EXHIBIT 4.1
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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: December ___, 2005
Original Conversion Price (subject to adjustment herein): $0.85
$_______________
6% SECURED CONVERTIBLE DEBENTURE
DUE DECEMBER 2008
THIS SECURED DEBENTURE is one of a series of duly authorized and issued
6% Secured Convertible Debentures of XXXXxx.xxx, Inc., a Delaware corporation,
having a principal place of business at 000 XX Xxxxxxx 00, Xxxxx Xxxxxxxxxx, XX
00000 (the "Company"), designated as its 6% Secured Convertible Debenture, due
December 2008 (this debenture, the "Debenture" and collectively with the other
such series of debentures, the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to ________________ or
its registered assigns (the "Holder"), or shall have paid pursuant to the terms
hereunder, the principal sum of $_______________ by December ___, 2008 (the
"Maturity Date"), or such earlier date as this Debenture is required to be
repaid as provided hereunder, 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:
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"Alternate Consideration" shall have the meaning set forth
in Section 5(d).
"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
Company, by contract or otherwise) of in excess of 40% of the voting
securities of the Company, or (ii) the Company merges into or
consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such
transaction, the stockholders of the Company immediately prior to such
transaction own less than 60% of the aggregate voting power of the
Company or the successor entity of such transaction, or (iii) the
Company 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 60% of the
aggregate voting power of the acquiring entity immediately after the
transaction, (iv) a replacement at one time or within a two year period
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), or (v) 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) through (iv).
"Common Stock" means the common stock, par value $.0001 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.
"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).
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"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" 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 to the Holder would not violate
the limitations set forth in Section 4(c), (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 and (ix) for a period of 20 consecutive Trading
Days prior to the applicable date in question, the daily trading volume
for the Common Stock on the Trading Market exceeds 100,000 shares per
Trading Day (subject to adjustment for forward and reverse stock splits
and the like) in the case of a Forced Conversion pursuant to Section 8.
"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.
"Forced Conversion" shall have the meaning set forth in
Section 6(c).
"Forced Conversion Date" shall have the meaning set forth
in Section 6(c).
"Forced Conversion Notice" shall have the meaning set forth
in Section 6(c).
"Forced Conversion Notice Date" shall have the meaning set
forth in Section 6(c).
"Fundamental Transaction" shall have the meaning set forth
in Section 5(d).
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"Interest Conversion Rate" means 85% of the lesser of (i)
the average of the VWAPs for the 10 consecutive Trading Days ending on
the Trading Day that is immediately prior to the applicable Interest
Payment Date or (ii) the average of the VWAPs for the 10 consecutive
Trading Days ending on the Trading Day that is immediately prior to the
date the applicable interest payment shares are issued and delivered if
after the Interest Payment Date.
"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 average of the 15 VWAPs immediately prior to
(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.
"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) 120%
of that portion of the principal amount of the Debenture being redeemed
pursuant to Section 6(a), (ii) accrued but unpaid interest on such
portion 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).
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"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 $100,000, in the aggregate, incurred in
connection with the acquisition of capital assets and lease obligations
with respect to newly acquired or leased assets, (c) Indebtedness
incurred pursuant to the Transaction Documents, (d) unsecured accounts
payable incurred in the ordinary course of business, (e) indebtedness
with respect to taxes, governmental changes or levies which are being
contested in good faith, provided that adequate reserves are maintained
on the books of the Company or Subsidiaries, as the case may be, in
accordance with GAAP and (f) up to $1,000,000 of additional
Indebtedness incurred by the Company in connection with raising capital
for the acquisition of another entity (by merger, consolidation, the
acquisition of all or substantially of the assets of such entity or
similar transaction), provided that in the case of (b) and (c) above,
such Indebtedness does not mature or require payments of principal
prior to the Maturity Date and is made expressly subordinate in right
of payment to the Indebtedness evidenced by this Debenture, as
reflected in a written agreement reasonably acceptable to, and approved
by, the Purchasers in writing.
"Permitted Lien" shall mean the individual and collective
reference to the following: (a) Liens for taxes, assessments and other
governmental charges 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 Company) have been
established in accordance with GAAP, (b) Liens prior to the Original
Issue Date as set forth on the Disclosure Schedules, (c) Liens granted
in connection with clauses (b) and (c) under Permitted Indebtedness
(provided, in the case of clause (b) such Liens are not secured by
assets of the Company or its Subsidiaries other than the assets so
leased or acquired), and (d) 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 Company and its consolidated
Subsidiaries or (y) which 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.
"Person" means a corporation, an association, a
partnership, organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
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"Purchase Agreement" means the Securities Purchase
Agreement, dated as of December 28, 2005 to which the Company and the
original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated as of the 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.
"Threshold Period" shall have the meaning given to such
term in Section 6(c).
"Trading Day" means a day on which the Common Stock is
traded on a Trading Market.
"Trading Market" means the following markets or exchanges
on which the Common Stock is listed or quoted for trading on the date
in question: the Nasdaq SmallCap 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.
"VWAP" means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common Stock is
then listed or quoted on a Trading Market, the daily volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then
listed or quoted as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b)
if the Common Stock is not then listed or quoted on a Trading Market
and if prices for the Common Stock are then reported in the "Pink
Sheets" published by the Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most
recent bid price per share of the Common Stock so reported; or (c) in
all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.
Section 2. Interest.
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a) Payment of Interest in Cash or Kind. The Company shall
pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 6% per
annum, payable semiannually on January 1 and July 1, beginning on July
1, 2006, on each Optional Redemption Date (as to that principal amount
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 duly authorized, fully paid and non-assessable 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
during the 20 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.
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 sole
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 disclosing such election.
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
may become due hereunder, has been made. Payment of interest in shares
of Common Stock 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
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shall be distributed ratably among the holders of the Debentures based
on their (or their predecessor's initial purchases 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, at the
option of the Holder, the Company, in lieu of (and in full satisfaction
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.
e) Prepayment. Except as otherwise set forth in this
Debenture, the Company 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
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 Company for transfer of this Debenture, the Company and any
agent of the Company 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
Company nor any such agent shall be affected by notice to the contrary.
Section 4. Conversion.
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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(c) 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 provided hereunder. Once
delivered, the Notice of Conversion shall be irrevocable, unless
provided otherwise by the Company in its sole discretion or as provided
in Section 4(d)(iii). 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 within
1 Business Day of 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.
b) Conversion Price. The conversion price in effect on any
Conversion Date shall be equal to $0.85 (subject to adjustment
herein)(the "Conversion Price").
c) Conversion Limitations. The Company shall not effect any
conversion of this Debenture, and a Holder shall not have the right to
convert any portion of this Debenture to the extent that after giving
effect to such conversion, such Holder (together with such Holder's
affiliates, and any other person or entity acting as a group together
with such Holder or any of such Holder's affiliates), as set forth on
the applicable Notice of Conversion, would beneficially own in excess
of the Beneficial Ownership Limitation (as defined below). For purposes
of the foregoing sentence, the number of shares of Common Stock
beneficially owned by such 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 principal amount of this Debenture beneficially owned by
such 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 such Holder or
any of its affiliates. Except as set forth in the preceding sentence,
for purposes of this Section 4(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of
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the Exchange Act and the rules and regulations promulgated thereunder.
To the extent that the limitation contained in this Section 4(c)
applies, the determination of whether this Debenture is convertible (in
relation to other securities owned by such Holder together with any
affiliates) and of which amounts of this Debenture are convertible
shall be in the sole discretion of such Holder, and the submission of a
Notice of Conversion shall be deemed to be such Holder's determination
of whether this Debenture may be converted (in relation to other
securities owned by such Holder) and which amounts of this Debenture
are convertible, in each case subject to such aggregate percentage
limitations. To ensure compliance with this restriction, each Holder
will be deemed to represent to the Company each time it delivers a
Notice of 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), in determining the number of outstanding
shares of Common Stock, a Holder may rely on the number of outstanding
shares of Common Stock as reflected in the most recent of the
following: (A) the Company's most recent Form 10-QSB or Form 10-KSB, as
the case may be, (B) a more recent public announcement by the Company
or (C) 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 request of a Holder, the Company shall within two Trading
Days confirm in writing to such Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including this
Debenture, by such Holder or its affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The
Company, in refraining from or taking actions under this Section 4(c),
may rely solely upon filings made by the Holder under Section 13(d) of
the Exchange Act or written representation of the Holder as to its
beneficial ownership. The "Beneficial Ownership Limitation" shall be
4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of this Debenture held by the Holder.
The Beneficial Ownership Limitation provisions of this Section 4(c) may
be waived by such Holder, at the election of such Holder, upon not less
than 61 days' prior notice to the Company to change the Beneficial
Ownership Limitation to 9.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock upon conversion of this Debenture held by the
Holder, and the provisions of this Section 4(c) shall continue to
apply. Upon such a change by a Holder of the Beneficial Ownership
Limitation from such 4.99% limitation to such 9.99% limitation, the
Beneficial Ownership Limitation may not be waived by such Holder. 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 Beneficial Ownership Limitation
herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The limitations
contained in this paragraph shall apply to a successor holder of this
Debenture.
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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 three 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 20 Trading Days period
immediately prior to the date on which the Conversion Notice is
delivered to the Company and (B) a bank check in the amount of accrued
and unpaid interest (to the extent the Company is paying to pay accrued
interest in cash). The Company shall, if available and if allowed under
applicable securities laws, use its reasonable 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 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 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 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
$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 third 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
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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 third 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 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 actual sale price of the Common Stock at
the time of
12
the sale (including brokerage commissions, if any) giving rise to such
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 Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written proof indicating
the amounts payable to the Holder in respect of the 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 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.
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, 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
13
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.
i. If the Company or any Subsidiary thereof, as
applicable, at any time while this Debenture is outstanding, shall
sell, grant any option to purchase, sell or grant any right to reprice
its securities, or otherwise dispose of or issue 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 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.
ii. The Company or any Subsidiary there, 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
14
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 VWAP on either the Trading Day
immediately prior to the date agreements for such issuance are entered
into or the date such issuance is consummated, whichever results in a
higher VWAP, but more than the then effective Conversion Price (which
is addressed in 5(b)(i) above) (such lower price, the "Market Base
Conversion Price" and such issuances collectively, a "Market 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 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 Market Dilutive Issuance) then the Conversion
Price shall be reduced to a price determined by multiplying the then
effective Conversion Price by a fraction, the numerator of which is the
number of shares of Common Stock issued and outstanding immediately
prior to the Market Dilutive Issuance plus the number of shares of
Common Stock which the aggregate offering price for such Market
Dilutive Issuance would purchase at the then Market Base Conversion
Price, and the denominator of which shall be the sum of the number of
shares of Common Stock issued and outstanding immediately prior to the
Market Dilutive Issuance plus the number of shares of Common Stock so
issued or issuable in connection with the Market Dilutive Issuance
iii. Such adjustments under this Section 5(b) 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 an Exempt Issuance. 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), immediately
after the occurrence of any Dilutive Issuance or Market Dilutive
Issuance, after the date of such Dilutive Issuance or Market Dilutive
Issuance the Holder is entitled to receive a number of Conversion
Shares based upon the Base Conversion Price or the price determined
pursuant to 5(b)(ii), as applicable, regardless of whether the Holder
accurately refers to the Base Conversion Price or the price determined
pursuant to 5(b)(ii) in the Notice of Conversion.
15
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
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 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
16
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
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
17
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. Redemption and Forced Conversion.
a) Optional Redemption at Election of Company. Subject to
the provisions of this Section 6, at any time after the later of (i)
the 12-month anniversary of the Original Issue Date and (ii) the
Effective Date, 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
whole or in part, for an amount, in cash, equal to the Optional
Redemption Amount on the 10th Trading Day following the Optional
Redemption Notice Date (such date, the "Optional Redemption Date" and
such redemption, 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 the Optional Redemption Amount is
paid in full.
b) 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 shall not be
paid by the Company 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 is paid in full. Alternatively, if any portion of the
Optional Redemption Amount remains unpaid more than five Trading Days
after such date, the Holders subject to such redemption may elect, by
written notice to the Company given at
18
any time thereafter, to invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary, and the
Company shall have no further right to exercise an Optional Redemption
with respect to this Debenture. 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.
c) Forced Conversion. Notwithstanding anything herein to
the contrary, if after the Effective Date, each of the VWAPs for any 20
consecutive Trading Days (such period commencing only after the
Effective Date, such period the "Threshold Period")) exceeds 200% of
the then effective Conversion Price, the Company may, within 1 Trading
Day of the end of any such period, deliver a notice to the Holder (a
"Forced Conversion Notice" and the date such notice is received by the
Holder, the "Forced Conversion Notice Date") to cause the Holder to
convert, at the Company's sole discretion, all or part of the then
outstanding principal amount of Debentures pursuant to Section 4, it
being understood that the "Conversion Date" for purposes of Section 4
shall be deemed to occur on the thirtieth Trading Day following the
Forced Conversion Notice Date (such thirtieth Trading Day being
referred to as the "Forced Conversion Date"). The Company may not
deliver a Forced Conversion Notice, and any Forced Conversion Notice
delivered by the Corporation shall not be effective, unless all of the
Equity Conditions are met on each Trading Day occurring during the 10
Trading Days immediately prior to the applicable Threshold Period,
during the applicable Threshold Period and from the end of the
Threshold Period through and including the later of the Forced
Conversion Date and the date such Conversion Shares pursuant to such
conversion are delivered to the Holder. Any Forced Conversion shall be
applied ratably to all Holders based on their initial purchases of
Debentures pursuant to the Purchase Agreement. For purposes of
clarification, a Forced Conversion shall be subject to all of the
provisions of Section 4, including, without limitation, the provision
requiring payment of liquidated damages and limitations on conversions.
Section 7. Negative Covenants. So long as any portion of this Debenture
is outstanding, the Company will not and will not permit any of its Subsidiaries
to directly or indirectly without the prior written consent of the holders of at
least 51% of the principal amount of Debentures then outstanding:
a) other than Permitted Indebtedness, 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;
19
c) amend its certificate of incorporation, bylaws or other
charter documents so as to materially and adversely affect any rights
of the Holder;
d) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a de minimis number of shares of Common
Stock or Common Stock Equivalents other than (i) as to the Conversion
Shares to the extent permitted or required under the Transaction
Documents, (ii) as otherwise permitted by the Transaction Documents or
(iii) shares of Common Stock held by former employees of the Company
which the Company is entitled to repurchased from such employees
pursuant to the contractual rights relating to their termination of
employment but not to exceed $50,000 in any 12 month period;
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 Company.
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 Debenture, 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 is not
cured within 3 Trading Days after written notice from the Holder;
ii. the Company shall materially 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) 10 Trading Days after notice of such default sent by the Holder
or by any other Holder and (B)15 Trading Days after the Company 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 Company or any Subsidiary is bound;
20
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 shall be untrue or incorrect in any
material respect as of the date when made or deemed made;
v. (i) the Company 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 Company 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 Company
or any Subsidiary thereof or (ii) there is commenced a case against the
Company or any Subsidiary thereof, in a court of competent
jurisdiction, 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 Company 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 Company or any
Subsidiary thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or (v) the Company or
any Subsidiary thereof makes a general assignment for the benefit of
creditors; or (vi) the Company shall fail to pay, or shall state in
writing that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or (vii) 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 (viii) 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 (ix) any corporate or other action is taken by the
Company or any Subsidiary thereof for the purpose of effecting any of
the foregoing;
vi. the Company or any Subsidiary shall default in any
of its obligations (other than under any of the Transaction Documents)
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 Company 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, and all applicable cure periods with
respect thereto shall have expired;
21
vii. the Common Stock shall not be eligible for
quotation on or quoted for trading on a Trading Market for at least
five consecutive Trading Days (other than as a result of events that
affect the Trading Market in general);
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), unless such sale or disposition is conditioned
upon the waiver of this provision by the holders of 66% of the
outstanding principal amount of the Debentures, or shall redeem or
repurchase more than a de minimis number of its outstanding shares of
Common Stock or other equity securities of the Company (other than
redemptions of Conversion Shares and repurchases of shares of Common
Stock or other equity securities of departing officers and directors of
the Company, provided that such repurchases shall not exceed $200,000,
in the aggregate, for all officers, directors and employees during any
12 month period);
ix. a Registration Statement shall not have been
declared effective by the Commission on or prior to the 210th calendar
day after the Closing Date (270th if, notwithstanding the commercial
best efforts of the Company, the Commission will not permit
acceleration or requests withdrawal as a result of the issuance of the
Securities under the Purchase Agreement or the failure of any Holder to
comply with the Plan of Distribution);
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 40 consecutive Trading Days or 60
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 the
parties thereto that is not available or may not be publicly disclosed
at the time, the Company shall be permitted an additional 20
consecutive Trading Days during any 12 month period relating to such an
event;
xi. the Company shall fail for any reason to deliver
certificates to or as directed by a Holder by the seventh Trading Day
after a Conversion Date or any Forced 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;
22
xii. On or before January 15, 2006, the Company shall
have not (A) converted all of the Indebtedness set forth on Schedule
3.1(g) of the Purchase Agreement under the heading "Indebtedness to be
converted into common Stock on or prior to January 15, 2006 at or above
$0.67 per share (subject to adjustment for reverse and forward stock
splits and the like)" into Common Stock at an effective conversion
price equal to or greater than $0.67 per share (subject to adjustment
for reverse and forward stock splits and the like) and (B) obtained
written pay-off and release letters from all holders of such
Indebtedness; or
xiii. any monetary judgment, writ or similar final
process shall be entered or filed against the Company, any Subsidiary
or any of their respective property or other assets for than $100,000,
and shall remain unvacated, unbonded or unstayed for a period of 45
calendar days.
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. Concurrently with the payment in full of the Mandatory Default
Amount the Holder shall surrender this Debenture 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 election 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 Company, at the address set forth
above, facsimile number (000) 000-0000, ATTN: XXXX XXXXXXXX or such
other address or facsimile number as the Company 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 Company 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
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such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place
of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 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 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 debt obligation of the
Company. This Debenture ranks pari passu with all other Debentures now
or hereafter issued under the terms set forth herein.
c) Lost or Mutilated Debenture. 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.
d) 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
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
24
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.
e) Waiver. 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.
f) 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 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 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 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.
g) 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.
h) 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.
25
i) Assumption. Any successor to the Company or surviving
entity in a Fundamental Transaction shall (i) assume in writing all of
the obligations of the Company 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 Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
XXXXXX.XXX, INC.
By: _______________________________
Name: Xxxx Xxxxxxxx
Title: Chief Executive Officer
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 6% Secured
Convertible Debenture of XXXXxx.Xxx, Inc., a Delaware corporation (the
"Company"), due on December 28 , 2008 into shares of common stock, par value
$.0001 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 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.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account of
Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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SCHEDULE 1
CONVERSION SCHEDULE
The 6% Secured Convertible Debentures due on December __, 2008 in the aggregate
principal amount of $________ issued by XXXXxx.xxx, 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, Amount of (or original
Original Issue Date) Conversion Principal Amount) Company Attest
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