CONVERTIBLE DEBENTURE
EXCHANGE AGREEMENT / CONVERSION OF NOTES
This Convertible Debenture Exchange Agreement (this "Agreement"), dated as of
May 18, 2005, is entered into by and between Xtreme Companies, Inc., a Nevada
corporation (the "Company"), and Dutchess Private Equities Fund, II, LP, (the
"Holder").
RECITALS
WHEREAS, the Holder currently has a note ("Note"), executed March 11, 2005
($90,000), due and payable on April 11, 2005, and is currently in default
WHEREAS, the Holder hereby agrees elects to take actions as outlined in
Article 4 ("Default and Remedies") of the Note and to convert the entire
outstanding amount of the Notes, and the accrued penalties for Default under
Article 4, totaling One Hundred and One Thousand, Eight Hundred and Seventeen
dollars ($101,817) into a Convertible Debentures ("Debentures"). Pursuant to the
Holder's rights of conversion, upon conversion of the Convertible Debentures
into the Company's common shares ("Stock") and for purposes of resale of such
Stock pursuant to Rule 144 or Rule 145, the date of consideration shall remain
respective to the original date of the Note mentioned above.
WHEREAS, the Holder desires to acquire, and the Company desires to issue
and sell to the Holder, a Convertible Debenture of the Company in exchange for
the Notes; and
WHEREAS, the parties hereto desire to enter into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1.1 Authorization. The Company has, or will have, duly authorized the sale
and issuance of up to One Hundred and One Thousand, Eight Hundred and Seventeen
dollars ($101,817)of Convertible Debentures having the rights, restrictions,
privileges and preferences set forth in the form of the Certificate of
Designation attached hereto as Exhibit A (the "Certificate of Designation").
1.2 Agreement to Exchange. Subject to the terms and conditions of this
Agreement, the Company will sell and issue to the Holder, and the Holder will
acquire from the Company, One Hundred and One Thousand, Eight Hundred and
Seventeen dollars ($101,817) of Convertible Debentures of the Company in
exchange for the cancellation of the outstanding debt and penalties currently
owed to the Holder in the aggregate amount of One Hundred and One Thousand,
Eight Hundred and Seventeen dollars ($101,817) in the form of Notes.
1.3 No Public Solicitation. The Holder is not subscribing for the Debentures
as a result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or presented at any seminar or meeting, or any
solicitation of a subscription by a person not previously known to the Holder in
connection with investments in securities generally.
1.4. Reserved
2. Reserved
3. Representations of the Holder. The Holder represents and warrants to the
Company as follows:
3.1 Investment Intent. The Debentures, and the shares of Common Stock into
which the Debentures, may be converted or exercised (collectively, the
"Securities") are, or will be, acquired for the Holder's own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act.
3.2 Reviews and Inspection. The Holder and his or its representatives and
legal counsel have been granted the opportunity to review and inspect the
Company's corporate books, financial statements, records, contracts, documents,
offices and facilities, and have been afforded an opportunity to ask questions
of the Company's officers, employees, agents, accountants and representatives
concerning the Company's business. Holder is relying on its own analysis
regarding the Company's operations, financial condition, assets, liabilities and
other relevant matters as Holder deemed necessary or desirable in order to
evaluate the merits and risks of the prospective investment contemplated herein.
Holder acknowledges that it has not relied upon any information given to Holder,
or any statements made, by the Company or any officers or directors of the
Company, except for the representations and warranties of the Company expressly
made herein.
3.3 Holder Due Diligence. The Holder and its representatives are solely
responsible for the Holder's own "due diligence" investigation of the Company
and its management and business and for Holder's analysis of the financial
future and viability of the Company and desirability of the terms of this
investment. Holder acknowledges that neither the Company nor any officer or
director of the Company is making any representation or warranty regarding the
Company's financial projections previously given to Holder or the assumptions
underlying such financial projections, as such financial projections are subject
to significant business, economic and other uncertainties and contingencies.
Holder acknowledges that if the Company is not able to operate profitably or
generate positive cash flows, the Company may have difficulty meeting its
obligations and may not be able to continue to operate its business, and Holder
could lose all of its investment. The Holder has such knowledge and experience
in financial and business matters that the Holder is capable of evaluating the
merits and risks of the purchase of the Securities pursuant to the terms of this
Agreement and of protecting the Holder's interest in connection therewith.
3.4 Accredited Investor Status. Holder is an "Accredited Investor" as that
term is defined in Rule 501 of Regulation D promulgated under the Securities Act
because each member of Holder is an "Accredited Investor" and Holder is able to
bear the economic risk of the purchase of the Securities pursuant to the terms
of this Agreement, including a complete loss of the Holder's investment in the
Securities.
3.5 Authority for Agreement. The Holder has the full right, power and
authority to enter into and perform the Holder's obligations under the this
Agreement, and the Agreement constitutes the valid and binding obligations of
the Holder enforceable in accordance with their terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and rules or laws concerning equitable remedies.
3.6 Governmental Consents. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Holder is required in connection with the valid execution, delivery and
performance of this Agreement.
3.7 Not an Investment Company. Neither the Holder nor any of its members is
an "investment company" or a company controlled by an "investment company",
within the meaning of the Investment Company Act of 1940, or principally engaged
in, or undertaking as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock.
3.8 Tax Matters. The Holder has not relied on any statements or
representations of the Company or any of its agents with respect to the federal,
state, local and foreign tax consequences of this investment and the federal,
state, local and foreign tax consequences of transactions contemplated by this
Agreement. With respect to such matters, the Holder understands that it (and
not the Company) shall be responsible for its own tax liability that may arise
as a result of this investment or the transactions contemplated by this
Agreement.
4. Reserved
5. Assignment. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and there respective
successors and permitted assigns. Any party hereunder may assign neither this
Agreement nor any of the rights, interests or obligations without prior written
consent of the other party.
6. Survival of Representations and Warranties. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement; provided, however, that except as provided above,
such representations and warranties need only be accurate as of the date of such
execution.
7. Notices. All notices, requests, consents, and other communications under
this Agreement shall be in writing and shall be delivered by hand or fax or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid:
If, to the Company, at 000 Xxxxxxxx Xx, Xxxxxxxxxx, XX 00000, Attention:
Xxxxx Xxxx, or at such other address or addresses as may have been furnished in
writing by the Company to the Holder.
If to the Holder, 000 Xxxxxx Xx, Xxxxxx, XX 00000, Attention: Xxxx Xxxxxxxx, or
at such other address or addresses as may have been furnished in writing by the
Holder to the Company.
Notices provided in accordance with this Section shall be deemed delivered
upon personal delivery or two business days after deposit in the mail.
8. Brokers. Each of the Holder and the Company (a) represents and warrants
to the other party that it has not retained any finders or brokers in connection
with the transactions contemplated by this Agreement, and (b) will indemnify and
save the other party harmless from and against any and all claims, liabilities
or obligations with respect to brokerage or finders' fees or commissions, or
consulting fees in connection with the transactions contemplated by this
Agreement asserted by any person on the basis of any statement or
representation alleged to have been made by it.
9. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
10. Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and the Holder. No waivers of or exceptions
to any term, condition or provision of this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
12. Section Headings. The Section headings are for the convenience of the
parties and in no way alter, modify, amend, limit, or restrict the contractual
obligations of the parties.
13. Severability. Any part, provision, representation or warranty of this
Agreement that is prohibited or that is held to be void or unenforceable shall
be ineffective solely to the extent of such prohibition or non-enforceability
without invalidating the remaining provisions hereof.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts (without regard to
its conflict of laws principles). The parties hereto irrevocably consent to the
exclusive personal jurisdiction of the federal and state courts located in
Massachusetts, as applicable, for any matter arising out of or relating to this
Agreement.
15. Document Preparation. The Company shall pay $7,500 to the Holder for the
preparation of these documents immediately upon closing.
* * *
DEBENTURE EXCHANGE AGREEMENT / NOTE CONVERSION
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
written in the preamble of this Agreement.
XTREME COMPANIES, INC.
By /s/ Xxxxx Xxxx
Name: Xxxxx Xxxx
Title: Chief Executive Officer
DUTCHESS PRIVATE EQUITIES FUND, II, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
By:/s/ Xxxxxxx Xxxxxxxx
Name: Xxxxxxx X. Xxxxxxxx
Title: A Managing Member
EXHIBIT A
Certificate of Designation
FOR VALUE RECEIVED, Xtreme Companies, Inc., a Nevada corporation (the
"Company"), hereby promises to pay Dutchess Private Equities Fund, II, L.P.
(the "Holder") on May 13, 2010, (the "Maturity Date"), the principal amount of
One Hundred and One Thousand, Eight Hundred and Seventeen dollars ($101,817)
U.S., and to pay interest on the principal amount hereof, in such amounts, at
such times and on such terms and conditions as are specified herein.
The Company does hereby irrevocably agree to allow the Holder to "tack back" to
the original date of each Note as described above for the Date of Consideration
for the Debentures.
Article 1 Interest
The Company shall pay interest on the unpaid principal amount of this
Debenture (the "Debenture") upon each Conversion until the principal amount
hereof is paid in full or has been converted. The Debentures shall pay ten
percent (10%) on the last day of each month, in cash, to the Holder. The closing
shall be deemed to have occurred on the date the funds (less escrow fees,
attorney fees and those amounts payable pursuant to the terms sheet) are
received by the Company (the "Closing Date"). The Debentures are subject to
automatic conversion at the end of five (5) years from the date of issuance at
which time all Debentures outstanding will be automatically converted based upon
the formula set forth in Section 3.2.
Article 2 Method of Payment
This Debenture must be surrendered to the Company in order for the Holder
to receive payment of the principal amount hereof. The Company shall have the
option of paying the interest on this Debenture in United States dollars
pursuant to Article 1 hereof. The Company may draw a check for the payment of
interest to the order of the Holder of this Debenture and mail it to the
Holder's address as follows:
Dutchess Private Equities Fund, II, L.P.
000 Xxxxxx Xxxxxx, Xxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Interest and principal payments shall be subject to withholding under applicable
United States Federal Internal Revenue Service Regulations.
Article 3 Conversion
Section 3.1 Conversion Privilege
(a) The Holder of this Debenture shall have the right to convert it into
shares of Common Stock at any time following the Closing Date and which is
before the close of business on the Maturity Date. The number of shares of
Common Stock issuable upon the conversion of this Debenture is determined
pursuant to Section 3.2 and rounding the result to the nearest whole share.
(b) This Debenture may not be converted, whether in whole or in part, except
in accordance with Article 3.
(c) In the event all or any portion of this Debenture remains outstanding on
the Maturity Date, the unconverted portion of such Debenture will
automatically be converted into shares of Common Stock on such date in the
manner set forth in Section 3.2.
Section 3.2 Conversion Procedure.
(a) Conversion Procedures. The face amount of this Debenture may be
converted, in whole or in part, any time following the Closing Date. Such
conversion shall be effectuated by surrendering to the Company, or its attorney,
this Debenture to be converted together with a facsimile of the signed
Notice of Conversion which evidences Holder's intention to convert the Debenture
indicated. The date on which the Notice of Conversion is effective ("Conversion
Date") shall be deemed to be the date on which the Holder has delivered to the
Company a facsimile of the signed Notice of Conversion, as long as the
Debenture(s) to be converted are received by the Company within five (5)
business days thereafter. At such time that the Debenture has been submitted to
the Company, the Holder can elect to whether a reissuance of the debenture is
warranted, or whether the Company can retain the Debenture as to a continual
conversion by Holder. Notwithstanding the above, any Notice of Conversion
received by 5:00 P.M. EST, shall be deemed to have been received the previous
business day, with the receipt being via a confirmation of time of facsimile of
the Holder.
(b) Common Stock to be Issued. Upon the conversion of any Debentures and
upon receipt by the Company or its attorney of a facsimile of Holder's
signed Notice of Conversion the Company shall instruct its transfer agent to
issue stock certificates without restrictive legend or stop transfer
instructions, if at that time the Registration Statement has been declared
effective (or with proper restrictive legend if the Registration Statement has
not as yet been declared effective), in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon such
conversion, as applicable. The Company shall act as Registrar and shall
maintain an appropriate ledger containing the necessary information with respect
to each Debenture. The Company warrants that no instructions, other than these
instructions, have been given or will be given to the transfer agent and that
the Common Stock shall otherwise be freely resold, except as may be set forth
herein.
(c) Conversion Rate. Holder is entitled to convert the face amount of this
Debenture, plus accrued interest, anytime following the Closing Date, at the
lesser of (i) 75% of the lowest closing bid price during the fifteen (15) days
of full trading, defined as standard market hours from 9:30 AM to 4:00 PM EST,
partial trading days will not be counted for calculation purposes only ("Trading
Days") prior to the Conversion Date or (ii) fifteen cents per share (.15)
("Fixed Conversion Price"), each being referred to as the "Conversion Price".
No fractional shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded up, as the case
may be, to the nearest whole share. The Holder shall retain all rights of
conversions during any partial trading days.
(d) Nothing contained in this Debenture shall be deemed to establish or
require the payment of interest to the Holder at a rate in excess of the maximum
rate permitted by governing law. In the event that the rate of interest
required to be paid exceeds the maximum rate permitted by governing law, the
rate of interest required to be paid thereunder shall be automatically reduced
to the maximum rate permitted under the governing law and such excess shall be
returned with reasonable promptness by the Holder to the Company.
(e) It shall be the Company's responsibility to take all necessary actions
and to bear all such costs to issue the Common Stock as provided herein,
including the responsibility and cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the certificate of
Common Stock is to be registered shall be treated as a shareholder of record on
and after the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Holder a new Debenture equal
to the unconverted amount, if so requested in writing by Holder.
(f) Within three (3) business days after receipt of the documentation
referred to above in Section 3.2(a), the Company shall deliver a certificate, in
accordance with Section 3.2(c) for the number of shares of Common Stock
issuable upon the conversion. In the event the Company does not make delivery
of the Common Stock, as instructed by Holder, within three (3) business days
after the Conversion Date, then in such event the Company shall pay to Holder
one percent (1%) in cash, of the dollar value of the Debentures being converted,
compounded daily, per each day after the third (3rd) business day following the
Conversion Date that the Common Stock is not delivered to the Purchaser.
The Company acknowledges that its failure to deliver the Common
Stock within three (3) business days after the Conversion Date will cause the
Holder to suffer damages in an amount that will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in this
Debenture a provision for liquidated damages. The parties acknowledge and agree
that the liquidated damages provision set forth in this section represents the
parties' good faith effort to quantify such damages and, as such, agree that the
form and amount of such liquidated damages are reasonable and will not
constitute a penalty. The payment of liquidated damages shall not relieve the
Company from its obligations to deliver the Common Stock pursuant to the terms
of this Debenture.
To the extent that the failure of the Company to issue the Common
Stock pursuant to this Section 3.2(f) is due to the unavailability of authorized
but unissued shares of Common Stock, the provisions of this Section 3.2(f) shall
not apply but instead the provisions of Section 3.2(g) shall apply.
The Company shall make any payments incurred under this Section
3.2(f) in immediately available funds within three (3) business days from the
date the Common Stock is fully delivered. Nothing herein shall limit a Holder's
right to pursue actual damages or cancel the conversion for the Company's
failure to issue and deliver Common Stock to the Holder within three (3)
business days after the Conversion Date.
(g) The Company shall at all times reserve (or make alternative written
arrangements for reservation or contribution of shares) and have available all
Common Stock necessary to meet conversion of the Debentures by all Holders of
the entire amount of Debentures then outstanding. If, at any time Holder submits
a Notice of Conversion and the Company does not have sufficient authorized
but unissued shares of Common Stock (or alternative shares of Common Stock as
may be contributed by Stockholders) available to effect, in full, a conversion
of the Debentures (a "Conversion Default", the date of such default being
referred to herein as the "Conversion Default Date"), the Company shall issue to
the Holder all of the shares of Common Stock which are available, and the Notice
of Conversion as to any Debentures requested to be converted but not converted
(the "Unconverted Debentures"), may be deemed null and void upon written notice
sent by the Holder to the Company. The Company shall provide notice of such
Conversion Default ("Notice of Conversion Default") to all existing Holders of
outstanding Debentures, by facsimile, within three (3) business day of such
default (with the original delivered by overnight or two day courier), and the
Holder shall give notice to the Company by facsimile within five business days
of receipt of the Notice of Conversion Default (with the original delivered by
overnight or two day courier) of its election to either nullify or confirm the
Notice of Conversion.
The Company agrees to pay to all Holders of outstanding Debentures payments
for a Conversion Default ("Conversion Default Payments") in the amount of
(N/365) x (.24) x the initial issuance price of the outstanding and/or tendered
but not converted Debentures held by each Holder where N = the number of days
from the Conversion Default Date to the date (the "Authorization Date") that the
Company authorizes a sufficient number of shares of Common Stock to effect
conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, upon written notice sent by the Holder to the
Company, which Conversion Default shall be payable as follows: (i) in the event
Holder elects to take such payment in cash, cash payments shall be made to such
Holder of outstanding Debentures by the fifth day of the following calendar
month, or (ii) in the event Holder elects to take such payment in stock, the
Holder may convert such payment amount into Common Stock at the conversion
rate set forth in Section 3.2(c) at any time after the 5th day of the calendar
month following the month in which the Authorization Notice was received, until
the expiration of the mandatory five (5) year conversion period.
The Company acknowledges that its failure to maintain a sufficient number
of authorized but unissued shares of Common Stock to effect in full a conversion
of the Debentures will cause the Holder to suffer damages in an amount that will
be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement a provision for liquidated damages.
The parties acknowledge and agree that the liquidated damages provision set
forth in this section represents the parties' good faith effort to quantify such
damages and, as such, agree that the form and amount of such liquidated damages
are reasonable and will not constitute a penalty. The payment of liquidated
damages shall not relieve the Company from its obligations to deliver the Common
Stock pursuant to the terms of this Debenture. Nothing herein shall limit the
Holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock.
(h) If, by the third (3rd) business day after the Conversion Date of any
portion of the Debentures to be converted (the "Delivery Date"), the transfer
agent fails for any reason to deliver the Common Stock upon conversion by the
Holder and after such Delivery Date, the Holder purchases, in an open market
transaction or otherwise, shares of Common Stock (the "Covering Shares") solely
in order to make delivery in satisfaction of a sale of Common Stock by the
Holder (the "Sold Shares"), which delivery such Holder anticipated to make using
the Common Stock issuable upon conversion (a "Buy-In"), the Company shall
pay to the Holder, in addition to any other amounts due to Holder pursuant to
this Debenture, and not in lieu thereof, the Buy-In Adjustment Amount (as
defined below). The "Buy In Adjustment Amount" is the amount equal to the
excess, if any, of (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by the Holder from the sale of the Sold
Shares. The Company shall pay the Buy-In Adjustment Amount to the Holder in
immediately available funds within five (5) business days of written demand by
the Holder. By way of illustration and not in limitation of the foregoing, if
the Holder purchases shares of Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
shares of Common Stock it sold for net proceeds of $10,000, the Buy-In
Adjustment Amount which the Company will be required to pay to the Holder will
be $1,000.
(i) Prospectus and Other Documents. The Company shall furnish to Holder such
number of prospectuses and other documents incidental to the registration
of the shares of Common Stock underlying the Debentures, including any amendment
of or supplements thereto.
(j) Limitation on Issuance of Shares. If the Company's Common Stock becomes
listed on the Nasdaq SmallCap Market after the issuance of the Debentures, the
Company may be limited in the number of shares of Common Stock it may issue by
virtue of (X) the number of authorized shares or (Y) the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, including, but not necessarily limited to, NASDAQ Rule
4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable (collectively, the
"Cap Regulations"). Without limiting the other provisions thereof, (i) the
Company will take all steps reasonably necessary to be in a position to issue
shares of Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still
cannot issue such shares of Common Stock without violating the Cap Regulations,
the holder of a Debenture which cannot be converted as result of the Cap
Regulations (each such Debenture, an "Unconverted Debenture") shall have the
right to elect either of the following remedies:
(x) if permitted by the Cap Regulations, require the Company to issue
shares of Common Stock in accordance with such holder's Notice of Conversion at
a conversion purchase price equal to the average of the closing bid price per
share of Common Stock for any five (5) consecutive Trading Days (subject to
certain equitable adjustments for certain events occurring during such period)
during the sixty (60) Trading Days immediately preceding the Conversion Date; or
(y) require the Company to redeem each Unconverted Debenture for an amount
(the "Redemption Amount"), payable in cash, equal to the sum of (i) one hundred
thirty-three percent (133%) of the principal of an Unconverted Debenture, plus
(ii) any accrued but unpaid interest thereon through and including the date (the
"Redemption Date") on which the Redemption Amount is paid to the holder.
A holder of an Unconverted Debenture may elect one of the above remedies
with respect to a portion of such Unconverted Debenture and the other remedy
with respect to other portions of the Unconverted Debenture. The Debentures
shall contain provisions substantially consistent with the above terms, with
such additional provisions as may be consented to by the Holder. The provisions
of this section are not intended to limit the scope of the provisions otherwise
included in the Debentures.
(k) Limitation on Amount of Conversion and Ownership. Notwithstanding
anything to the contrary in this Debenture, in no event shall the Holder be
entitled to convert that amount of Debenture, and in no event shall the Company
permit that amount of conversion, into that number of shares, which when added
to the sum of the number of shares of Common Stock beneficially owned, (as such
term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange
Act of 1934, as may be amended, (the "1934 Act")), by the Holder, would exceed
4.99% of the number of shares of Common Stock outstanding on the Conversion
Date, as determined in accordance with Rule 13d-1(j) of the 1934 Act. In the
event that the number of shares of Common Stock outstanding as determined in
accordance with Section 13(d) of the 1934 Act is different on any Conversion
Date than it was on the Closing Date, then the number of shares of Common Stock
outstanding on such Conversion Date shall govern for purposes of determining
whether the Holder would be acquiring beneficial ownership of more than 4.99% of
the number of shares of Common Stock outstanding on such Conversion Date.
(l) Legend. The Holder acknowledges that each certificate representing the
Debentures, and the Common Stock unless registered pursuant to the Registration
Rights Agreement, shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) IF AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
(m) Prior to conversion of all the Debentures, if at any time the
conversion of all the Debentures and exercise of all the Warrants outstanding
would result in an insufficient number of authorized shares of Common Stock
being available to cover all the conversions, then in such event, the Company
will move to call and hold a shareholder's meeting or have shareholder action
with written consent of the proper number of shareholders within thirty (30)
days of such event, or such greater period of time if statutorily required or
reasonably necessary as regards standard brokerage house and/or SEC requirements
and/or procedures, for the purpose of authorizing additional shares of Common
Stock to facilitate the conversions. In such an event management of the
Company shall recommend to all shareholders to vote their shares in favor of
increasing the authorized number of shares of Common Stock. Management of the
Company shall vote all of its shares of Common Stock in favor of increasing the
number of shares of authorized Common Stock. Company represents and warrants
that under no circumstances will it deny or prevent Holder's right to convert
the Debentures as permitted under the terms of this Subscription Agreement or
the Registration Rights Agreement. Nothing in this Section shall limit the
obligation of the Company to make the payments set forth in Section 3.2(g). The
Holder, at their option, may request the company to authorize and issue
additional shares if the Holder feels it is necessary for conversions in the
future In the event the Company's shareholder's meeting does not result in the
necessary authorization, the Company shall redeem the outstanding Debentures for
an amount equal to (x) the sum of the principal of the outstanding Debentures
plus accrued interest thereon multiplied by (y) 133%.
Section 3.3 Fractional Shares. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon the
conversion of this Debenture. Instead, the Company shall round up, as the
case may be, to the nearest whole share.
Section 3.4 Taxes on Conversion. The Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon the conversion of this Debenture. However, the Holder shall pay any
such tax which is due because the shares are issued in a name other than its
name.
Section 3.5 Company to Reserve Stock. The Company shall reserve the number
of shares of Common Stock required pursuant to and upon the terms set forth in
the Subscription Agreement to permit the conversion of this Debenture. All
shares of Common Stock which may be issued upon the conversion hereof shall upon
issuance be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issuance thereof.
Section 3.6 Restrictions on Sale. This Debenture has not been registered
under the Securities Act of 1933, as amended, (the "Act") and is being issued
under Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the
Act. This Debenture and the Common Stock issuable upon the conversion
thereof may only be sold pursuant to registration under or an exemption from the
Act.
Section 3.7 Mergers, Etc. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially all of its assets
to another person and the holders of the Common Stock are entitled to
receive stock, securities or property in respect of or in exchange for Common
Stock, then as a condition of such merger, consolidation, sale or transfer, it
may thereafter be converted on the terms and subject to the conditions set forth
above into the kind and amount of stock, securities or property receivable upon
such merger, consolidation, sale or transfer by a holder of the number of shares
of Common Stock into which this Debenture might have been converted immediately
before such merger, consolidation, sale or transfer, subject to adjustments
which shall be as nearly equivalent as may be practicable to adjustments
provided for in this Article 3.
Article 4 Mergers
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes in
writing the obligations of the Company under this Debenture and immediately
after such transaction no Event of Default exists. Any reference herein to the
Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption.
Article 5 Reports
The Company will mail to the Holder hereof at its address as shown on the
Register a copy of any annual, quarterly or current report that it files with
the Securities and Exchange Commission promptly after the filing thereof and a
copy of any annual, quarterly or other report or proxy statement that it gives
to its shareholders generally at the time such report or statement is sent to
shareholders.
Article 6 Defaults and Remedies
Events of Default. An "Event of Default" occurs if (a) the Company does
not make the payment of the principal of this Debenture by conversion into
Common Stock within ten (10) business days of the Maturity Date, upon redemption
or otherwise, (b) the Company does not make a payment, other than a payment of
principal, for a period of three (3) business days thereafter, (c) any of the
Company's representations or warranties contained in the Subscription Agreement
or this Debenture were false when made or the Company fails to comply with any
of its other agreements in the Subscription Agreement or this Debenture and such
failure continues for the period and after the notice specified below, (d) the
Company pursuant to or within the meaning of any Bankruptcy Law (as hereinafter
defined): (i) commences a voluntary case; (ii) consents to the entry of an
order for relief against it in an involuntary case; (iii) consents to the
appointment of a Custodian (as hereinafter defined) of it or for all or
substantially all of its property or (iv) makes a general assignment for the
benefit of its creditors or (v) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that: (A) is for relief against the
Company in an involuntary case; (B) appoints a Custodian of the Company or for
all or substantially all of its property or (C) orders the liquidation of the
Company, and the order or decree remains unstayed and in effect for sixty (60)
calendar days, (e) the Company's Common Stock is suspended or no longer listed
on any recognized exchange including electronic over-the-counter bulletin board
for in excess of five (5) consecutive Trading Days. As used in this Section
7.1, the term "Bankruptcy Law" means Title 11 of the United States Code or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law. A default under clause (c) above is not an Event of Default
until the holders of at least 25% of the aggregate principal amount of the
Debentures outstanding notify the Company of such default and the Company does
not cure it within thirty (30) business days after the receipt of such notice,
unless the Company commences to cure such default within such period, which must
specify the default, demand that it be remedied and state that it is a "Notice
of Default". Prior to the expiration of the time for curing a default as set
forth in the preceding sentence, the holders of a majority in aggregate
principal amount of the Debentures at the time outstanding (exclusive of
Debentures then owned by the Company or any subsidiary or affiliate) may, on
behalf of the holders of all of the Debentures, waive any past Event of Default
hereunder (or any past event which, with the lapse of time or notice and lapse
of time designated in subsection (a), would constitute an Event of Default
hereunder) and its consequences, except a default in the payment of the
principal of or interest on any of the Debentures. In the case of any such
waiver, such default or Event of Default shall be deemed to have been cured for
every purpose of this Debenture and the Company and the holders of the
Debentures shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other default
or impair any right consequent thereon.
Acceleration. If an Event of Default occurs and is continuing, the Holder
hereof by notice to the Company may declare the remaining principal amount of
this Debenture, together with all accrued interest and any liquidated damages,
to be due and payable. Upon such declaration, the remaining principal amount
shall be due and payable immediately.
Seniority, 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.
Article 7 Registered Debentures
Record Ownership. The Company, or its attorney, shall maintain a register
of the holders of the Debentures (the "Register") showing their names and
addresses and the serial numbers and principal amounts of Debentures issued to
them. The Register may be maintained in electronic, magnetic or other
computerized form. The Company may treat the person named as the Holder of this
Debenture in the Register as the sole owner of this Debenture. The Holder of
this Debenture is the person exclusively entitled to receive payments of
interest on this Debenture, receive notifications with respect to this
Debenture, convert it into Common Stock and otherwise exercise all of the rights
and powers as the absolute owner hereof.
Worn or Lost Debentures. If this Debenture becomes worn, defaced or
mutilated but is still substantially intact and recognizable, the Company or its
agent may issue a new Debenture in lieu hereof upon its surrender. Where the
Holder of this Debenture claims that the Debenture has been lost, destroyed or
wrongfully taken, the Company shall issue a new Debenture in place of the
original Debenture if the Holder so requests by written notice to the Company
actually received by the Company before it is notified that the Debenture has
been acquired by a bona fide purchaser and the Holder has delivered to the
Company an indemnity bond in such amount and issued by such surety as the
Company deems satisfactory together with an affidavit of the Holder setting
forth the facts concerning such loss, destruction or wrongful taking and such
other information in such form with such proof or verification as the Company
may request.
Article 8 Notice.
Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Debenture must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided a confirmation
of transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Xtreme Companies, Inc.
00000 Xxxxxxx Xxxxxx, Xxxx 00
Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Holder:
Dutchess Private Equities Fund, II, L.P.
000 Xxxxxx Xxxxxx, Xxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
Article 9 Time
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. A "business day"
shall mean a day on which the banks in New York are not required or allowed to
be closed.
Article 10 No Assignment
This Debenture shall not be assignable.
Article 11 Rules of Construction.
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
Article 12 Structuring Fee
The Company shall pay fees associated with the transaction in the amount of
$10,000 directly from the Closing of this Debenture.
Article 13 Governing Law
The validity, terms, performance and enforcement of this Debenture shall be
governed and construed by the provisions hereof and in accordance with the laws
of the Commonwealth of Massachusetts applicable to agreements that are
negotiated, executed, delivered and performed solely in the Commonwealth of
Massachusetts.
Article 14 Litigation
DISPUTES SUBJECT TO ARBITRATION GOVERNED BY MASSACHUSETTS LAW
All disputes arising under this agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this agreement
will submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA"). The arbitrator shall be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an attorney admitted to practice law in the Commonwealth of Massachusetts. No
party to this agreement will challenge the jurisdiction or venue provisions as
provided in this section.
Article 15 Threshold Amount
Once the Company has raised an amount in excess of $500,000 the Company
will use the balance of any amount over the $500,000 to redeem the Holder in
full for the Face Amount of the Debenture.
Article 16 Investor Warrants
As an additional inducement to Holder, the Company shall issue a warrant
for One hundred and one thousand Eight Hundred and Seventeen (101,817) shares of
its common stock exercisable at twenty cents ($.20) per share to Holder hereto
attached in schedule A. Any partial amount invested shall be pro-rated on the
basis of the investment by Holder. These shares shall have piggyback
registration rights.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of the
date first written above.
XTREME COMPANIES, INC.
By /s/ Xxxxx Xxxx
Name: Xxxxx Xxxx
Title: Chief Executive Officer
DUTCHESS PRIVATE EQUITIES FUND, II, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
By:/s/ Xxxxxxx Xxxxxxxx
Name: Xxxxxxx X. Xxxxxxxx
Title: A Managing Member
