is
subject to an Optional Redemption Notice delivered to the Holder within
5 Trading Days of the Closing of the Secondary Offering; provided,
however, if this Debenture is not redeemed in full on the Optional
Redemption Date, an adjustment shall be made under this Section 5(b) in
respect of the Secondary Offering. The Company shall notify the Holder
in writing, no later than the Business Day following the issuance of
any Common Stock or Common Stock Equivalents subject to this section,
indicating therein the applicable issuance price, or of applicable
reset price, exchange price, conversion price and other pricing terms
(such notice the "Dilutive Issuance Notice"). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance
Notice pursuant to this Section 5(b), upon the occurrence of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder
is entitled to receive a number of Conversion Shares based upon the
Base Conversion Price regardless of whether the Holder accurately
refers to the Base Conversion Price in the Notice of Conversion.
c) Pro Rata Distributions. If the Company, at any time
while this Debenture is outstanding, shall distribute to all holders of
Common Stock (and not to the holders of the Debenture) evidences of its
indebtedness or assets (including cash and cash dividends) or rights or
warrants to subscribe for or purchase any security, then in each such
case the Conversion Price shall be adjusted by multiplying such
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 VWAP determined as
of the record date mentioned above, and of which the numerator shall be
such VWAP 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
Holder 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.
d) Fundamental Transaction. If, at any time while this
Debenture is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B) the
Company effects any sale of all or substantially all of its assets in
one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or
15
exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (in any such case, a "Fundamental Transaction"), then upon any
subsequent conversion of this Debenture, the Holder shall have the
right to receive, for each Conversion Share that would have been
issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction, the same kind and amount of securities,
cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of one share of
Common Stock (the "Alternate Consideration"). For purposes of any such
conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based
on the amount of Alternate Consideration issuable in respect of one
share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Conversion Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different
components of the Alternate Consideration. If holders of Common Stock
are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given
the same choice as to the Alternate Consideration it receives upon any
conversion of this Debenture following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions, any
successor to a Seller or surviving entity in such Fundamental
Transaction shall issue to the Holder a new debenture consistent with
the foregoing provisions and evidencing the Holder's right to convert
such debenture into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include
terms requiring any such successor or surviving entity to comply with
the provisions of this paragraph (d) and insuring that this Debenture
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.
e) Calculations. All calculations under this Section 5
shall be made to the nearest cent or the nearest 1/100th of a share, as
the case may be. For purposes of this Section 5, the number of shares
of Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
f) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the
Conversion Price is adjusted pursuant to any of this Section
5, the Company shall promptly mail to each Holder a notice
setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement, the
Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or
16
exercise price at which such securities may be converted or
exercised in the case of a Variable Rate Transaction (as
defined in the Purchase Agreement).
ii. Notice to Allow Conversion by Xxxxxx. 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 this Debenture, and shall cause to be
mailed to the Holder at its last addresses as it 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. The Holder is entitled to convert this Debenture
during the 20-day period commencing the date of such notice to
the effective date of the event triggering such notice.
Section 6. Optional Redemption.
---------- --------------------
a) Optional Redemption at Election of Company. Subject
to the provisions of this Section 6, at any time after the Effective
Date and prior to March 31, 2006, directly and solely out of the
proceeds raised in the Secondary Offering, the Company may deliver a
notice to the Holder (an "Optional Redemption Notice" and the date such
notice is deemed delivered hereunder, the "Optional Redemption Notice
Date") of its irrevocable election to redeem the then outstanding
Debentures in full for an amount, equal to the Optional Redemption
Amount on the 20th Trading Day following the Optional Redemption Notice
Date (such date, the "Optional Redemption Date" and such redemption,
17
the "Optional Redemption"). The Optional Redemption Amount is due in
full on the Optional Redemption Date. The Company may only effect an
Optional Redemption if during the period commencing on the Optional
Redemption Notice Date through to the Optional Redemption Date and
through and including the date such shares of Common Stock are issued
to the Holder, each of the Equity Conditions shall have been met. If
any of the Equity Conditions shall cease to be satisfied at any time
during the required period, then the Holder may elect to nullify the
Optional Redemption Notice by notice to the Company within 3 Trading
Days after the first day on which any such Equity Condition has not
been met (provided that if, by a provision of the Transaction
Documents, the Company is obligated to notify the Holder of the
non-existence of an Equity Condition, such notice period shall be
extended to the third Trading Day after proper notice from the Company)
in which case the Optional Redemption Notice shall be null and void, ab
initio. The Company covenants and agrees that it will honor all Notices
of Conversion tendered from the time of delivery of the Optional
Redemption Notice through the date all amounts owing thereon are due
and paid in full.
b) Monthly Redemption. On each Monthly Redemption Date,
the Sellers, jointly and severally, shall redeem the Monthly Redemption
Amount plus accrued but unpaid interest, the sum of all liquidated
damages and any other amounts then owing to such Holder in respect of
this Debenture (the "Monthly Redemption"). The Monthly Redemption
Amount due on each Monthly Redemption Date shall be paid in cash;
provided, however, as to any Monthly Redemption and upon 30 Trading
Days' prior written irrevocable notice (the "Monthly Redemption Notice"
and the 30 Trading Day period immediately following the Monthly
Redemption Notice, the "Monthly Redemption Period"), in lieu of a cash
redemption payment the Company may elect to pay all or part of a
Monthly Redemption Amount in Conversion Shares (such dollar amount to
be paid on a Monthly Redemption Date in Conversion Shares, the "Monthly
Redemption Share Amount") based on a conversion price equal to 85% of
the average of the three lowest Closing Prices during the ten Trading
Days immediately prior to the Monthly Redemption Date, the "Monthly
Conversion Price" and such period, the "Monthly Conversion Period");
provided, further, that the Company may not pay the Monthly Redemption
Amount in Conversion Shares unless, (y) from the date the Holder
receives the duly delivered Monthly Redemption Notice through and until
the date such Monthly Redemption is paid in full, the Equity
Conditions, unless waived in writing by the Holder, have been satisfied
and (z) as to such Monthly Redemption, prior to such Monthly Redemption
Period (but not more than 5 Trading Days prior to the commencement of
the Monthly Redemption Period), the Company shall have delivered to the
Holder's account with The Depository Trust Company a number of shares
of Common Stock to be applied against such Monthly Redemption Share
Amount equal to the quotient of (x) the applicable Monthly Redemption
Share Amount divided by (y) the then Conversion Price (the
"Pre-Redemption Conversion Shares"). The Holder may convert, pursuant
to Section 4(a), any principal amount of this Debenture subject to a
Monthly Redemption at any time prior to the date that the Monthly
Redemption Amount and all amounts owing thereon are due and paid in
full. Unless otherwise indicated by the Holder in the applicable Notice
of Conversion, any principal amount of this Debenture converted during
18
the applicable Monthly Redemption Period until the date the Monthly
Redemption Amount is paid in full shall be first applied to the
principal amount subject to the Monthly Redemption Amount payable in
cash and then to the Monthly Redemption Share Amount. Any principal
amount of this Debenture converted during the applicable Monthly
Redemption Period in excess of the Monthly Redemption Amount shall be
applied against the last principal amount of this Debenture scheduled
to be redeemed hereunder, in reverse time order from the Maturity Date;
provided, however, if any such conversion is applied to such Monthly
Redemption Amount, the Pre-Redemption Conversion Shares, if any were
issued in connection with such Monthly Redemption or were not already
applied to such conversions, shall be first applied against such
conversion. The Company covenants and agrees that it will honor all
Notice of Conversions tendered up until such amounts are paid in full.
The Company's determination to pay a Monthly Redemption in cash, shares
of Common Stock or a combination thereof shall be applied ratably to
all of the holders of the Debentures based on their (or their
predecessor's) initial purchases of Debentures pursuant to the Purchase
Agreement. At any time the Company delivers a notice to the Holder of
its election to pay the Monthly Redemption Amount in shares of Common
Stock, the Company shall file a prospectus supplement pursuant to Rule
424 disclosing such election.
c) Holder Redemption Right. Upon written notice from the
Sellers to the Holder of an Asset Sale (a "Sale of Asset Notice" and
the date such notice is deemed delivered hereunder, the "Sale of Asset
Notice Date"), the Holder shall have the right to deliver a written
notice to the Company (a "Holder Redemption Notice" and the date such
notice is deemed delivered hereunder, the "Holder Redemption Notice
Date") of its irrevocable election to cause the Sellers use 100% of the
proceeds of such sale to redeem all or part of the then outstanding
principal amount of this Debenture for an amount, in cash, equal to (i)
the principal amount of this Debenture then outstanding, (ii) accrued
but unpaid interest and (iii) all liquidated damages and other amounts
due in respect of this Debenture (the "Holder Redemption" and such
amount the "Holder Redemption Amount"). The Sellers must give a Sale of
Asset Notice within 5 Trading Days of each Asset Sale. The Holder
Redemption Notice must be delivered within 10 Trading Days after the
Sale of Asset Notice Date. The Holder Redemption Amount is due and
payable on, and contingent upon, the closing or occurrence of the sale.
Notwithstanding anything herein to the contrary, the Sellers may elect
to exclude up to, in the aggregate, $15,000 of Asset Sales in any
calendar quarter from the provisions of this Section 6(c).
d) Redemption Procedure. The payment of cash pursuant to
an Optional Redemption shall be made on the Optional Redemption Date.
If any portion of the cash payment for an Optional Redemption or Holder
Redemption shall not be paid by the Sellers by the respective due date,
interest shall accrue thereon at the rate of 18% per annum (or the
maximum rate permitted by applicable law, whichever is less) until the
payment of the Optional Redemption Amount or Holder Redemption Amount,
as applicable, plus all amounts owing thereon is paid in full.
Alternatively, if any portion of the Optional Redemption Amount or
Holder Redemption Amount, as applicable, remains unpaid after such
date, the Holders subject to such redemption may elect, by written
19
notice to the Company given at any time thereafter, to invalidate ab
initio such redemption, notwithstanding anything herein contained to
the contrary, and, with respect the failure to honor the Optional
Redemption as applicable, the Company shall have no further right to
exercise such Optional Redemption. Notwithstanding anything to the
contrary in this Section 6, the Company's determination to redeem in
cash or its elections under Section 6(b) shall be applied among the
Holders of Debentures ratably. The Holder may elect to convert the
outstanding principal amount of the Debenture pursuant to Section 4
prior to actual payment in cash for any redemption under this Section 6
by fax delivery of a Notice of Conversion to the Company.
Section 7. Negative Covenants. So long as any portion of this
Debenture is outstanding, the Sellers will not and will not permit any of its
Subsidiaries to directly or indirectly:
a) other than Permitted Indebtedness, except with the
prior written consent of the Agent (as defined in the Security
Agreement), enter into, create, incur, assume, guarantee or suffer to
exist any indebtedness for borrowed money of any kind, including but
not limited to, a guarantee, 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;
b) other than Permitted Liens, enter into, create,
incur, assume or suffer to exist any liens 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;
c) amend its certificate of incorporation, bylaws or
other charter documents so as to materially and adversely affect any
rights of the Holder other than amendments that effect all stakeholders
equally and proportionally;
d) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a de minimis number of its securities other
than as to the Conversion Shares to the extent permitted or required
under the Transaction Documents or as otherwise permitted by the
Transaction Documents;
e) enter into any agreement with respect to any of the
foregoing; or
f) pay cash dividends or distributions on any equity
securities of the Sellers.
Section 8. 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):
i. any default in the payment of (A) the
principal amount of any Debenture, or (B) interest (including
Late Fees) on, or liquidated damages in respect of, any
20
Debenture, in each case free of any claim of subordination, as
and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or
otherwise) which default, solely in the case of an interest
payment or other default under clause (B) above, is not cured,
within 3 Trading Days;
ii. the Sellers shall fail to observe or perform
any other covenant or agreement contained in this Debenture or
any other Debenture (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder
upon conversion which breach is addressed in clause (xi)
below) which failure is not cured, if possible to cure, within
the earlier to occur of (A) 5 Trading Days after notice of
such default sent by the Holder or by any other Holder and
(B)10 Trading Days after the Sellers shall become or should
have become aware of such failure;
iii. a default or event of default (subject to
any grace or cure period provided for in the applicable
agreement, document or instrument) shall occur under (A) any
of the Transaction Documents, or (B) any other material
agreement, lease, document or instrument to which the Sellers
or any Subsidiary is bound;
iv. any representation or warranty made herein,
in any other Transaction Documents, in any written statement
pursuant hereto or thereto, or in any other report, financial
statement or certificate made or delivered to the Holder or
any other holder of Debentures shall be untrue or incorrect in
any material respect as of the date when made or deemed made;
v. (i) the Sellers or any of its Subsidiaries
shall commence a case, as debtor, a case under any applicable
bankruptcy or insolvency laws as now or hereafter in effect or
any successor thereto, or the Sellers or any Subsidiary
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 Sellers or any Subsidiary thereof or (ii) there is
commenced a case against the Sellers or any Subsidiary
thereof, under any applicable bankruptcy or insolvency laws,
as now or hereafter in effect or any successor thereto which
remains undismissed for a period of 60 days; or (iii) the
Sellers or any Subsidiary thereof is adjudicated by a court of
competent jurisdiction insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is
entered; or (iv) the Sellers 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 (v) the Sellers or any
Subsidiary thereof makes a general assignment for the benefit
of creditors; or (vi) the Sellers 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 (vii) the Sellers or
21
any Subsidiary thereof shall call a meeting of its creditors
with a view to arranging a composition, adjustment or
restructuring of its debts; or (viii) the Sellers 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 (ix) any corporate or other action
is taken by the Sellers or any Subsidiary thereof for the
purpose of effecting any of the foregoing;
vi. the Sellers or any Subsidiary shall default
in any of its obligations under 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 Sellers in an amount exceeding
$150,000, 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;
vii. the Common Stock shall not be eligible for
quotation on or quoted for trading on a Trading Market and
shall not again be eligible for and quoted or listed for
trading thereon within five Trading Days;
viii. the Company shall be a party to any Change
of Control Transaction or Fundamental Transaction, shall agree
to sell or dispose of 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 its outstanding
shares of Common Stock or other equity securities of the
Sellers (other than redemptions of Conversion Shares and
repurchases of shares of Common Stock or other equity
securities of departing officers and directors of the Sellers;
provided such repurchases shall not exceed $100,000, in the
aggregate, for all officers and directors during the term of
this Debenture);
ix. a Registration Statement shall not have been
declared effective by the Commission on or prior to the 180
calendar day after the Closing Date;
x. if, during the Effectiveness Period (as
defined in the Registration Rights Agreement), the
effectiveness of the 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 Registration Statement, in either case,
for more than 60 consecutive Trading Days or 90
non-consecutive Trading Days during any 12 month period;
provided, however, that in the event that the Company is
negotiating a merger, consolidation, acquisition or sale of
all or substantially all of its assets or a similar
transaction and in the written opinion of counsel to the
Company, the Registration Statement, would be required to be
amended to include information concerning such transactions or
22
the parties thereto that is not available or may not be
publicly disclosed at the time, the Company shall be permitted
an additional 10 consecutive Trading Days during any 12 month
period relating to such an event; or
xi. a Seller shall fail for any reason to
deliver certificates to a Holder prior to the fifth Trading
Day after a Conversion Date pursuant to and in accordance with
Section 4(d) 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.
xii. the Sellers shall fail to notify the Holder
within 5 Trading Days of any Asset Sale; or
xiii. Within 5 Trading Days of the Original Issue
Date, the Sellers shall fail to deliver the documentation
necessary to perfect the Holder's security interest in the
Collateral set forth on Schedule 2 attached hereto, including
but not limited to, assignments of such Collateral.
b) Remedies Upon Event of Default. If any Event of
Default occurs, the full principal amount of this Debenture, 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 Mandatory Default Amount. Commencing 5
days after the occurrence of any Event of Default that results in the
eventual acceleration of this Debenture, the interest rate on this
Debenture shall accrue at the rate of 18% per annum, or such lower
maximum amount of interest permitted to be charged under applicable
law. Upon the payment in full of the Mandatory Default Amount on this
entire Debenture the Holder shall promptly surrender this Debenture to
or as directed by the Company. The Holder need not provide and the
Sellers 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.
Section 9. Miscellaneous.
---------- --------------
a) Notices. Any and all notices or other communications
or deliveries to be provided by the Holder hereunder, including,
without limitation, any Notice of Conversion, shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Sellers, at the address set
23
forth above, facsimile number facsimile number (000) 000-0000, Attn:
Xxxxx X. Xxxxxxxxx, CFO and Chief Legal Officer or such other address
or facsimile number as the Sellers may specify for such purposes by
notice to the Holder delivered in accordance with this Section. Any and
all notices or other communications or deliveries to be provided by the
Sellers hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile telephone number or address
of such Holder appearing on the books of the Sellers, 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 5:30 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 5:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the second Business Day following the date of mailing,
if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be
given.
b) Absolute Obligation. Except as expressly provided
herein, no provision of this Debenture shall alter or impair the
obligation of the Sellers, 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 debt obligation of the
Sellers. This Debenture ranks pari passu with all other Debentures now
or hereafter issued under the terms set forth herein.
c) Security Interest. This Debenture is a direct debt
obligation of the Sellers and, pursuant to the Security Agreement, is
secured by all of the assets of the Sellers; provided, however, that
such security shall be subject to the terms and conditions of the
Subordination Agreement with Xxxxx Fargo Foothill, Inc.
d) Lost or Mutilated Debenture. If this Debenture shall
be mutilated, lost, stolen or destroyed, the Sellers 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 Sellers.
e) Governing Law. All questions concerning the
construction, validity, enforcement and interpretation of 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 the interpretations, enforcement and
defense of the transactions contemplated by any of the Transaction
Documents (whether brought against a party hereto or its respective
24
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 (the "New York Courts"). Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the
New York Courts 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 any of
the Transaction Documents), 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, or such
New York Courts are improper or inconvenient venue for such proceeding.
Each party 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 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.
f) Waiver. Any waiver by the Sellers 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
Sellers 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.
g) Severability. 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 violates applicable laws
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of
interest. The Sellers covenant (to the extent that 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
Sellers from paying all or any portion of the principal of or interest
on this Debenture 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 Sellers (to the extent it may
lawfully do so) hereby expressly waive all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law,
25
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.
h) Next Business Day. 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.
i) Headings. The headings contained herein are for
convenience only, do not constitute a part of this Debenture and shall
not be deemed to limit or affect any of the provisions hereof.
j) Assumption. Any successor to the Sellers or surviving
entity in a Fundamental Transaction shall (i) assume in writing all of
the obligations of the Sellers under this Debenture and the other
Transaction Documents pursuant to written agreements in form and
substance satisfactory to the Holder (such approval not to be
unreasonably withheld or delayed) prior to such Fundamental Transaction
and (ii) to issue to the Holder a new debenture of such successor
entity evidenced by a written instrument substantially similar in form
and substance to this Debenture, including, without limitation, having
a principal amount and interest rate equal to the principal amounts and
the interest rates of the Debentures held by the Holder and having
similar ranking to this Debenture, and satisfactory to the Holder (any
such approval not to be unreasonably withheld or delayed). The
provisions of this Section 9(i) shall apply similarly and equally to
successive Fundamental Transactions and shall be applied without regard
to any limitations of this Debenture.
*********************
26
IN WITNESS WHEREOF, the Sellers have caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
VELOCITY ASSET MANAGEMENT INC.
By: /s/ XXXXX X. XXXXXXXXX
----------------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Chief Financial Officer and
Chief Legal Officer
X. XXXXXX INC.
By: /s/ X. XXXXX XXXXX, XX.
----------------------------------------
Name: X. Xxxxx Xxxxx, Xx.
Title: President
27
