Exhibit 10.3
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. 1 $250,000
AQUATIC CELLULOSE INTERNATIONAL CORPORATION
12% CONVERTIBLE DEBENTURE
DUE MAY 4, 2001
THIS DEBENTURE is one of a series of duly authorized and issued debentures
of Aquatic Cellulose International Corporation, a Nevada corporation, having a
principal place of business at 0000 00/xx/ Xxxxxx, Xxxxx 000, Xxxxxx, X.X.,
Xxxxxx XXX 0X0 (the "Company"), designated as its 12% Convertible Debentures,
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due May 4, 2001, in the aggregate principal amount of One Million Five Hundred
Thousand Dollars ($1,500,000) (the "Debentures"). All references to $ (dollars)
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shall be to US$ (United States dollars).
FOR VALUE RECEIVED, the Company promises to pay to AJW Partners, LLC, or
its registered assigns (the "Holder"), the principal sum of Two Hundred and
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Fifty Thousand Dollars ($250,000), on May 4, 2001 or such earlier date as the
Debentures are required or permitted to be repaid as provided hereunder (the
"Maturity Date") and to pay interest to the Holder on the aggregate unconverted
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and then outstanding principal amount of this Debenture at the rate of 12% per
annum, payable on a quarterly basis on March 31, June 30, September 30 and
December 31 of each year while such Debentures are outstanding (each an
"Interest Payment Date") and on each Conversion Date (as defined herein)for such
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principal amount, commencing on the earlier to occur of a Conversion Date for
such principal amount and June 30, 2000, in cash or shares of Common Stock (as
defined in Section 6). Subject to the terms and conditions herein, the decision
whether to pay interest hereunder in shares of Common Stock or cash shall be at
the discretion of the Company. Not less than ten Trading Days (as defined in
Section 6) prior to each Conversion Date, the Company shall provide the Holder
with written notice of its election to pay interest hereunder either in cash or
shares of Common Stock pursuant to the terms of Section 4(a)(i) (the Company may
indicate in such notice that the election contained in such
notice shall continue for later periods until revised). Failure to timely
provide such written notice shall be deemed an election by the Company to pay
the interest on such Conversion Date in shares of Common Stock pursuant to the
terms of Section 4(a)(i). If interest is paid in shares of Common Stock, the
number of shares of Common Stock issuable on account of such interest shall
equal the cash amount of such interest on such Interest Payment Date divided by
the Conversion Price (as defined below) on such date. Interest shall be
calculated on the basis on a 360-day year and shall accrue daily commencing on
the Original Issue Date (as defined in Section 6) until payment in full of the
principal sum, together with all accrued and unpaid interest and other amounts
which may become due hereunder, has been made. Interest hereunder will be paid
to the Person (as defined in Section 6) in whose name this Debenture is
registered on the records of the Company regarding registration and transfers of
Debentures (the "Debenture Register"). All overdue accrued and unpaid interest
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to be paid in cash hereunder shall entail a late fee at the rate of 15% per
annum (or such lower maximum amount of interest permitted to be charged under
applicable law) (to accrue daily, from the date such interest is due hereunder
through and including the date of payment), payable in cash.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate principal
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amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain investment
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representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 6) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 6) in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 3. Events of Default.
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(a) "Event of Default", wherever used herein, means any one of the
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following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) any default in the payment of the principal of, interest
on or liquidated damages in respect of, any Debentures, free of any claim
of subordination, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by acceleration or
otherwise);
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(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of any of the Transaction Documents (as defined in Section 6), and
such failure or breach shall not have been remedied within five days after
the date on which notice of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of
any jurisdiction whether now or hereafter in effect relating to the Company
or any subsidiary thereof or there is commenced against the Company or any
subsidiary thereof any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or
the Company or any subsidiary thereof suffers any appointment of any
custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the Company
or any subsidiary thereof makes a general assignment for the benefit of
creditors; or the Company shall fail to pay, or shall state that it is
unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Company or any subsidiary thereof shall call a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or the Company or any subsidiary thereof shall
by any act or failure to act expressly indicate its consent to, approval of
or acquiescence in any of the foregoing; or any corporate or other action
is taken by the Company or any subsidiary thereof for the purpose of
effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under
any other Debenture or any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which
there may be issued, or by which there may be secured or evidenced any
indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company in an amount exceeding fifty thousand
dollars ($50,000), whether such indebtedness now exists or shall hereafter
be created and such default shall result in such indebtedness becoming or
being declared due and payable prior to the date on which it would
otherwise become due and payable;
(v) the Common Stock shall not be eligible for quotation on
and quoted for trading on the OTC Bulletin Board ("OTC') or listed for
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trading on the Nasdaq SmallCap Market, New York Stock Exchange, American
Stock Exchange or the Nasdaq National Market (each, a "Subsequent Market")
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and shall not again be eligible for and quoted or listed for trading
thereon within five Trading Days;
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(vi) the Company shall be a party to any Change of Control
Transaction (as defined in Section 6), shall agree to sell or dispose all
or in excess of 33% of its assets in one or more transactions (whether or
not such sale would constitute a Change of Control Transaction), or shall
redeem or repurchase more than a de minimis number of shares of Common
Stock or other equity securities of the Company (other than redemptions of
Underlying Shares (as defined in Section 6));
(vii) an Underlying Shares Registration Statement (as defined
in Section 6) shall not have been declared effective by the Commission (as
defined in Section 6) on or prior to the 120/th/ day after the Original
Issue Date;
(viii) if, during the Effectiveness Period (as defined in the
Registration Rights Agreement (as defined in Section 8)), the effectiveness
of the Underlying Shares Registration Statement lapses for any reason or
the Holder shall not be permitted to resell Registrable Securities (as
defined in the Registration Rights Agreement) under the Underlying Shares
Registration Statement, in either case, for more than five consecutive
Trading Days or an aggregate of eight Trading Days (which need not be
consecutive Trading Days);
(ix) an Event (as defined in the Registration Rights
Agreement) shall not have been cured to the satisfaction of the Holder
prior to the expiration of thirty days from the Event Date (as defined in
the Registration Rights Agreement) relating thereto (other than an Event
resulting from a failure of an Underlying Shares Registration Statement to
be declared effective by the Commission on or prior to the 120/th/ day
after the Original Issue Date, which shall be covered by Section
3(a)(vii));
(x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the third Trading Day after a Conversion
Date pursuant to and in accordance with Section 4(b) or the Company shall
provide notice to the Holder, including by way of public announcement, at
any time, of its intention not to comply with requests for conversions of
any Debentures in accordance with the terms hereof;
(xi) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within five days
after notice is deemed delivered hereunder; or
(xii) the Company shall fail for any reason to legally effect
its change of name as required by the Purchase Agreement within sixty days
following the Original Issue Date; or
(xiii) there shall have occurred a breach of the Pledge
Agreement which shall not have been remedied prior to the tenth day following
notice thereof.
(b) During the time that any portion of this Debenture remains
outstanding, if any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and,
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at the Holder's option, all other Debentures then held by such Holder), together
with interest and other amounts owing in respect thereof, to the date of
acceleration shall become, immediately due and payable in cash. The aggregate
amount payable upon an Event of Default shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in respect of conversions hereunder
within thirty (30) days of the date of a declaration of an Event of Default and
then held by the Holder and (B) the Per Share Market Value (as defined in
Section 6) on the date prepayment is due or the date the full prepayment price
is paid, whichever is greater. Interest shall accrue on the prepayment amount
hereunder from the seventh day after such amount is due (being the date of an
Event of Default) through the date of prepayment in full thereof at the rate of
15% per annum (or such lesser maximum amount that is permitted to be paid by
applicable law), to accrue daily from the date such payment is due hereunder
through and including the date of payment. All Debentures and Underlying Shares
for which the full prepayment price hereunder shall have been paid in accordance
herewith shall promptly be surrendered to or as directed by the Company. The
Holder need not provide and the Company hereby waives any presentment, demand,
protest or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Xxxxxx at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.
Section 4. Conversion.
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(a) (i) Conversion at Option of Holder. (A) This Debenture shall
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be convertible into shares of Common Stock at the option of the Holder, in
whole or in part at any time and from time to time, after the Original Issue
Date (subject to the limitations on conversion set forth in Section 4(a)(iii)
hereof). The number of shares of Common Stock issuable upon a conversion
hereunder shall be determined by adding the sum of (i) the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be converted
and (y) the Conversion Price (as defined herein), and (ii) the amount equal to
(I) the product of (x) the outstanding principal amount of this Debenture to be
converted and (y) the product of (1) the quotient obtained by dividing .12 by
360 and (2) the number of days for which such principal amount was outstanding,
divided by (II) the Conversion Price on the Conversion Date, provided, that if
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the Company shall have timely elected to pay the interest due on a Conversion
Date in cash pursuant to the terms hereof, subsection (ii) shall not be used in
the calculation of the number of shares of Common Stock issuable upon a
conversion hereunder.
(B) Notwithstanding anything to the contrary contained
herein, if on any Conversion Date:
(1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury
stock, is insufficient to pay interest hereunder in shares of Common Stock;
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(2) after the Interest Effectiveness Date (as defined in
Section 6) such shares of Common Stock (x) are not registered for resale
pursuant to an effective Underlying Shares Registration Statement and (y)
may not be sold without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as defined in Section 6), as
determined by counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent in the form and substance
acceptable to the applicable Holder and such transfer agent (if the shares
of Common Stock are permitted by the Holder to be delivered under this
clause (2) prior to the Effectiveness Date (as defined in the Registration
Rights Agreement) and thereafter an Underlying Shares Registration
Statement shall be declared effective by the Commission, the Company shall,
within five Trading Days after the date of such declaration of
effectiveness, exchange such shares for shares of Common Stock that are
free of restrictive legends of any kind);
(3) the Common Stock is not listed or quoted for trading on
the OTC or on a Subsequent Market;
(4) the Company has failed to timely satisfy its conversion
obligations hereunder; or
(5) the issuance of such shares of Common Stock would result
in a violation of Sections 4(a)(iii),
then, at the option of the Holder, the Company, in lieu of
delivering shares of Common Stock pursuant to Section 4(a)(i)(A)(ii), shall
deliver, within three Trading Days of each applicable Conversion Date, an amount
in cash equal to the product of (a) the outstanding principal amount of the
Debentures to be converted on such Conversion Date and (b) the product of (x)
the quotient obtained by dividing .12 by 360 and (y) the number of days for
which such principal amount was outstanding.
(C) The Holder shall effect conversions by surrendering the
Debentures (or such portions thereof) to be converted, together with the form of
conversion notice attached hereto as Exhibit A (a "Conversion Notice") to the
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Company. Each Conversion Notice shall specify the principal amount of Debentures
to be converted and the date on which such conversion is to be effected, which
date may not be prior to the date such Conversion Notice is deemed to have been
delivered hereunder (a "Conversion Date"). If no Conversion Date is specified in
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a Conversion Notice, the Conversion Date shall be the date that such Conversion
Notice is deemed delivered hereunder. Subject to Section 4(b), each Conversion
Notice, once given, shall be irrevocable. If the Holder is converting less than
all of the principal amount represented by the Debenture(s) tendered by the
Holder with the Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall honor such conversion to the
extent permissible hereunder and shall promptly deliver to such Holder (in the
manner and within the time set forth in Section 4(b)) a new Debenture for such
principal amount as has not been converted.
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(ii) Automatic Conversion. Subject to the provisions in this
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paragraph, the principal amount of Debentures for which conversion notices have
not previously been received or for which prepayment has not been made or
required hereunder shall be automatically converted on the first anniversary of
the Original Issue Date (the "Automatic Conversion Date") pursuant to Section
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4(a)(i), at the Conversion Price on such date. The conversion contemplated by
this paragraph shall not occur if (a) (1) an Underlying Securities Registration
Statement is not then effective that names the Holder as a selling stockholder
thereunder and (2) the Holder is not permitted to resell Underlying Shares
pursuant to Rule 144(k) promulgated under the Securities Act, without volume
restrictions, as evidenced by an opinion letter of counsel acceptable to the
Holder and the transfer agent for the Common Stock; or (b) there are not
sufficient shares of Common Stock authorized and reserved for issuance upon such
conversion. Notwithstanding anything herein to the contrary, the Automatic
Conversion Date shall be extended (on a day-for-day basis) for any Trading Days
that the Holder is unable to resell Underlying Shares due to (a) the Common
Stock not being listed or granted for trading on the OTC or any Subsequent
Market, (b) the failure of an Underlying Securities Registration Statement to be
declared effective by the Commission or, if so declared, to remain effective
during the Effectiveness Period as to all Underlying Shares, or (c) the
suspension of the Holder's right to resell Underlying Shares thereunder.
Notwithstanding anything to the contrary contained herein, a conversion pursuant
to this Section shall not be subject to the provisions of Section 4(a)(iii).
(iii) Certain Conversion Restrictions.
--------------------------------
(A) A Holder may not convert Debentures or receive shares
of Common Stock as payment of interest hereunder to the extent such conversion
or receipt of such interest payment would result in the Holder, together with
any affiliate thereof, beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules promulgated thereunder) in
excess of 4.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of interest on, the
Debentures held by such Holder after application of this Section. Since the
Holder will not be obligated to report to the Company the number of shares of
Common Stock it may hold at the time of a conversion hereunder, unless the
conversion at issue would result in the issuance of shares of Common Stock in
excess of 4.999% of the then outstanding shares of Common Stock without regard
to any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of
which portion of the principal amount of Debentures are convertible shall be the
responsibility and obligation of the Holder. If the Holder has delivered a
Conversion Notice for a principal amount of Debentures that, without regard to
any other shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder, the Company
shall notify the Holder of this fact and shall honor the conversion for the
maximum principal amount permitted to be converted on such Conversion Date in
accordance with the periods described in Section 4(b) and, at the option of the
Holder, either retain any principal
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amount tendered for conversion in excess of the permitted amount hereunder for
future conversions or return such excess principal amount to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.
(B) A Holder may not convert Debentures or receive shares of
Common Stock as payment of interest hereunder to the extent such conversion or
receipt of such interest payment would result in the Holder, together with any
affiliate thereof, beneficially owning (as determined in accordance with Section
13(d) of the Exchange Act and the rules promulgated thereunder) in excess of
9.999% of the then issued and outstanding shares of Common Stock, including
shares issuable upon conversion of, and payment of interest on, the Debentures
held by such Holder after application of this Section. Since the Holder will not
be obligated to report to the Company the number of shares of Common Stock it
may hold at the time of a conversion hereunder, unless the conversion at issue
would result in the issuance of shares of Common Stock in excess of 9.999% of
the then outstanding shares of Common Stock without regard to any other shares
which may be beneficially owned by the Holder or an affiliate thereof, the
Holder shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of Debentures are convertible shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Conversion Notice for a
principal amount of Debentures that, without regard to any other shares that the
Holder or its affiliates may beneficially own, would result in the issuance in
excess of the permitted amount hereunder, the Company shall notify the Holder of
this fact and shall honor the conversion for the maximum principal amount
permitted to be converted on such Conversion Date in accordance with the periods
described in Section 4(b) and, at the option of the Holder, either retain any
principal amount tendered for conversion in excess of the permitted amount
hereunder for future conversions or return such excess principal amount to the
Holder. The provisions of this Section may be waived by a Holder (but only as to
itself and not to any other Holder) upon not less than 61 days prior notice to
the Company. Other Holders shall be unaffected by any such waiver.
(b) (i) Not later than five Trading Days after any Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of Debentures (subject
to the limitations set forth in Section 4(a)(iii) hereof), (ii) Debentures in a
principal amount equal to the principal amount of Debentures not converted, and
(iii) a bank check in the amount of accrued and unpaid interest (if the Company
has timely elected or is required to pay accrued interest in cash), provided,
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that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon conversion of the principal amount of
Debentures until Debentures are delivered for conversion to the Company, or the
Holder notifies the Company that such Debentures have been lost, stolen or
destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The
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Company shall, upon request of the Holder, if available, use its best efforts to
deliver any certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. If in the
case of any Conversion Notice such certificate or certificates are not delivered
to or as directed by the applicable Holder by the fifth Trading Day after a
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the principal amount of
Debentures tendered for conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) by the fifth Trading Day
after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $2,500 for each Trading Day after such
fifth Trading Day until such certificates are delivered. Nothing herein shall
limit a Xxxxxx's right to pursue actual damages or declare an Event of Default
pursuant to Section 3 herein for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Debentures or as payment of
interest thereon by the third Trading Day after the Conversion Date, the Holder
may, by notice to the Company, require the Company to issue shares of Common
Stock pursuant to Section 4(c), except that for such purpose the Conversion
Price applicable thereto shall be the lesser of the Conversion Price on the
Conversion Date and the Conversion Price on the date of such Holder demand. Any
such shares will be subject to the provision of this Section.
(iii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 4(b)(i) by the fifth Trading Day after the Conversion Date,
and if after such fifth Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Underlying Shares which the Holder anticipated receiving upon
such conversion (a "Buy-In"), then the Company shall (A) pay in cash to the
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Holder (in addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Common Stock so purchased exceeds (y) the product
of (1) the aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue Debentures in
principal amount equal to the principal amount of the attempted conversion or
deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its delivery requirements under
Section 4(b)(i). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with
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respect to which the market price of the Underlying Shares on the date of
conversion was a total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In. Notwithstanding anything contained herein to
the contrary, if a Holder requires the Company to make payment in respect of a
Buy-In for the failure to timely deliver certificates hereunder and the Company
timely pays in full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 4(b)(ii) in respect of the certificates
resulting in such Buy-In.
(c) (i) The conversion price (the "Conversion Price") in effect on
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any Conversion Date shall be the lesser of (1) $0.60 (the "Initial Conversion
------------------
Price"), and (2) 70% of the average of the lowest three inter-day prices (which
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need not occur on consecutive Trading Days) during the twenty Trading Days
immediately preceding the applicable Conversion Date (which may include Trading
Days prior to the Original Issue Date), provided, that such twenty Trading Day
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period shall be extended for the number of Trading Days during such period in
which (A) trading in the Common Stock is suspended by the OTC or a Subsequent
Market on which the Common Stock is then listed, or (B) after the date declared
effective by the Commission, the Underlying Shares Registration Statement is
either not effective, the Prospectus included in the Underlying Shares
Registration Statement may not be used by the Holder for the resale of
Underlying Shares.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Company, then the Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Conversion Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of the
-10-
Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Per Share Market Value. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants. However, upon
the expiration of any such right, option or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Conversion
Price pursuant to this Section, if any such right, option or warrant shall
expire and shall not have been exercised, the Conversion Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to the provisions of
this Section after the issuance of such rights or warrants) had the adjustment
of the Conversion Price made upon the issuance of such rights, options or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock actually purchased upon the exercise
of such rights, options or warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable with
respect to Common Stock Equivalents (as defined below), at any time while
Debentures are outstanding shall issue either (i) shares of Common Stock at a
price per share less than the Conversion Price (the "Issuance Price") or (ii)
--------------
rights, warrants, options or other securities or debt that are convertible into
or exchangeable for shares of Common Stock ("Common Stock Equivalents"),
------------------------
entitling any Person to acquire shares of Common Stock at an Issuance Price less
than the Conversion Price (if the holder of the Common Stock Equivalent so
issued shall at any time, whether by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or otherwise
be entitled to receive shares of Common Stock at a conversion or exercise price
less than the Conversion Price, such issuance shall be deemed to have occurred
for less than the Conversion Price), then, the Conversion Price shall be reduced
to the Issuance Price. Such adjustment shall be made whenever Common Stock or
Common Stock Equivalents are issued at a price below the Conversion Price.
However, upon the expiration of any Common Stock Equivalents the issuance of
which resulted in an adjustment in the Conversion Price pursuant to this
Section, if any such Common Stock Equivalents shall expire and shall not have
been exercised, the Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section after the
issuance of such Common Stock Equivalents) had the adjustment of the Conversion
Price made upon the issuance of such Common Stock Equivalents been made on the
basis of offering for subscription or purchase only that number of shares of
Common Stock actually purchased upon the exercise of such Common Stock
Equivalents actually exercised.
(v) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price at which Debentures shall thereafter be convertible shall be
-11-
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) In case of any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holders shall have the right
thereafter to, at their option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay the aggregate of its outstanding principal amount of
Debentures, plus all interest and other amounts due and payable thereon, at a
price determined in accordance with Section 3(b). The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vii) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be. No
adjustments in either the Conversion Price or the Initial Conversion Price shall
be required if such adjustment is less than $0.01, provided, however, that any
--------
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(viii) Whenever either the Initial Conversion Price or the
Conversion Price is adjusted pursuant to any of Section 4(c)(ii) - (v), the
Company shall promptly mail to each Holder a notice setting forth the Initial
Conversion Price or Conversion Price (as applicable) after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(ix) 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
-12-
to all holders of the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights; (D) the
approval of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company; then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of the
Debentures, and shall cause to be mailed to the Holders at their last addresses
as they shall appear upon the stock books of the Company, at least 20 calendar
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange,
provided, that the failure to mail such notice or any defect therein or in the
--------
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice. Holders are entitled to convert Debentures
during the 20-day period commencing the date of such notice to the effective
date of the event triggering such notice.
(x) In case of any (1) merger or consolidation of the Company
with or into another Person, or (2) sale by the Company of more than one-half of
the assets of the Company (on an as valued basis) in one or a series of related
transactions, a Holder shall have the right to (A) if permitted under Section
3(b) hereof, exercise its rights of prepayment under Section 3(b) with respect
to such event, (B) convert its aggregate principal amount of Debentures then
outstanding into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and such Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and
property as the shares of Common Stock into which such aggregate principal
amount of Debentures could have been converted immediately prior to such merger,
consolidation or sales would have been entitled, or (C) in the case of a merger
or consolidation, (x) require the surviving entity to issue shares of
convertible preferred stock or convertible debentures with such aggregate stated
value or in such face amount, as the case may be, equal to the aggregate
principal amount of Debentures then held by such Holder, plus all accrued and
unpaid interest and other amounts owing thereon, which newly issued shares of
preferred stock or debentures shall have terms identical (including with respect
to conversion) to the terms of this Debenture (except, in the case of preferred
stock, as may be required to reflect the differences between equity and debt)
and shall be entitled to all of the rights and privileges of a Holder of
Debentures set forth herein and the agreements pursuant to which the Debentures
were issued (including, without limitation, as such rights relate to the
acquisition, transferability,
-13-
registration and listing of such shares of stock other securities issuable upon
conversion thereof), and (y) simultaneously with the issuance of such
convertible preferred stock or convertible debentures, shall have the right to
convert such instrument only into shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such merger or consolidation. In the case of clause (C), the
conversion price applicable for the newly issued shares of convertible preferred
stock or convertible debentures shall be based upon the amount of securities,
cash and property that each share of Common Stock would receive in such
transaction and the Conversion Price in effect immediately prior to the
effectiveness or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to continue to give
the Holders the right to receive the securities, cash and property set forth in
this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement has
been declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the Holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
-14-
(g) Any and all notices or other communications or deliveries
to be provided by the Holders hereunder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, addressed to the Company, at 0000 00/xx/
Xxxxxx, Xxxxx 000 Xxxxxx, X.X., Xxxxxx, XXX 0X0, Facsimile No.: (000) 000-0000,
attention Chief Financial Officer, or such other address or facsimile number as
the Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section, with a copy to (other than for Conversion Notices)
Xxxx X. Xxxxxxxxx, Esq. (facsimile number (000) 000-0000). Any and all notices
or other communications or deliveries to be provided by the Company hereunder
shall be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service or sent by certified or registered mail,
postage prepaid, addressed to each Holder at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 6:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) four days
after deposit in the United States mail, (iv) the Business Day following the
date of mailing, if sent by nationally recognized overnight courier service, or
(v) upon actual receipt by the party to whom such notice is required to be
given.
Section 5. Optional Prepayment.
---------- -------------------
(a) Subject to Section 5(b) below, the Company shall have the
right, exercisable at any time and from time to time after the Original Issue
Date, in accordance with the terms hereof and upon ten Trading Days' prior
written notice to the Holders to be prepaid (an "Optional Prepayment Notice"),
--------------------------
to prepay all or any portion of the outstanding principal amount of the
Debentures which has not previously been repaid or for which Conversion Notices
have not previously been delivered. The prepayment price applicable to
prepayments under this Section 5(a) shall equal the Prepayment Price and shall
be paid in cash. Any such prepayment shall be free of any claim of
subordination. The Holders shall have the right to tender, and the Company shall
honor, Conversion Notices delivered prior to the expiration of the tenth Trading
Day after receipt by the Holders of an Optional Prepayment Notice for such
Debentures (the tenth Trading Day after receipt by the Holders of an Optional
Prepayment Notice is referred to herein as the "Optional Prepayment Date")
------------------------
(b) The Company shall not be entitled to deliver an Optional
Prepayment Notice to the Holder (and, if after delivery thereof and prior to the
Optional Prepayment Date, any of the following conditions shall cease to be met,
such notice, at the option of the Holders, shall be deemed no longer effective)
if: (i) the number of shares of Common Stock at the time authorized, unissued
and unreserved for all purposes is insufficient to satisfy the Company's
-15-
conversion obligations of the aggregate principal amount of Debentures then
outstanding, or (ii) there is neither an effective Underlying Shares
Registration Statement under which the Holders can resell all of the issued
Underlying Shares and all of the Underlying Shares as are issuable upon
conversion in full of the principal amount of Debentures subject to an Optional
Prepayment Notice nor may all of such issued and issuable Underlying Shares be
sold by the Holders subject to such prepayment without volume restrictions
pursuant to Rule 144 promulgated under the Securities Act, as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent in the form and substance acceptable to the Holders and
such transfer agent, or (iii) the Common Stock is not then listed or quoted for
trading on the OTC or on a Subsequent Market.
(c) If any portion of the Prepayment Price shall not be paid by
the Company by the second (2/nd/) Trading Day following the Optional Prepayment
Date, the Prepayment Price shall be increased by 15% per annum (or such lesser
maximum amount that is permitted to be paid by applicable law) to accrue daily
from the date such interest is due hereunder through and including the date of
payment (which amount shall be paid as liquidated damages and not as a penalty).
In addition, if any portion of the Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (x) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the principal amount of Debentures for which the
Prepayment Price, plus accrued liquidated damages and accrued interest thereon,
has not been paid in full (the "Unpaid Prepayment Principal Amount"), in which
----------------------------------
event the applicable Per Share Market Value shall be the lower of the Per Share
Market Value calculated on the Optional Prepayment Date and the Per Share Market
Value as of the Holder's written demand for conversion, or (y) invalidate ab
initio such optional prepayment, notwithstanding anything herein contained to
the contrary. If the Holder elects option (x) above, the Company shall, within
five Trading Days after such election is deemed delivered hereunder, deliver to
the Holder the shares of Common Stock issuable upon conversion of the Unpaid
Prepayment Principal Amount subject to such conversion demand and otherwise
perform its obligations hereunder with respect thereto. If the Holder elects
option (y) above, the Company shall promptly, and in any event not later than
five 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,
$2,500 per day until the Company delivers such certificates to the Holder.
Section 6. Definitions. For the purposes hereof, the following terms
---------- -----------
shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day which
------------
shall be a federal legal holiday in the United States or Canada or a day on
which banking institutions
-16-
in the State of New York or the province of British Columbia, Canada are
authorized or required by law or other government action to close.
"Change of Control Transaction" means the occurrence of any of (i) an
-----------------------------
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity that is not wholly-owned by the Company, consolidation or sale of
50% or more of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the common stock, no par value per share, of the
------------
Company and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Interest Effectiveness Date" means the earlier to occur of (x) the
---------------------------
Effectiveness Date and (y) the date that an Underlying Shares Registration
Statement is declared effective by the Commission.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
---------------------------
of (i) the
greater of (A) 130% of the principal amount of Debentures to be prepaid, plus
all accrued and unpaid interest thereon, and (B) the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon, divided
by the Conversion Price on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is less, multiplied by the Per Share Market Value on (x)
the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
such Debentures.
"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.
-17-
"Per Share Market Value" means on any particular date (a) the closing
----------------------
bid price per share of Common Stock on such date on the Subsequent Market on
which the shares of Common Stock are then listed or quoted, or if there is no
such price on such date, then the closing bid price on the Subsequent Market on
the date nearest preceding such date, or (b) if the shares of Common Stock are
not then listed or quoted on a Subsequent Market, the closing bid price for a
share of Common Stock in the OTC, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the shares of
Common Stock are not then reported by the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the shares of
Common Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the Holders
of a majority in interest of the principal amount of Debentures then
outstanding.
"Person" means a corporation, an association, a partnership,
------
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Prepayment Price" for any Debentures shall equal the sum of (i) the
----------------
greater of (A) 130% of the principal amount of Debentures to be prepaid, plus
all accrued and unpaid interest thereon, and (B) the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon, divided
by the Conversion Price on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is less, multiplied by the Per Share Market Value on (x)
the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
such Debentures.
"Purchase Agreement" means the Secured Convertible Debenture Purchase
------------------
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Trading Day" means (a) a day on which the shares of Common Stock are
-----------
traded on a Subsequent Market on which the shares of Common Stock are then
listed or quoted, or (b) if the shares of Common Stock are not listed on a
Subsequent Market, a day on which the shares of Common Stock are traded in the
over-the-counter market, as reported by the OTC, or (c) if the shares of Common
Stock are not quoted on the OTC, a day on which the shares of Common
-18-
Stock are quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, that in the event that the shares
--------
of Common Stock are not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except a Business Day.
"Transaction Documents" shall have the meaning set forth in the
---------------------
Purchase Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
-----------------
conversion of Debentures or as payment of interest in accordance with the terms
hereof.
"Underlying Shares Registration Statement" means a registration
----------------------------------------
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of this
----------
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
---- -----
hereafter issued under the terms set forth herein. As long as there are
Debentures outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holders, (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holders; (ii) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock or other equity securities other
than as to the Underlying Shares to the extent permitted or required under the
Transaction Documents; or (iii) enter into any agreement with respect to any of
the foregoing. The Company may only voluntarily prepay the outstanding
principal amount on the Debentures in accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
----------
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
----------
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
-19-
Section 10. No indebtedness of the Company is senior to this Debenture
-----------
in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. The Company will not and will not
permit any of its subsidiaries to, directly or indirectly, enter into, create,
incur, assume or suffer to exist any indebtedness of any kind, on or with
respect to any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom that is senior in any
respect to the Company's obligations under the Debentures.
Section 11. This Debenture shall be governed by and construed in
-----------
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, 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 that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument 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.
Section 12. Any waiver by the Company or the Holder of a breach of any
-----------
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision
of this Debenture. The failure of the Company or the Holder to insist upon
strict adherence to any term of this Debenture on one or more occasions shall
not be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this Debenture.
Any waiver must be in writing.
Section 13. If any provision of this Debenture is invalid, illegal or
-----------
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
Section 14. Whenever any payment or other obligation hereunder shall be
-----------
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
Section 15. The payment obligations under this Debenture and the
-----------
obligations of the Company to the Holder arising upon the conversion of all or
any of the Debentures in accordance with the provisions hereof are secured
pursuant to the Security Agreement (as defined in the Purchase Agreement).
-20-
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-21-
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.
AQUATIC CELLULOSE
INTERNATIONAL CORPORATION
By: _____
Name:
Title:
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
common stock, no par value per share (the "Common Stock"), of Aquatic Cellulose
International Corporation (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 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 to be Converted
_______
Number of shares of Common Stock to be Issued
_______
Applicable Conversion Price
_______
Signature
_______
Name
_______
Address
