EXHIBIT 4.01
NEITHER THIS DEBENTURE NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
DEBENTURE 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 DEBENTURE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
DEBENTURE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date:
March 26, 2002
$125,000
No. 1
XXXXXXX ENERGY SYSTEMS OF AMERICA, INC.
10% SECURED CONVERTIBLE DEBENTURE
DUE MARCH 25, 2003
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of XxXxxxx Energy Systems of America, Inc., a Utah corporation,
having a principal place of business at 00000 Xxx 000, XXX 000-X, Xxxxxx, Xxxxx
00000 (the "Company"), designated as its 10% Secured Convertible Debenture due
March 25, 2003 or such earlier date as the debentures are required or permitted
to be repaid as provided hereunder, in the aggregate principal amount of One
Million Dollars ($1,000,000) (collectively, the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to the order of AJW
Partners, LLC or its registered assigns (the "Holder") the principal sum of One
Hundred and Twenty Five Thousand Dollars ($125,000) plus any accrued and unpaid
interest thereon, on March 25, 2003, or such earlier date as the Debentures are
required or permitted to be repaid hereunder ("Maturity Date"). This Debenture
is subject to the following additional provisions.
ARTICLE I
1. Definitions. In addition to the terms defined elsewhere in this
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Debenture, (a) capitalized terms that are not otherwise defined herein that are
defined in the Secured Convertible Debenture Purchase Agreement, dated as of
March 26, 2002 among the Company and the original Holders (the "Purchase
Agreement") have the meanings given to such terms in the Purchase Agreement, and
(b) the following terms have the meanings indicated in this Section 1:
"Bankruptcy Event" means any of the following events: (a) the Company
or any Subsidiary commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction relating to the Company or any Subsidiary thereof; (b) there
is commenced against the Company or any Subsidiary any such case or
proceeding that is not dismissed within 60 days after commencement; (c) the
Company or any Subsidiary is adjudicated insolvent or bankrupt or any order
of relief or other order approving any such case or proceeding is entered;
(d) the Company or any Subsidiary suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not
discharged or stayed within 60 days; (e) the Company or any Subsidiary
makes a general assignment for the benefit of creditors; (f) the Company or
any Subsidiary fails to pay, or states that it is unable to pay or is
unable to pay, its debts generally as they become due; (g) the Company or
any Subsidiary calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (h) the Company
or any Subsidiary, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or takes
any corporate or other action for the purpose of effecting any of the
foregoing.
"Change of Control" means the occurrence of any of the following in one
or a series of related transactions or events: (i) an acquisition after the
date hereof by an individual or legal entity or "group" (as described in
Rule 13d-5(b)(1) under the Exchange Act) of more than 50% of the voting
rights or equity interests in the Company; (ii) a replacement of more than
one-half of the members of the Company's board of directors; (iii) a
merger, consolidation or business combination of the Company or any
Subsidiary or a sale of more than 50% of the assets of the Company in
connection with which the Company is not the surviving entity of or if
following such transaction or series of transactions, the holders of the
Company's securities prior to the first such transaction do not continue to
hold at least two-thirds of the voting rights and equity interests in of
the surviving entity or acquirer of such assets; (iv) a recapitalization,
reorganization or other transaction involving the Company or any Subsidiary
that constitutes or results in a transfer of more than 50% of the voting
rights or equity interests in the Company; (v) a "Rule 13e-3 transaction"
as defined in Rule 13e-3 under the Exchange Act with respect to the
Company, or (vi) the execution by the Company or its controlling
shareholders of an agreement providing for any of the foregoing events.
"Closing Price" 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 an Eligible Market, the closing bid price per share of
the Common Stock for such date (or the nearest preceding date) on the
primary Eligible Market on which the Common Stock is then listed or quoted;
(b) if the Common Stock is not then listed or quoted on an Eligible Market
and if prices for the Common Stock are then quoted on the OTC Bulletin
Board, the closing bid price per share of the Common Stock for such date
(or the nearest preceding date) on the OTC Bulletin Board; (c) if the
Common Stock is not then listed or quoted on the OTC Bulletin Board and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the National Quotation Bureau Incorporated (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 (d)
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.
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"Conversion Price" means the lesser of (1) $0.15 and (2) 60% of the
average of the lowest three inter-day trading prices (which need not occur
on consecutive Trading Days) during the ten Trading Days immediately
preceding the applicable Conversion Date (as defined herein) (which may
include Trading Days prior to the Original Issue Date), provided, that such
ten Trading Day period shall be extended for the number of Trading Days
during such period in which any Equity Conditions were not satisfied.
"Eligible Market" means any of the OTC Bulletin Board, New York Stock
Exchange, the American Stock Exchange, the Nasdaq National Market, the
Nasdaq Small Cap Market.
"Equity Conditions" means, with respect to a specified issuance of
Common Stock, that each of the following conditions is satisfied: (i) the
number of authorized but unissued and otherwise unreserved shares of Common
Stock is sufficient for such issuance; (ii) such shares of Common Stock are
registered for resale by the Holder pursuant to an effective registration
statement, and the prospectus thereunder shall be available for use by the
Holder to sell such shares or all such shares may be sold without volume
restrictions pursuant to Rule 144(k) under the Securities Act; (iii) the
Common Stock is listed or quoted (and is not suspended from trading) on an
Eligible Market and such shares of Common Stock are approved for listing
upon issuance; (iv) such issuance would be permitted in full without
violating Section 12 hereof or the rules or regulations of any Trading
Market; (v) no Bankruptcy Event has occurred; and (vi) the Company is not
in default with respect to any material obligation hereunder or under any
other Transaction Document.
"Interest Payment Date" means each March 30, June 30, September 30 and
December 31, except if such date is not a Trading Day, in which case such
interest shall be payable on the next succeeding Trading Day.
"Initial Transaction" refers to the Secured Convertible Debenture
Purchase Agreement dated September 26, 2000, between AJW Partners, LLC and
New Millennium Capital Partners II, LLC, pursuant to which the Company
issued and sold to AJW and New Millennium, an aggregate principal amount of
$1,500,000 of the Company's 10% Secured Convertible Debentures.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of: (i) the greater of (A) 130% of the principal amount of Debentures to be
prepaid, plus all accrued and unpaid interest thereon, and (B) the
principal amount of Debentures to be prepaid, plus all accrued and unpaid
interest thereon, divided by the applicable 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 Closing 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 greater, and (ii)
all other amounts, costs, expenses and liquidated damages due in respect of
such Debentures.
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"Original Issue Date" means the date of the first issuance of any
Debentures, regardless of the number of transfers of any particular
Debenture.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Prepayment Price" for any Debentures shall equal the sum of (i) the
greater of (A) 130% of the principal amount of Debentures to be prepaid,
plus all accrued and unpaid interest thereon, and (B) the principal amount
of Debentures to be prepaid, plus all accrued and unpaid interest thereon,
divided by the applicable Conversion Price on (x) the date the Prepayment
Price is due or (y) the date the Prepayment Price is paid in full,
whichever is less, multiplied by the Closing Price on (x) the date the
Prepayment Price is demanded or otherwise due or (y) the date the
Prepayment Price is paid in full, whichever is greater, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"Strategic Transaction" means a transaction or relationship in which
the Company issues Common Stock to a Person which is, itself or through its
subsidiaries, an operating company in a business related to the business of
the Company and in which the Company receives material benefits in addition
to the investment of funds, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities.
"Trading Day" means (a) any day on which the Common Stock is traded on
its primary Trading Market, or (b) if the Common Stock is not then listed
or quoted for trading on an Eligible Market then, a day on which the Common
Stock is quoted in the over the counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, that in the event
that the Common Stock is not listed or quoted as set forth in (a) and (b)
hereof, then Trading Day shall mean a Business Day.
"Trading Market" means the OTC Bulletin Board or any other national
securities exchange, market or trading or quotation facility on which the
Common Stock is then listed or quoted.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of principal amount and accreted interest under the Debentures.
"Underlying Shares Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering the resale of the Underlying Shares and naming the
Holder as a "selling stockholder" thereunder.
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ARTICLE II
2. Interest.
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(a) The Company shall pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Debenture
(including any interest added to such principal in accordance with this Section
2) at the rate of 10% per annum, payable quarterly in arrears on each Interest
Payment Date. Interest shall be calculated on the basis of a 360-day year and
shall accrue daily commencing on the Original Issue Date.
(b) Subject to the conditions and limitations set forth below,
the Company need not pay interest under this Debenture in cash, but may add the
amount of such interest to the principal amount of this Debenture. To pay the
interest payable on an Interest Payment Date in cash, the Company must deliver
written notice to the Holder indicating its election to make such cash payment
at least 30 calendar days prior to such Interest Payment Date, but the Company
may indicate in any such notice that the election contained therein shall
continue for subsequent Interest Payment Dates until revised on not less than 30
calendar days' notice prior to an Interest Payment Date. Failure to timely
provide such written notice shall be deemed an election by the Company to add
the amount of any interest to the principal amount of this Debenture, unless
payment of interest in such manner is not permitted at the time of any such
payment, in which case such interest must be paid in cash on the Interest
Payment Date. All interest payable on any Interest Payment Date must be paid in
the same manner.
(c) Notwithstanding the foregoing, the Company may not pay
interest by accreting the amount thereof to the principal amount of the
Debentures unless, on the Interest Payment Date, the Equity Conditions are
satisfied with respect to all of the Underlying Shares then issuable upon
conversion in full of all outstanding Debentures (after giving effect to such
addition to principal). If the Company is required but fails to pay interest in
cash on any Interest Payment Date, the Holder may (but shall not be required
to), by notice to the Company, treat such interest as if it had been added to
the principal amount of this Debenture as of such Interest Payment Date.
ARTICLE III
3. Registration of Debentures. The Company shall register the
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Debentures upon records to be maintained by the Company for that purpose (the
"Debenture Register") in the name of each record holder thereof from time to
time. The Company may deem and treat the registered Holder of this Debenture as
the absolute owner hereof for the purpose of any conversion hereof or any
payment of interest hereon, and for all other purposes, absent actual notice to
the contrary.
ARTICLE IV
4. Registration of Transfers and Exchanges. The Company shall
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register the transfer of any portion of this Debenture in the Debenture Register
upon surrender of this Debenture to the Company at its address for notice set
forth herein. Upon any such registration or transfer, a new debenture, in
substantially the form of this Debenture (any such new debenture, a "New
Debenture"), evidencing the portion of this Debenture so transferred shall be
issued to the transferee and a New Debenture evidencing the remaining portion of
this Debenture not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Debenture by the transferee thereof shall be
deemed the acceptance by such transferee of all of the rights and obligations of
a holder of a Debenture. 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 or other fee
will be imposed in connection with any such registration of transfer or
exchange. Transfers of this Debenture and the shares of Common Stock issuable on
conversion thereof hereby are governed by Section 3.1 of the Purchase Agreement.
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ARTICLE V
5. Conversion
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At the option of the Holder, all or any portion of this Debenture may
be converted into Common Stock at the Conversion Price. A holder may convert
this Debenture into Common Stock pursuant to this paragraph at any time and from
time to time from and after the Original Issue Date, by delivering to the
Company a completed and signed form of conversion notice attached hereto as
Exhibit A (a "Conversion Notice"). The date any such Conversion Notice together
with a schedule in the form of Schedule 1 attached hereto (the "Conversion
Schedule") is delivered to the Company (as determined in accordance with the
notice provisions hereof) is a "Conversion Date."
ARTICLE VI
6. Mechanics of Conversion.
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(a) The number of Underlying Shares issuable upon any
conversion hereunder shall equal the outstanding principal amount of this
Debenture to be converted and any interest that has been added to such principal
amount in accordance with Section 2 hereof, divided by the Conversion Price.
(b) Upon conversion of this Debenture, the Company shall
promptly (but in no event later than three Trading Days after the Conversion
Date): issue or cause to be issued and cause to be delivered to or upon the
written order of the Holder and in such name or names as the Holder may
designate a certificate for the Underlying Shares issuable upon such conversion
which, unless required by the Purchase Agreement, shall be free of any
restrictive legend. The Holder, or any Person so designated by the Holder to
receive Underlying Shares, shall be deemed to have become holder of record of
such Underlying Shares as of the Conversion Date. If it is eligible to
participate in the Depositary Trust Corporation DWAC system and no legends are
required to be included on the Underlying Shares pursuant to the Purchase
Agreement, the Company shall, upon request of the Holder, use its best efforts
to deliver Underlying Shares hereunder electronically through the Depository
Trust Corporation or another established clearing corporation performing similar
functions.
(c) To effect conversions hereunder, the Holder shall not be
required to physically surrender this Debenture to the Company unless the
aggregate principal amount of this Debenture is so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of
this Debenture (including any accreted interest) in an amount equal to the
applicable conversion, which shall be evidenced by entries set forth in the
Conversion Schedule. The Holder and the Company shall maintain records showing
the principal amount converted and the date of such conversions. In the event of
any dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error.
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(d) The Company's obligations to issue and deliver Underlying
Shares upon conversion of this Debenture in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction by the Holder
to enforce the same 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 Underlying Shares.
(e) If by the fifth Trading Day after a Conversion Date the
Company fails to deliver to the Holder such certificate or certificates in the
manner required pursuant to Section 6(b), then the Holder will have the right to
rescind such conversion.
(f) If by the fifth Trading Day after a Conversion Date the
Company fails to deliver to the Holder such certificate or certificates in the
manner required pursuant to Section 6(b), and if after such fifth Trading Day
the Holder purchases (in an open market transaction or otherwise) shares of
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
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (1) the aggregate number of Underlying Shares that the Company was
required to deliver to the Holder in connection with the conversion at issue by
(2) the Closing Price of the Common Stock at the time of the obligation giving
rise to such purchase obligation and (B) at the option of the Holder, either
reinstate the portion of the Debenture and equivalent number of Underlying
Shares for which such conversion was not honored or deliver to the Holder the
number of shares of Common Stock that would have been issued had the Company
timely complied with its conversion and delivery obligations hereunder. 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 a market price on the date of conversion totaling $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. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law.
ARTICLE VII
7. Events of Default.
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(a) "Event of Default" means the occurrence of 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 (free of any claim of
subordination) of principal, interest or liquidated damages in respect of any
Debentures, as and when the same becomes due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise);
(ii) a Bankruptcy Event;
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(iii) the Common Stock is not listed or quoted, or is
suspended from trading, on an Eligible or Trading Market for an aggregate of two
Trading Days (which need not be consecutive Trading Days);
(iv) the Company fails for any reason to deliver a
certificate evidencing any Underlying Shares to a Holder within five Trading
Days after delivery of such certificate is required pursuant to the terms hereof
or the conversion rights of the Holder pursuant to the Transaction Documents are
otherwise suspended (including by reason of a public document filed by the
Company of its intention to no longer honor conversions of any Debentures) for
any reason;
(v) the Company fails to have available a sufficient
number of authorized but unissued and otherwise unreserved shares of Common
Stock available to issue Underlying Shares upon any conversion hereunder;
(vi) the Company effects or publicly announces its
intention to effect any exchange, recapitalization or other transaction that
effectively requires or rewards physical delivery of certificates evidencing the
Common Stock;
(vii) the Company fails to make any cash payment
required under the Transaction Documents (including, but limited to, the payment
of a "Buy-In" pursuant to Section 6(f) hereunder or a Mandatory Prepayment
Amount pursuant to Section 7) and such failure is not cured within 10 Trading
Days after notice of such default is first given to the Company by the Holder;
(viii) the occurrence of a Change of Control or
Fundamental Transaction (as defined herein);
(ix) the Underlying Shares Registration Statement shall
not have been declared effective by the Commission on or prior to the 100th day
after the Original Issue Date;
(x) 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 five consecutive Trading Days or an aggregate of eight
Trading Days (which need not be consecutive Trading Days); or
(xi) the Company defaults in the timely performance of
any other obligation under the Transaction Documents and such default continues
uncured for a period of five Trading Days after the date on which notice of such
default is first given to the Company by the Holder (it being understood that no
prior notice need be given in the case of a default that cannot reasonably be
cured within five Trading Days);
(xii) an Event (as defined in the Registration Rights
Agreement) shall not have been cured to the satisfaction of the Holder prior to
the expiration of thirty days from the Event Date (as defined in the
Registration Rights Agreement) relating thereto (other than an Event resulting
from a failure of an Underlying Shares Registration Statement to be declared
effective by the Commission on or prior to the 100th day after the Original
Issue Date, which shall be covered by Section 7(a)(ix)); and
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(xiii) the Company shall default in any of its
obligations under this 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 one million dollars
($1,000,000), 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.
(xiv) the Company shall default in any of its
obligations under the Security Agreement of even date herewith, between the
Holders and the Company.
(b) At any time or times following the occurrence of an Event
of Default, the Holder shall have the option to elect, by notice to the Company
(an "Event Notice"), to accelerate the unpaid and unconverted principal and
interest due hereunder and require the Company to pay an amount equal to the
Mandatory Prepayment Amount. The aggregate amount payable pursuant to the
preceding sentence is referred to as the "Event Price." The Company shall pay
the aggregate Event Price to the Holder no later than the third Trading Day
following the date of delivery of the Event Notice, and upon receipt thereof the
Holder shall deliver the original Debenture and original certificates evidencing
any Underlying Shares so repurchased to the Company (to the extent such
documents have been delivered to the Holder).
(c) Subsequent to the delivery of an Event Notice pursuant to
the terms hereof, 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. Any Event Notice may be
rescinded and annulled by the Holder at any time prior to payment hereunder. No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereto.
ARTICLE VIII
8. Ranking. This Debenture ranks pari passu with all other
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Debentures now or hereafter issued pursuant to the Transaction Documents. No
indebtedness of the Company is senior to this Debenture in right of payment,
whether with respect of interest, damages or upon liquidation or dissolution or
otherwise. The Company will not, and will not permit any Subsidiary 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, other than indebtedness secured by purchase money security interests
(which will be senior only as to the underlying assets covered thereby) and
indebtedness under capital lease obligations (which will be senior only as to
the assets covered thereby).
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ARTICLE IX
9. Charges, Taxes and Expenses. Issuance of certificates for
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Underlying Shares upon conversion of (or otherwise in respect of) this Debenture
shall be made without charge to the Holder for any issue or transfer tax,
withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the registration of any certificates for Underlying Shares or Debentures in a
name other than that of the Holder. The Holder shall be responsible for all
other tax liability that may arise as a result of holding or transferring this
Debenture or receiving Underlying Shares in respect hereof.
ARTICLE X
10. Reservation of Underlying Shares. The Company covenants that it
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will at all times reserve and keep available out of the aggregate of its
authorized but unissued and otherwise unreserved Common Stock, solely for the
purpose of enabling it to issue Underlying Shares as required hereunder, the
number of Underlying Shares which are then issuable and deliverable upon the
conversion of (and otherwise in respect of) this entire Debenture (taking into
account the adjustments of Section 11), free from preemptive rights or any other
contingent purchase rights of persons other than the Holder. The Company
covenants that all Underlying Shares so issuable and deliverable shall, upon
issuance in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable.
ARTICLE XI
11. Certain Adjustments. The Conversion Price is subject to
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adjustment from time to time as set forth in this Section 11.
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(a) Stock Dividends and Splits. If the Company, at any time
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while this Debenture is outstanding, (i) pays a stock dividend on its Common
Stock or otherwise makes a distribution on any class of capital stock that is
payable in shares of Common Stock, (ii) subdivides outstanding shares of Common
Stock into a larger number of shares, or (iii) combines outstanding shares of
Common Stock into a smaller number of shares, then in each such case the
applicable Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding immediately
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event.
(b) Pro Rata Distributions. If the Company, at any time while
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this Debenture is outstanding, distributes to all holders of Common Stock and
not to the Holder (i) evidences of its indebtedness, (ii) any security (other
than a distribution of Common Stock covered by the preceding paragraph), (iii)
rights or warrants to subscribe for or purchase any security, or (iv) any other
asset (in each case, "Distributed Property"), then, at the request of the Holder
delivered before the 90th day after the record date fixed for determination of
stockholders entitled to receive such distribution, the Company will deliver to
the Holder, within five Trading Days after such request (or, if later, on the
effective date of such distribution), the Distributed Property that the Holder
would have been entitled to receive in respect of the Underlying Shares for
which this Debenture could have been converted immediately prior to such record
date. If such Distributed Property is not delivered to the Holder pursuant to
the preceding sentence, then upon any conversion of this Debenture that occurs
after such record date, the Holder shall be entitled to receive, in addition to
the Underlying Shares otherwise issuable upon such conversion, the Distributed
Property that the Holder would have been entitled to receive in respect of such
number of Underlying Shares had the Holder been the record holder of such
Underlying Shares immediately prior to such record date.
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(c) Fundamental Transactions. If, at any time while this
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Debenture is outstanding: (i) the Company effects any merger or consolidation of
the Company with or into another Person, (ii) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (iii) 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 (iv) 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.
(d) Subsequent Equity Sales.
-----------------------
(i) If at any time while this Debenture is
outstanding, the Company or any Subsidiary issues additional shares of Common
Stock or rights, warrants, options or other securities or debt convertible,
exercisable or exchangeable for shares of Common Stock or otherwise entitling
any Person to acquire shares of Common Stock (collectively, "Common Stock
Equivalents") at an effective net price to the Company per share of Common Stock
(the "Effective Price") less than the applicable Conversion Price (as adjusted
hereunder to such date), then, at the option of the Holder, the Conversion Price
shall be reduced to equal the Effective Price. For purposes of this paragraph,
in connection with any issuance of any Common Stock Equivalents, (x) the maximum
number of shares of Common Stock potentially issuable at any time upon
conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed
Number") shall be deemed to be outstanding upon issuance of such Common Stock
Equivalents, (y) the Effective Price applicable to such Common Stock shall equal
the minimum dollar value of consideration payable to the Company to purchase
such Common Stock Equivalents and to convert, exercise or exchange them into
Common Stock (net of any discounts, fees, commissions and other expenses),
divided by the Deemed Number, and (z) no further adjustment shall be made to the
Conversion Price upon the actual issuance of Common Stock upon conversion,
exercise or exchange of such Common Stock Equivalents.
11
(ii) If, at any time while this Debenture is
outstanding, the Company or any Subsidiary issues Common Stock Equivalents with
an Effective Price or a number of underlying shares that floats or resets or
otherwise varies or is subject to adjustment based (directly or indirectly) on
market prices of the Common Stock (a "Floating Price Security"), then for
purposes of applying the preceding paragraph in connection with any subsequent
conversion, the Effective Price will be determined separately on each Conversion
Date and will be deemed to equal the lowest Effective Price at which any holder
of such Floating Price Security is entitled to acquire Common Stock on such
Conversion Date (regardless of whether any such holder actually acquires any
shares on such date).
(iii) Notwithstanding the foregoing, no adjustment will
be made under Section 11 (d) in respect of: (i) the granting of options to
employees, officers and directors of the Company pursuant to any stock option
plan duly adopted by the Company or to the issuance of Common Stock upon
exercise of such options, (ii) issuances of shares of Common Stock pursuant to a
Strategic Transaction and (iii) issuances of Common Stock pursuant to the
Initial Transaction.
(e) Calculations. All calculations under this Section 11 shall
------------
be made to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.
(f) Notice of Adjustments. Upon the occurrence of each
-----------------------
adjustment pursuant to this Section 11, the Company at its expense will promptly
----------
compute such adjustment in accordance with the terms hereof and prepare a
certificate describing in reasonable detail such adjustment and the transactions
giving rise thereto, including all facts upon which such adjustment is based.
Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder.
(g) Notice of Corporate Events. If the Company: (i) declares a
--------------------------
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then the Company shall deliver to the Holder a notice describing
the material terms and conditions of such transaction, at least 20 calendar days
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to convert this
Debenture prior to such time so as to participate in or vote with respect to
such transaction; provided, however, that the failure to deliver such notice or
any defect therein shall not affect the validity of the corporate action
required to be described in such notice.
12
ARTICLE XII
12. Limitation on Conversion. Notwithstanding anything to the
--------------------------
contrary contained herein, the number of shares of Common Stock that may be
acquired by a Holder upon any conversion of this Debenture (or otherwise in
respect hereof) shall be limited to the extent necessary to insure that,
following such conversion (or other issuance), the total number of shares of
Common Stock then beneficially owned by such Holder and its affiliates and any
other Persons whose beneficial ownership of Common Stock would be aggregated
with such Holder's for purposes of Section 13(d) of the Exchange Act, does not
exceed 9.999% of the total number of issued and outstanding shares of Common
Stock (including for such purpose the shares of Common Stock issuable upon such
conversion). For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of a Conversion Notice hereunder will
constitute a representation by the applicable Holder that it has evaluated the
limitation set forth in this paragraph and determined that issuance of the full
number of Underlying Shares issuable in respect of such Holder Conversion Notice
does not violate the restriction contained in this paragraph. This provision
shall not restrict the number of shares of Common Stock which a Holder may
receive or beneficially own in order to determine the amount of securities or
other consideration that such Holder may receive in the event of a merger, sale
or other business combination or reclassification involving the Company as
contemplated herein.
ARTICLE XIII
13. Optional Prepayment.
-------------------
(a) The Company shall have the right, exercisable during the
first thirty days after the Original Issue Date and upon ten Trading Days' prior
written notice to the affected Holders (an "Optional Prepayment Notice"), to
prepay all of the outstanding principal amount of the Debentures for which
Conversion Notices have not previously been delivered or for which an Event of
Default shall not have been declared.
(b) The prepayment price applicable to prepayments under
Section 13(a) shall equal the Prepayment Price and shall be paid in cash by the
twelfth (12th) Trading Day following the date that the Company delivers the
Optional Prepayment Notice (the "Optional Prepayment Date"). Any such prepayment
shall be free of any claim of subordination. The Holders shall have the right to
tender, and the Company shall honor, Conversion Notices delivered prior to the
expiration of the twelfth Trading Day after the Optional Prepayment Date.
13
(c) If any portion of the Prepayment Price shall not be paid
by the Company by the twelfth Trading Day after the Optional Prepayment Date,
the Prepayment Price shall be increased by 12.5% per annum (or such lesser
maximum amount that is permitted to be paid by applicable law) to accrue daily
from the date such interest is due hereunder through and including the date of
payment (which amount shall be paid as liquidated damages and not as a penalty).
In addition, if any portion of the Prepayment Price remains unpaid through the
expiration of the twelfth Trading Day after the Optional Prepayment Date, the
Holder subject to such prepayment may elect by written notice to the Company to
either (x) demand conversion in accordance with the formula and the time period
therefor set forth in Section 5 of any portion of the principal amount of
Debentures for which the Prepayment Price, plus accrued liquidated damages and
accrued interest thereon, has not been paid in full (the "Unpaid Prepayment
Principal Amount"), in which event the applicable Closing Price shall be the
lower of the Closing Price calculated on the Optional Prepayment Date and the
Closing Price as of the Holder's written demand for conversion, or (y)
invalidate ab initio such optional prepayment, notwithstanding anything herein
contained to the contrary. If the Holder elects option (x) above, the Company
shall, within three Trading Days after such election is deemed delivered
hereunder, deliver to the Holder the shares of Common Stock issuable upon
conversion of the Unpaid Prepayment Principal Amount subject to such conversion
demand and otherwise perform its obligations hereunder with respect thereto. If
the Holder elects option (y) above, the Company shall promptly, and in any event
not later than three Trading Days from receipt of notice of such election,
return to the Holder new Debentures for the full Unpaid Prepayment Principal
Amount and shall no longer have any prepayment rights under this Debenture. If,
upon an election under option (x) above, the Company fails to deliver
certificates representing the shares of Common Stock issuable upon conversion of
the Unpaid Prepayment Principal Amount within the time period set forth in this
Section, the Company shall pay to the Holder in cash, as liquidated damages and
not as a penalty, $2,000 per day until the Company delivers such certificates to
the Holder.
ARTICLE XIV
14. Fractional Shares. The Company shall not be required to issue or
-----------------
cause to be issued fractional Underlying Shares on conversion of this Debenture.
If any fraction of an Underlying Share would, except for the provisions of this
Section, be issuable upon conversion of this Debenture, the number of Underlying
Shares to be issued will be rounded up to the nearest whole share.
ARTICLE XV
15. Notices. Any and all notices or other communications or
-------
deliveries hereunder (including without limitation any Conversion Notice) shall
be in writing and 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 number specified in this Section prior to 6:30 p.m. (New York
City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
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. The addresses for such communications shall be: (i) if to
the Company, to the address set forth in the Purchase Agreement, or (ii) if to
the Holder, to the address or facsimile number appearing on the Company's
stockholder records or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section.
14
ARTICLE XVI
16. Miscellaneous.
-------------
(a) This Debenture shall be binding on and inure to the
benefit of the parties hereto and their respective successors and assigns. This
Xxxxxxxxx may be amended only in writing signed by the Company and the Holder
and their successors and assigns.
(b) Subject to Section 16(a), above, nothing in this Debenture
-------------
shall be construed to give to any Person other than the Company and the Holder
any legal or equitable right, remedy or cause under this Debenture. This
Debenture shall inure to the sole and exclusive benefit of the Company and the
Holder.
(c) Governing Law; Venue; Waiver of Jury Trial. 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 Proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Debenture (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New
York, Borough of Manhattan. Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan for the adjudication of any dispute hereunder and
hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such Proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
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 a Proceeding to
enforce any provisions of this Debenture, then the prevailing party in such
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 Proceeding.
(d) The headings 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.
(e) In case any one or more of the provisions of this
Debenture shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Debenture shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Debenture.
15
(f) No provision of this Debenture may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and the Holder or, or, in the case of a waiver, by the Holder. No waiver
of any default with respect to any provision, condition or requirement of this
Debenture shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
(g) Except pursuant to Section 13 hereunder, the outstanding
principal amount and interest under this Debenture shall not be subject to
prepayment by the Company without the prior written consent of the Holder.
(h) In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each Holder
will be entitled to specific performance of the obligations of the Company
hereunder. The parties hereto agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described herein and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
16
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.
XXXXXXX ENERGY SYSTEMS OF AMERICA, INC.
By: /S/ Xxxxxx X. XxXxxxx
-------------------------
Name: Xxxxxx X. XxXxxxx
Title: President/Chief Operating Officer
17
EXHIBIT A
---------
CONVERSION NOTICE
The undersigned hereby elects to convert the principal amount of
Debenture set forth below into shares of common stock, $.001 par value per share
(the "Common Stock"), of XxXxxxx Energy Systems of America, Inc. (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.
Conversion calculations:
--------------------------------------------------
Date to Effect Conversion
--------------------------------------------------
Principal amount of Debentures owned prior to
conversion
--------------------------------------------------
Principal amount of Debentures to be Converted
(including _______________ of interest added under
Section 2(b) of the Debenture)
--------------------------------------------------
Number of shares of Common Stock to be Issued
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Principal amount of Debentures owned subsequent to
Conversion
--------------------------------------------------
Name of Holder
By:_______________________________________________
Name:
Title:
[] 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 12 of the Debenture.
Schedule 1
CONVERSION SCHEDULE
-------------------
10% Convertible Debentures in the aggregate principal amount of $1,000,000
issued by XxXxxxx Energy Systems of America, Inc. This Conversion Schedule
reflects conversions made under the above referenced Debentures.
Dated:
|------------------------------|--------------------------|---------------------|---------------------------------|
| Date of Conversion | Aggregate Principal | Aggregate | Applicable Conversion |
| | Amount of | Principal | Price with Respect to |
| | Debentures | Amount of | Debentures |
| | Converted | Debentures | |
| | | Remaining | |
| | | Subsequent to | |
| | | Conversion | |
|------------------------------|--------------------------|---------------------|---------------------------------|
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
| | | | |
|------------------------------|--------------------------|---------------------|---------------------------------|
2
