Exhibit A
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Date of Issuance: March 25, 2004
$350,000
12% SENIOR SECURED CONVERTIBLE DEBENTURE
DUE MARCH 25, 2005(1)
THIS DEBENTURE is one of a series of duly authorized and issued debentures of
Thinkpath Inc., a corporation organized and existing under the corporate law of
the Province of Ontario, Canada, having a principal place of business at 00
Xxxxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx, Xxxxxx X0X 0X0 (the "Company"),
designated as its 12% Senior Secured Convertible Debentures, due March 25, 2005
in the aggregate principal amount of up to $350,000 (the "Debentures") pursuant
to the Securities Purchase Agreement, as amended from time to time, originally
dated March 25, 2004 by and among the Company and the investors signatory
thereto (the "Purchase Agreement"). Capitalized terms not defined herein shall
have the meanings ascribed to them in the Purchase Agreement.
FOR VALUE RECEIVED, the Company promises to pay to Bristol Investment
Fund, Ltd., or its registered assigns (the "Holder"), the principal sum of
$350,000 on March 25, 2005 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
monthly, beginning on March 1, and on each Conversion Date (as defined herein)
and on the Maturity Date (each such date, an "Interest Payment Date"), in cash
or shares of Common Stock (as defined in Section 5) that have been registered
for resale by the Holder or are otherwise freely transferable within 41 calendar
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(1) 12 months from the Original Issue Date.
days after the applicable Interest Payment Date pursuant to Regulation S. The
Company may not prepay any portion of the principal amount or interest on this
Debenture without the prior written consent of the Holder. 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
ten Trading Days (as defined in Section 5) prior to each Interest Payment Date,
the Company shall provide the Holder with written notice of its election to
receive interest hereunder either in cash or shares of Common Stock pursuant to
the terms of Section 4 (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 Conversion Date in shares of
Common Stock pursuant to the terms of Section 4, provided the Registration
Statement is then effective registering such shares or the shares may be issued
pursuant to Regulation S. 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 5) 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 5) 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 hereunder shall entail a late fee at the
rate of 15% per annum (or such lower maximum amount of interest permitted to be
charged under applicable law) ("Late Fee") which will accrue daily, from the
date such interest is due hereunder through and including the date of payment.
The obligations of the Company hereunder are secured by a lien on
assets of the Company and its Subsidiaries pursuant to the Security Agreement(s)
and the Pledge and Security Agreement. The Company and the Holder shall have
those rights and obligations set forth in such agreements, including without
limitation the right to accelerate the maturity hereof upon the occurrence of
certain stated events, as if such rights and obligations were fully set forth
herein.
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 5) 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 5) 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.
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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):
(i) any default in the payment of the principal of,
interest (including any Late Fees) on or liquidated damages
and Standard Liquidated Damages Amount due under the
Securities Purchase Agreement in respect of, any Debentures,
free of any claim of subordination, as and when the same shall
become due and payable (whether on an Interest Payment Date, a
Conversion Date or the Maturity Date or by acceleration or
otherwise);
(ii) the Company shall fail to observe or perform any
other covenant, agreement or warranty contained in, or
otherwise commit any breach of any of the Transaction
Documents (as defined in Section 5), and, in the case of those
breaches that are capable of being remedied, such failure or
breach shall not have been remedied within three business 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; 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; 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;
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(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 or quoted for trading on the OTC Bulletin Board,
or listed for trading on the Nasdaq SmallCap Market, the 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;
(vi) the Company shall be a party to any Change of
Control Transaction (as defined in Section 5), 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
5));
(vii) an Underlying Shares Registration Statement, if
required to be filed, shall not have been declared effective
by the Commission (as defined in Section 5) on or prior to the
Effectiveness Date;
(viii) if, during the Effectiveness Period (as
defined in the Registration Rights Agreement), 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 5 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 fifteen 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 60th calendar
day after the Filing 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;
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(xi) the Company shall fail for any reason to deliver
the payment in cash pursuant to a Buy-In (as defined herein)
within three days after notice thereof is delivered hereunder;
or
(xii) the failure of the Company to instruct its
transfer agent to remove any legends from shares of Common
Stock eligible to be sold under Rule 144 of the Securities Act
and issue such unlegended certificates to the Holder within
three (3) business days of the Holder's request so long as the
Holder has provided the standard representations regarding the
Rule 144 sale.
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 (or, if the Company is not able to pay such amounts in cash, the
Holder may in its sole discretion accept payment in shares of Common
Stock at the then applicable Conversion Price). 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 5) plus (ii) the
product of (A) the number of Underlying Shares issued in respect of
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 Closing
Price (as defined in Section 5) 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 day such
amount is due (being the date of an Event of Default) through the date
of prepayment in full thereof in an amount equal to the Late Fee, 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.
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Section 4. Conversion.
(a) (i) At any time after the Closing Date, 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(a)(ii) hereof). The Holder shall effect
conversions by delivering by facsimile to the Company the form
of conversion notice attached hereto as Annex A (a "Conversion
Notice"), specifying therein the principal amount of
Debentures plus accrued and unpaid interest 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
Conversion Notice, the Conversion Date shall be the date that
such Conversion Notice is provided hereunder. To effect
conversions hereunder, the Holder shall not be required to
physically surrender Debentures to the Company unless the
entire principal amount of this Debenture has been so
converted. 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 (interest first, then
principal). The Holder and the Company shall maintain records
showing the principal amount converted and the date of such
conversions, in a form substantially similar to Schedule 1
attached hereto. 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.
(ii) Certain Conversion Restrictions. 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 its affiliates, 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. To ensure compliance with this
restriction, the Holder will be deemed to represent to the
Company each time it delivers a Conversion Notice that such
Conversion Notice has not violated the restrictions set forth
in this paragraph. 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 Debentures if such
determination is necessary to establish the Securities or
other assets which the holder of Common Stock shall be
entitled to receive upon the effectiveness of such merger or
consolidation.
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(iii) Underlying Shares Issuable Upon Conversion and
Pursuant to Interest.
(A) The number of shares of Common Stock
issuable upon a conversion hereunder shall be
determined by adding the sum of: (1) the quotient
obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the
Conversion Price, and (2) the amount equal to (x) the
product of (I) the outstanding principal amount of
this Debenture to be converted and (II) the product
of (aa) the quotient obtained by dividing 12% by 360
and (bb) the number of days for which such principal
amount was outstanding, divided by (y) the Conversion
Price, provided, that if the Holder shall have
elected to pay the interest due on a Conversion Date
in cash pursuant to the terms hereof, subsection (2)
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) such shares of Common Stock:
(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
Regulation S or Rule 144(k) promulgated
under the Securities Act;
(3) the Common Stock shall fail to
be listed or quoted for trading on the OTC
Bulletin Board or 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
Section 4(a)(ii),
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then, at the option of the Holder, the
Company, in lieu of delivering shares of Common Stock
pursuant to this Section 4, shall deliver, within
three Trading Days of each applicable Conversion
Date, an amount in cash equal to the higher of (i)
the product of the number of shares of Common Stock
otherwise deliverable to the Holder in connection
with such Conversion Date and the highest Closing
Price during the period commencing on the Conversion
Date and ending on the Trading Day prior to the date
such payment is made or (ii) 135% of the principal
amount plus accrued interest sought to be converted.
Such events shall be Events of Default.
(b) (i) Not later than three Trading Days after any
Conversion Date, the Company will deliver to the Holder (A)
the number of shares of Common Stock being acquired upon the
conversion of Debenture (the "Conversion Shares") in the form
of a certificate or certificates which shall be free of
restrictive legends and trading restrictions (other than those
permitted by the Purchase Agreement), or if the Company's
transfer agent is DWAC eligible, in DTC form through a DWAC
transfer to the account specified by the Holder, and (B) a
bank check in the amount of accrued and unpaid interest (if
the Holder has timely elected or the Company is required to
pay accrued interest in cash). If in the case of any
Conversion Notice such Conversion Shares are not delivered to
or as directed by the applicable Holder by the third 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 Conversion Shares to rescind such conversion,
in which event the Company shall immediately return the
certificates representing the principal amount of Debentures
tendered for conversion and such failure shall be an Event of
Default.
(ii) If the Company fails for any reason to deliver to the
Holder the Conversion Shares pursuant to Section 4(b)(i) by
the third Trading Day after the Conversion Date, the Company
shall pay to such Holder, in cash, as liquidated damages and
not as a penalty, for each $5,000 of principal amount being
converted, $100 per Trading Day (increasing to $200 per
Trading Day after 3 Trading Days and increasing to $400 per
Trading Day 6 Trading Days after such damages begin to accrue)
for each Trading Day after such third Trading Day until such
Conversion Shares are delivered. In the event a 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 or 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 3 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
Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law.
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(iii) In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder
the Conversion Shares pursuant to Section 4(b)(i) by the third
Trading Day after the Conversion Date, and if after such third
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 Conversion Shares
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.
(c) (i) The conversion price in effect on any Conversion Date
shall be equal to the lesser of (A) 50% of the average of the
three lowest Intraday Trading Prices on three separate Trading
Days during the sixty Trading Day period immediately prior to
such the date of the Purchase Agreement or (B) 50% of the
average of the three lowest Intraday Trading Prices on three
separate Trading Days during the sixty Trading Day period
immediately prior to such Conversion Date (subject to
adjustment herein) (the "Conversion Price").
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(ii) 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 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.
(iii) 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 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.
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(iv) If the Company or any subsidiary thereof, as applicable,
at any time while Debentures are 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 any equity
or equity equivalent securities (including any equity, debt or
other instrument that is at any time over the life thereof
convertible into or exchangeable for Common Stock, but
excluding any equity, debt or other instrument convertible
into, or exchangeable for or exercisable to purchase, Common
Stock, outstanding on the Closing Date (including the
Debentures and Warrants)) (collectively, "Common Stock
Equivalents") entitling any Person to acquire shares of Common
Stock at a price per share less than the then closing bid
price of the Common Stock on the OTC Bulletin Board or on such
Subsequent Market on which the shares of Common Stock are then
listed or quoted (the "Closing Bid 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 per
share which is issued in connection with such issuance, be
entitled to receive shares of Common Stock at a price per
share which is less than the Closing Bid Price, such issuance
shall be deemed to have occurred for less than the Closing Bid
Price, as applicable) and greater than the Conversion Price
("Market Price Dilutive Issuance"), then the Conversion Price
shall be reduced by multiplying the Conversion Price by a
fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately prior to the Market Price
Dilutive Issuance plus the number of shares of Common Stock so
issued or issuable in connection with the Market Price
Dilutive Issuance, and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding
immediately prior to the Market Price Dilutive Issuance plus
the number of shares of Common Stock which the aggregate
offering price for such Market Price Dilutive Issuance would
purchase at the Conversion Price. Such adjustment shall be
made whenever such Common Stock or Common Stock Equivalents
are issued. 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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(v) If the Company or any subsidiary thereof, as
applicable, at any time while Debentures are 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
any Common Stock Equivalents entitling any Person to acquire
shares of Common Stock, at a price per share less than the
then applicable 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 per share
which is issued in connection with such issuance, be entitled
to receive shares of Common Stock at a price per share which
is less than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price, as
applicable), then the Conversion Price shall be adjusted to
equal the conversion, exchange or purchase price for such
Common Stock or Common Stock Equivalents (including any reset
provisions thereof) at issue. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are
issued. 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.
(vi) 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 shall be
determined by multiplying such 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.
12
(vii) 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.
(viii) 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 the 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.
(ix) Whenever the Conversion Price is adjusted pursuant to
this Section 4, 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.
(x) 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.
13
(xi) 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 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 Underlying Share that would have been
issuable upon such conversion absent 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 the Company 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 (c) and insuring that this Debenture (or any such
replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.
If any Fundamental Transaction constitutes or results in a
Change of Control Transaction, then at the request of the
Holder delivered before the 90th day after such Fundamental
Transaction, the Company (or any such successor or surviving
entity) will purchase the Debenture from the Holder for a
purchase price, payable in cash within five Trading Days after
such request (or, if later, on the effective date of the
Fundamental Transaction), equal to the Mandatory Prepayment
Amount.
14
(d) 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.
(e) 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
Closing Price 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.
(f) 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.
(g) Any and all notices or other communications or deliveries
to be provided by the Holders hereunder, including, without limitation,
any Conversion Notice, shall be in writing and sent in accordance with
the Section 5.4 of the Purchase Agreement.
15
Section 5. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"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 the New York Stock Exchange is closed.
"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).
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Mandatory Prepayment Amount" for any Debentures shall equal
the sum of (i) the greater of: (A) 135% of the sum of principal amount
of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, plus all other accrued and unpaid amounts due hereunder, and
(B) the principal amount of Debentures to be prepaid, plus all accrued
and unpaid interest thereon, plus all other accrued and unpaid amounts
due hereunder, 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) 135% of 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.
16
"Per Share Market Value" means on any particular date the
lowest Intraday Trading Price on such date.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Trading Day" shall mean any day during which the Principal
Market shall be open for business.
"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 or as payment of interest in accordance
with the terms hereof.
"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 6. 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 and is secured by a security interest in certain assets and pledged
securities of the Company and the Company's Subsidiaries as set forth in that
certain Security Agreement and Pledge and Security Agreement, dated as of the
Original Issue Date, by the Company in favor of the holders of the Debentures.
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, (a) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holders; (b) 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 (c) enter into any agreement with respect to any of the foregoing.
Section 7. 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.
17
Section 8. 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 9. 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 Province of
Ontario, 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
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of Toronto (the
"Toronto Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the Toronto 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 Toronto 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.
Section 10. 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.
18
Section 11. 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 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 12. 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.
*********************
19
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.
THINKPATH INC.
By: /s/ Xxxxxx Xxxxxx
--------------------------------
Name: Xxxxxx Xxxxxx
Title: President & CEO
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal and, if specified, interest
under the 12% Senior Secured Convertible Debenture of Thinkpath Inc., (the
"Company") due on March 25, 2005, into shares of common stock, no 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.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its 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 of this Debenture.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debentures to be Converted: $__________________
Payment of Interest in Stock |_| Yes |_| No
If yes, $ _______ of Interest Accrued to be converted
Number of shares of Common Stock to be Issued:
Applicable Conversion Price:
Signature:
Name:
Address:
DWAC Delivery Instructions: ______________________________
______________________________
Schedule 1
CONVERSION SCHEDULE
12% Senior Secured Convertible Debentures due on March 25, 2005, in the
aggregate principal amount of $350,000 issued by Thinkpath Inc. This Conversion
Schedule reflects conversions made under Section 4 of the above referenced
Debenture.
Dated:
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Aggregate Principal
Amount Remaining
Subsequent to
Date of Conversion Conversion
(or for first entry, (or original
Original Issue Date) Amount of Conversion Principal Amount) Company Attest
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