Contract
THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING
OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF
THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.
7
¾ % CONVERTIBLE DEBENTURE
Company:
xXxxXxxxxx.xxx
Company
Address: 0000 X.
Xxxxxxx, Xxxxx 000, Xxxxxx, Xxxxx 00000
Closing
Date: December 27,
2007
Maturity
Date: December 26,
2011
Principal
Amount:
$1,500,000.00
xXxxXxxxxx.xxx,
a Nevada corporation, and any successor or resulting corporation by way of
merger, consolidation, sale or exchange of all or substantially all of the
assets or otherwise (the “Company”), for value
received, hereby promises to pay to the Holder (as such term is hereinafter
defined), or such other Person (as such term is hereinafter defined) upon order
of the Holder, on the Maturity Date, the Principal Amount (as such term is
hereinafter defined), as such sum may be adjusted pursuant to Article 3, and
to
pay interest thereon with such interest commencing to accrue as of the date
hereof and payable monthly beginning on the date hereof and such interest shall
be paid within three days of the beginning of each month that such interest
is
due, and on the Maturity Date (except that, if any such date is not a Business
Day, then such payment shall be due on the next succeeding Business Day), at
the
rate of Seven and Three-Quarters percent (7 ¾ %) per annum (the “Debenture Interest Rate”).
All interest payable on the Principal Amount of this Debenture shall be
calculated on the basis of a 360-day year for the actual number of days
elapsed. Payment of interest on this Debenture shall be in cash or,
at the option of the Holder, in shares of Common Stock of the Company valued
at
the then applicable Conversion Price (as defined herein). This
Debenture may not be prepaid without the written consent of the Holder.
-1-
ARTICLE
1
DEFINITIONS
SECTION
1.1
Definitions. The
terms defined in this Article whenever used in this Debenture have the following
respective meanings:
(i)
“Affiliate” has the
meaning ascribed to such term in Rule 12b-2 under the Securities Exchange Act
of
1934, as amended.
(ii)
“Bankruptcy Code” means
the United States Bankruptcy Code of 1986, as amended (11 U.S.C. §§ 101 et. seq.).
(iii)
“Business Day” means a
day other than Saturday, Sunday or any day on which banks located in the State
of California are authorized or obligated to close.
(iv)
“Capital Shares” means
the Common Stock and any other shares of any other class or series of capital
stock, whether now or hereafter authorized and however designated, which have
the right to participate in the distribution of earnings and assets (upon
dissolution, liquidation or winding-up) of the Company.
(v)
“Common Shares” or “Common
Stock” means shares of
the Company’s Common Stock.
(vi)
“Common Stock Issued at
Conversion”, when used with reference to the securities deliverable upon
conversion of this Debenture, means all Common Shares now or hereafter
Outstanding and securities of any other class or series into which this
Debenture hereafter shall have been changed or substituted, whether now or
hereafter created and however designated.
(vii)
“Conversion” or“conversion”
means the
repayment by the Company of the Principal Amount of this Debenture (and, to
the
extent the Holder elects as permitted by Section 3.1, accrued and unpaid
interest thereon) by the delivery of Common Stock on the terms provided in
Section 3.2, and “convert,”“converted,”“convertible”
and like words
shall have a corresponding meaning.
-2-
(viii)
“Conversion Date” means
any day on which all or any portion of the Principal Amount of this Debenture
is
converted in accordance with the provisions hereof.
(ix)
“Conversion Notice”
means a written notice of conversion substantially in the form annexed hereto
as
Exhibit
A.
(x)
“Conversion Price” on
any date of determination means the applicable price for the conversion of
this
Debenture into Common Shares on such day as set forth in Section 3.1(a).
(xi)
“Current Market Price”
on any date of determination means the closing price of a Common Share on such
day as reported as the closing price on the NASDAQ OTCBB Exchange; provided further,
that, if such security is not listed or admitted to trading on the NASDAQ OTCBB,
as reported on the principal national security exchange or quotation system
on
which such security is quoted or listed or admitted to trading, including
without limitation the “pink sheets” through the Interdealer Trading Quotation
System, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the closing bid price of such security
on the over-the-counter market on the day in question as reported by Bloomberg
LP or a similar generally accepted reporting service, as the case may be.
(xii)
“Debenture” or “Debentures”
means this
Convertible Debenture of the Company or such other convertible debenture(s)
exchanged therefor as provided in Section 2.1.
(xiii)
“Discount Multiplier”
has the meaning set
forth in Section 3.1(a).
(xiv)
“Event of Default” has
the meaning set forth in Section 6.1.
(xv)
“Holder” means Golden
Gate Investors, Inc., any successor thereto, or any Person to whom this
Debenture is subsequently transferred in accordance with the provisions
hereof.
(xvi)
“Interest Payment Due
Date” has the meaning set forth in the opening paragraph of this
Debenture.
(xvii)
“Market Disruption
Event” means any event that results in a material suspension or
limitation of trading of the Common Shares.
(xviii)
“Maximum Rate” has the
meaning set forth in Section 6.4.
-3-
(xix)
“Outstanding” when used
with reference to Common Shares or Capital Shares (collectively, “Shares”) means, on any date
of determination, all issued and outstanding Shares, and includes all such
Shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in such Shares; provided, however,
that any
such Shares directly or indirectly owned or held by or for the account of the
Company or any Subsidiary of the Company shall not be deemed “Outstanding” for purposes
hereof.
(xx)
“Person” means an
individual, a corporation, a partnership, an association, a limited liability
company, an unincorporated business organization, a trust or other entity or
organization, and any government or political subdivision or any agency or
instrumentality thereof.
(xxi)
“Principal Amount”
means, for any date of calculation, the principal sum set forth in the first
paragraph of this Debenture (but only such principal amount as to which the
Holder has (a) actually advanced, and (b) not theretofore furnished a Conversion
Notice in compliance with Section 3.2).
(xxii)
“SEC” means the United
States Securities and Exchange Commission.
(xxiii)
“Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations of the
SEC
thereunder, all as in effect at the time.
(xxiv)
“Securities Purchase
Agreement” means that certain Securities Purchase Agreement of even date
herewith by and among the Company and Holder, as the same may be amended from
time to time.
(xxv)
“Subsidiary” means any
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are owned directly or indirectly by the Company.
(xxvi)
“Trading Day” means any
day on which (i) purchases and sales of securities on the principal national
security exchange or quotation system on which the Common Shares are traded
are
reported thereon, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, as reported by Bloomberg
LP or
a similar generally accepted reporting service, as the case may be, (ii) at
least one bid for the trading of Common Shares is reported and (iii) no Market
Disruption Event occurs.
(xxvii)
“Volume Weighted Average
Price” per Common Share means the volume weighted average
price of the Common Shares during any Trading Day as reported on the NASDAQ
OTCBB Exchange; provided further,
that, if such security is not listed or admitted to trading on the NASDAQ OTCBB,
as reported on the principal national security exchange or quotation system
on
which such security is quoted or listed or admitted to trading, including
without limitation the “pink sheets” through the Interdealer Trading Quotation
System, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the volume weighted average price
of
the Common Shares during any Trading Day on the over-the-counter market as
reported by Bloomberg LP or a similar generally accepted reporting service,
as
the case may be.
All
references to “cash” or “$” herein means currency of the United States of
America.
-4-
ARTICLE
2
EXCHANGES,
TRANSFER AND REPAYMENT
SECTION
2.1
Registration of
Transfer of Debentures. This Debenture, when presented for registration
of transfer, shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Company duly executed, by the Holder duly authorized in writing.
SECTION
2.2
Loss, Theft,
Destruction of Debenture. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Debenture and, in the case of any such loss, theft or destruction, upon
receipt of indemnity or security reasonably satisfactory to the Company, or,
in
the case of any such mutilation, upon surrender and cancellation of this
Debenture, the Company shall make, issue and deliver, in lieu of such lost,
stolen, destroyed or mutilated Debenture, a new Debenture of like tenor and
unpaid Principal Xxxxxx dated as of the date hereof (which shall accrue interest
from the most recent Interest Payment Due Date on which an interest payment
was
made in full). This Debenture shall be held and owned upon the
express condition that the provisions of this Section 2.2 are exclusive with
respect to the replacement of a mutilated, destroyed, lost or stolen Debenture
and shall preclude any and all other rights and remedies notwithstanding any
law
or statute existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without the surrender
thereof.
SECTION
2.3
Who Deemed Absolute
Owner. The Company may deem the Person in whose name this
Debenture shall be registered upon the registry books of the Company to be,
and
may treat it as, the absolute owner of this Debenture (whether or not this
Debenture shall be overdue) for the purpose of receiving payment of or on
account of the Principal Amount of this Debenture, for the conversion of this
Debenture and for all other purposes, and the Company shall not be affected
by
any notice to the contrary. All such payments and such conversions
shall be valid and effectual to satisfy and discharge the liability upon this
Debenture to the extent of the sum or sums so paid or the conversion or
conversions so made.
SECTION
2.4
Repayment at
Maturity. At the Maturity Date, the Company shall repay the
outstanding Principal Amount of this Debenture in whole in cash, together with
all accrued and unpaid interest thereon, in cash, to the Maturity Date.
-5-
ARTICLE
3
CONVERSION
OF DEBENTURE
SECTION
3.1
Conversion; Conversion
Price; Valuation Event.
At
the
option of the Holder, this Debenture may be converted, either in whole or in
part, up to the full Principal Amount hereof into Common Shares (calculated
as
to each such conversion to the nearest 1/100th of a share), at any time and
from
time to time on any Business Day, subject to compliance with Section 3.2. The
number of Common Shares into which this Debenture may be converted is equal
to
the dollar amount of the Debenture being converted divided by the Conversion
Price. The “Conversion
Price” shall be equal to the lesser of (i) $0.50 (as adjusted for any
stock splits, stock
dividends, combinations, subdivisions, recapitalizations or the like), or
(ii) 80% of the average of the 3 lowest Volume Weighted Average Prices during
the 20 Trading Days prior to Holder’s election to convert (the percentage figure
being a “Discount
Multiplier”). The Company reserves the right to increase the number of
Trading Days in clause (ii) above, as it deems appropriate.
If
the
Holder elects to convert a portion of the Debenture and, on the day that the
election is made, the Volume Weighted Average Price is below $0.05 (as adjusted for any stock splits,
stock
dividends, combinations, subdivisions, recapitalizations or the like),
the Company shall have the right to prepay that portion of the Debenture that
Holder elected to convert, plus any accrued and unpaid interest, at 120% of
such
amount. In the event that the Company elects to prepay that portion of the
Debenture, Holder shall be deemed to have withdrawn its Conversion
Notice.
SECTION
3.2
Exercise of Conversion
Privilege. (a) Conversion of this Debenture may be exercised
on any Business Day by the Holder by telecopying an executed and completed
Conversion Notice to the Company. Each date on which a Conversion
Notice is telecopied to the Company in accordance with the provisions of this
Section 3.2 shall constitute a Conversion Date. The Company shall
convert this Debenture and issue the Common Stock Issued at Conversion in the
manner provided below in this Section 3.2, and all voting and other rights
associated with the beneficial ownership of the Common Stock Issued at
Conversion shall vest with the Holder, effective as of the Conversion Date
at
the time specified in the Conversion Notice. The Conversion Notice
also shall state the name or names (with addresses) of the persons who are
to
become the holders of the Common Stock Issued at Conversion in connection with
such conversion. As promptly as practicable after the receipt of the Conversion
Notice as aforesaid, but in any event not more than three (3) Business Days
after the Company’s receipt of such Conversion Notice, the Company shall (i)
issue the Common Stock Issued at Conversion in accordance with the provisions
of
this Article 3 and (ii) cause to be mailed for delivery by overnight courier
(x)
a certificate or certificate(s) representing the number of Common Shares to
which the Holder is entitled by virtue of such conversion and (y) cash, as
provided in Section 3.3, in respect of any fraction of a Common Share
deliverable upon such conversion. Such conversion shall be deemed to
have been effected at the time at which the Conversion Notice indicates, and
at
such time the rights of the Holder of this Debenture, as such (except if and
to
the extent that any Principal Amount thereof remains unconverted), shall cease
and the Person and Persons in whose name or names the Common Stock Issued at
Conversion shall be issuable shall be deemed to have become the holder or
holders of record of the Common Shares represented thereby, and all voting
and
other rights associated with the beneficial ownership of such Common Shares
shall at such time vest with such Person or Persons. The Conversion
Notice shall constitute a contract between the Holder and the Company, whereby
the Holder shall be deemed to subscribe for the number of Common Shares which
it
will be entitled to receive upon such conversion and, in payment and
satisfaction of such subscription (and for any cash adjustment to which it
is
entitled pursuant to Section 3.4), to surrender this Debenture and to release
the Company from all liability thereon (except if and to the extent that any
Principal Amount thereof remains unconverted). No cash payment
aggregating less than $1.00 shall be required to be given unless specifically
requested by the Holder.
-6-
(b)
If, at any time after the date of this Debenture, (i) the Company challenges,
disputes or denies the right of the Holder hereof to effect the conversion
of
this Debenture into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with this Section 3.2 or (ii) any
third party who is not and has never been an Affiliate of the Holder commences
any lawsuit or legal proceeding or otherwise asserts any claim before any court
or public or governmental authority which seeks to challenge, deny, enjoin,
limit, modify, delay or dispute the right of the Holder hereof to effect the
conversion of this Debenture into Common Shares, then the Holder shall have
the
right, but not the obligation, by written notice to the Company, to require
the
Company to promptly redeem this Debenture for cash at one hundred twenty percent
(120%) of the Principal Amount thereof, together with all accrued and unpaid
interest thereon to the date of redemption. Under any of the circumstances
set
forth above, the Company shall be responsible for the payment of all costs
and
expenses of the Holder, including reasonable legal fees and expenses, as and
when incurred in defending itself in any such action or pursuing its rights
hereunder (in addition to any other rights of the Holder).
(c)
The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under the Bankruptcy Code. In
the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under
11
U.S.C. § 362 in respect of the Holder’s conversion privilege. The
Company hereby waives to the fullest extent permitted any rights to relief
it
may have under 11 U.S.C. § 362 in respect of the conversion of this
Debenture. The Company agrees, without cost or expense to the Holder,
to take or consent to any and all action necessary to effectuate relief under
11
U.S.C. § 362.
SECTION
3.3
Fractional
Shares. No fractional Common Shares or scrip representing
fractional Common Shares shall be delivered upon conversion of this
Debenture. Instead of any fractional Common Shares which otherwise
would be delivered upon conversion of this Debenture, the Company shall pay
a
cash adjustment in respect of such fraction in an amount equal to the same
fraction multiplied by the Current Market Price on the Conversion
Date. No cash payment of less than $1.00 shall be required to be
given unless specifically requested by the Holder.
SECTION
3.4
Adjustments. The
Conversion Price and the number of shares deliverable upon conversion of this
Debenture are subject to adjustment from time to time as follows:
(i)
Reclassification,
Etc. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another Person
(where the Company is not the survivor or where there is a change in or
distribution with respect to the Common Stock of the Company), sell, convey,
transfer or otherwise dispose of all or substantially all its property, assets
or business to another Person, or effectuate a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of
the
Company is disposed of (each, a “Fundamental Corporate
Change”) and, pursuant to the terms of such Fundamental Corporate Change,
shares of common stock of the successor or acquiring corporation, or any cash,
shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to
or
in lieu of common stock of the successor or acquiring corporation (“Other Property”) are to be
received by or distributed to the holders of Common Stock of the Company, then
the Holder of this Debenture shall have the right thereafter, at its sole
option, to (x) require the Company to prepay this Debenture for cash at one
hundred twenty percent (120%) of the Principal Amount thereof, together with
all
accrued and unpaid interest thereon to the date of prepayment, but only if
the
Fundamental Corporate Change is other than a stock split, a reincorporation
whose sole purpose is to change the state of incorporation of the Company,
or a
reorganization in which the Company’s stockholders continue to own, in
substantially the same proportion, the outstanding capital stock of the Company,
(y) receive the number of shares of common stock of the successor or
acquiring corporation or of the Company, if it is the surviving corporation,
and
Other Property as is receivable upon or as a result of such Fundamental
Corporate Change by a holder of the number of shares of Common Stock into which
the outstanding portion of this Debenture may be converted at the Conversion
Price applicable immediately prior to such Fundamental Corporate Change or
(z) require the Company, or such successor, resulting or purchasing
corporation, as the case may be, to, without benefit of any additional
consideration therefor, execute and deliver to the Holder a debenture with
substantial identical rights, privileges, powers, restrictions and other terms
as this Debenture in an amount equal to the amount outstanding under this
Debenture immediately prior to such Fundamental Corporate Change. For
purposes hereof, “common stock
of the successor or acquiring corporation” shall include stock of such
corporation of any class which is not preferred as to dividends or assets over
any other class of stock of such corporation and which is not subject to
prepayment and shall also include any evidences of indebtedness, shares of
stock
or other securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe
for
or purchase any such stock. The foregoing provisions shall similarly
apply to successive Fundamental Corporate Changes.
-7-
SECTION
3.5
Certain Conversion
Limits.
The
Company shall not effect any conversion of this Debenture, and a Holder shall
not have the right to convert any portion of this Debenture, to the extent
that
after giving effect to the conversion, as set forth on the applicable Conversion
Notice, such Holder (together with such Holder’s Affiliates, and any other
person or entity acting as a group together with such Holder or any of such
Holder’s Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned
by
such Holder and its Affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Debenture with respect to which such
determination is being made, but shall exclude the number of shares of Common
Stock which are issuable upon (A) conversion of the remaining, unconverted
principal amount of this Debenture beneficially owned by such Holder or any
of
its Affiliates and (B) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company subject to a limitation on
conversion or exercise analogous to the limitation contained herein (including,
without limitation, any other Debentures or warrants to purchase shares of
the
Company’s Common Stock) beneficially owned by such Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 3.5, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. To the extent that the limitation contained
in this Section 3.5 applies, the determination of whether this Debenture is
convertible (in relation to other securities owned by such Holder together
with
any Affiliates) and of which principal amount of this Debenture is convertible
shall be in the sole discretion of such Holder, and the submission of a
Conversion Notice shall be deemed to be such Holder’s determination of whether
this Debenture may be converted (in relation to other securities owned by such
Holder together with any Affiliates) and which principal amount of this
Debenture is convertible, in each case subject to such aggregate percentage
limitations. To ensure compliance with this restriction, each Holder
will be deemed to represent to the Company each time it delivers a Conversion
Notice that such Conversion Notice has not violated the restrictions set forth
in this paragraph and the Company shall have no obligation to verify or confirm
the accuracy of such determination. In addition, a determination as
to any group status as contemplated above shall be determined in accordance
with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 3.5, in determining the
number of outstanding shares of Common Stock, a Holder may rely on the number
of
outstanding shares of Common Stock provided to the Holder in writing by the
Company after Holder makes such request or in the event that the Company files,
any of the following with the Securities and Exchange Commission, the most
recent of the following: (A) the Company's most recent Form 10-QSB or Form
10-KSB, as the case may be, (B) a more recent public announcement by the
Company; or (C) a more recent notice by the Company or the Company’s transfer
agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the
Company shall within two Trading Days confirm orally and in writing to such
Holder the number of shares of Common Stock then outstanding on the records
of
the Company as of the date of the request. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect
to
the conversion or exercise of securities of the Company, including this
Debenture, by such Holder or its Affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of this Debenture held by the
Holder. The Beneficial Ownership Limitation provisions of this
Section 3.5 may be waived by such Holder, at the election of such Holder, upon
not less than 61 days’ prior notice to the Company, to, at the sole discretion
of the Holder, either change the Beneficial Ownership Limitation to (i) 9.99%
of
the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock upon conversion of the
Debenture held by the Holder and the provisions of this Section 3.5 shall
continue to apply, or (ii) remove any Beneficial Ownership Limitation under
this
Debenture. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms
of
this Section 3.5 to correct this paragraph (or any portion hereof) which may
be
defective or inconsistent with the intended Beneficial Ownership Limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation. If any court of competent
jurisdiction shall determine that the foregoing limitation is ineffective to
prevent a Holder from being deemed the beneficial owner of more than 9.99%
of
the then outstanding shares of Common Stock, then the Company shall prepay
such
portion of this Debenture as shall cause such Holder not to be deemed the
beneficial owner of more than 9.99% of the then outstanding shares of Common
Stock. Upon such determination by a court of competent jurisdiction,
the Holder shall have no interest in or rights under such portion of the
Debenture. Any and all interest paid on or prior to the date of such
determination shall be deemed interest paid on the remaining portion of this
Debenture held by the Holder. Such prepayment shall be for cash at a
prepayment price of one hundred fifty percent (150%) of the Principal Amount
thereof, together with all accrued and unpaid interest thereon to the date
of
prepayment. The limitations contained in this paragraph shall apply
to a successor holder of this Debenture.
-8-
SECTION
3.6
Surrender of
Debentures. Upon any redemption of this Debenture pursuant to
Sections 3.2, 3.5 or 6.2, or upon maturity pursuant to Section 2.4, the Holder
shall either deliver this Debenture by hand to the Company at its principal
executive offices or surrender the same to the Company at such address by
nationally recognized overnight courier. Payment of the redemption
price or the amount due on maturity specified in Section 2.4, shall be made
by
the Company to the Holder against receipt of this Debenture (as provided in
this
Section 3.5) by wire transfer of immediately available funds to such account(s)
as the Holder shall specify by written notice to the Company. If
payment of such redemption price is not made in full by the redemption date,
or
the amount due on maturity is not paid in full by the Maturity Date, the Holder
shall again have the right to convert this Debenture as provided in Article
3
hereof or to declare an Event of Default.
ARTICLE
4
STATUS;
RESTRICTIONS ON TRANSFER
SECTION
4.1
Status of
Debenture. This Debenture constitutes a legal, valid and
binding obligation of the Company, enforceable in accordance with its terms
subject, as to enforceability, to general principles of equity and to principles
of bankruptcy, insolvency, reorganization and other similar laws of general
applicability relating to or affecting creditors’ rights and remedies
generally.
SECTION
4.2
Restrictions on
Transfer. This Debenture, and any Common Shares deliverable
upon the conversion hereof, have not been registered under the Securities
Act. The Holder by accepting this Debenture agrees that this
Debenture and the shares of Common Stock to be acquired as interest on and
upon
conversion of this Debenture may not be assigned or otherwise transferred unless
and until (i) the Company has received the opinion of counsel for the Holder
that this Debenture or such shares may be sold pursuant to an exemption from
registration under the Securities Act, provided that the Company will not
require opinions of counsel for transactions involving transfers to Affiliates
of the Holder or pursuant to Rule 144 promulgated by the SEC under the
Securities Act, except in unusual circumstances, or when the Company’s transfer
agent requires such opinion, or (ii) a registration statement relating to this
Debenture or such shares has been filed by the Company and declared effective
by
the SEC.
Each
certificate for shares of Common Stock deliverable hereunder shall bear a legend
as follows unless and until such securities have been sold pursuant to an
effective registration statement under the Securities Act:
“The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the “Securities Act”). The
securities may not be offered for sale, sold or otherwise transferred except
(i)
pursuant to an effective registration statement under the Securities Act or
(ii)
pursuant to an exemption from registration under the Securities Act in respect
of which the issuer of this certificate has received an opinion of counsel
satisfactory to the issuer of this certificate to such effect. Copies
of the agreement covering both the purchase of the securities and restrictions
on their transfer may be obtained at no cost by written request made by the
holder of record of this certificate to the Secretary of the issuer of this
certificate at the principal executive offices of the issuer of this
certificate.”
-9-
ARTICLE
5
COVENANTS
SECTION
5.1
Conversion. The
Company shall cause the transfer agent, not later than three (3) Business Days
after the Company’s receipt of a Conversion Notice, to issue and deliver to the
Holder the requisite shares of Common Stock Issued at Conversion.
SECTION
5.2
Notice of
Default. If any one or more events occur which constitute or
which, with notice, lapse of time, or both, would constitute an Event of
Default, the Company shall forthwith give notice to the Holder, specifying
the
nature and status of the Event of Default or such other event(s), as the case
may be.
SECTION
5.3
Payment of
Obligations. So long as this Debenture shall be outstanding,
the Company shall pay, extend, or discharge at or before maturity, all its
respective material obligations and liabilities, including, without limitation,
tax liabilities, except where the same may be contested in good faith by
appropriate proceedings.
SECTION
5.4
Compliance with
Laws. So long as this Debenture shall be outstanding, the
Company shall comply with all applicable laws, ordinances, rules, regulations
and requirements of governmental authorities, except for such noncompliance
which would not have a material adverse effect on the business, properties,
prospects, condition (financial or otherwise) or results of operations of the
Company and the Subsidiaries.
SECTION
5.5
Inspection of
Property, Books and Records. So long as this Debenture shall
be outstanding, the Company shall keep proper books of record and account in
which full, true and correct entries shall be made of all material dealings
and
transactions in relation to its business and activities and shall permit
representatives of the Holder at the Holder’s expense to visit and inspect any
of its respective properties, to examine and make abstracts from any of its
respective books and records, not reasonably deemed confidential by the Company,
and to discuss its respective affairs, finances and accounts with its respective
officers and independent public accountants, all at such reasonable times and
as
often as may reasonably be desired.
SECTION
5.6
Reservation
of Stock
Issuable Upon Conversion. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of this Debenture,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of this Debenture; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of this Debenture, in addition to such other remedies
as shall be available to the holder of this Debenture, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number
of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval to file
an
amendment to the charter of the Company.
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ARTICLE
6
EVENTS
OF DEFAULT; REMEDIES
SECTION
6.1
Events of
Default. “Event of Default” wherever
used herein means any one of the following events:
(i)
the Company shall default in the payment of principal of or interest on this
Debenture as and when the same shall be due and payable and, in the case of
an
interest payment default, such default shall continue for five (5) Business
Days
after the date such interest payment was due, or the Company shall fail to
perform or observe any other material covenant, agreement, term, provision,
undertaking or commitment under this Debenture or the Securities Purchase
Agreement and such default shall continue for a period of ten (10) Business
Days
after the delivery to the Company of written notice that the Company is in
default hereunder or thereunder;
(ii)
any of the representations, warranties, or covenants made by the Company herein,
in the Securities Purchase Agreement or in any certificate or financial or
other
written statements heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and delivery of this Debenture or
the
Securities Purchase Agreement shall be false or misleading in a material respect
on the Closing Date;
(iii)
under the laws of any jurisdiction not otherwise covered by clauses (iv) and
(v)
below, the Company or any Subsidiary (A) becomes insolvent or generally not
able
to pay its debts as they become due, (B) admits in writing its inability to
pay
its debts generally or makes a general assignment for the benefit of creditors,
(C) institutes or has instituted against it any proceeding seeking (x) to
adjudicate it a bankrupt or insolvent, (y) liquidation, winding-up,
reorganization, arrangement, adjustment, protection, relief or composition
of it
or its debts under any law relating to bankruptcy, insolvency, reorganization
or
relief of debtors including any plan of compromise or arrangement or other
corporate proceeding involving or affecting its creditors or (z) the entry
of an
order for relief or the appointment of a receiver, trustee or other similar
person for it or for any substantial part of its properties and assets, and
in
the case of any such official proceeding instituted against it (but not
instituted by it), either the proceeding remains undismissed or unstayed for
a
period of sixty (60) calendar days, or any of the actions sought in such
proceeding (including the entry of an order for relief against it or the
appointment of a receiver, trustee, custodian or other similar official for
it
or for any substantial part of its properties and assets) occurs or (D) takes
any corporate action to authorize any of the above actions;
(iv)
the entry of a decree or order by a court having jurisdiction in the premises
adjudging the Company or any Subsidiary a bankrupt or insolvent, or approving
as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under the Bankruptcy Code or any
other applicable Federal or state law, or appointing a receiver, liquidator,
assignee, trustee or sequestrator (or other similar official) of the Company
or
of any substantial part of its property, or ordering the winding-up or
liquidation of its affairs, and any such decree or order continues and is
unstayed and in effect for a period of sixty (60) calendar days;
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(v)
the institution by the Company or any Subsidiary of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the institution
of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
Bankruptcy Code or any other applicable federal or state law, or the consent
by
it to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of
the
Company or of any substantial part of its property, or the making by it of
an
assignment for the benefit of creditors, or the admission by it in writing
of
its inability to pay its debts generally as and when they become due, or the
taking of corporate action by the Company in furtherance of any such
action;
(vi)
a final judgment or final judgments for the payment of money shall have been
entered by any court or courts of competent jurisdiction against the Company
and
remains undischarged for a period (during which execution shall be effectively
stayed) of thirty (30) days, provided that the
aggregate amount of all such judgments at any time outstanding (to the extent
not paid or to be paid, as evidenced by a written communication to that effect
from the applicable insurer, by insurance) exceeds One Hundred Thousand Dollars
($100,000);
(vii)
it becomes unlawful for the Company to perform or comply with its obligations
under this Debenture or the Securities Purchase Agreement in any respect;
(viii)
the Common Shares shall no longer be traded or listed for trading on the NASDAQ
OTCBB (the “Trading
Market” or, to the extent the Company becomes eligible to list its Common
Stock on any other national security exchange or quotation system, upon official
notice of listing on any such exchange or system, as the case may be, it shall
be the “Trading Market”) or suspended from trading on the Trading Market, and
shall not be reinstated, relisted or such suspension lifted, as the case may
be,
within five (5) days;
(ix)
the Company shall fail to timely file all reports required to be filed by it
with the Commission (as defined in the Securities Purchase Agreement) pursuant
to Section 13 or 15(d) of the Exchange Act (as defined in the Securities
Purchase Agreement), or otherwise required by the Exchange Act;
(x)
the Company shall default (giving effect to any applicable grace period) in
the
payment of principal or interest as and when the same shall become due and
payable, under any indebtedness, individually or in the aggregate, of more
than
One Hundred Thousand Dollars ($100,000); or
(xi)
the Volume Weighted Average Price per share of the Common Stock shall equal
a
price per share that is $0.01 (as
adjusted for any stock splits, stock dividends, combinations, subdivisions,
recapitalizations or the like) per share or lower at any time during the
term of this Debenture.
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SECTION
6.2
Acceleration of
Maturity; Rescission and Annulment. If an Event of Default
occurs and is continuing, provided however, that once an Event of Default occurs
as described in clause (xi) of Section 6.1, such Event of Default will not
be
cured by the subsequent trading of the Common Stock at a price greater than
that
specified in such clause, then and in every such case the Holder may, in
Xxxxxx’s sole and absolute discretion, by a notice in writing to the Company,
rescind any outstanding Conversion Notice and declare that any or all amounts
owing or otherwise outstanding under this Debenture are immediately due and
payable and upon any such declaration this Debenture or such portion thereof,
as
applicable, shall become immediately due and payable in cash at a price of
one
hundred twenty percent (120%) of the Principal Amount thereof, together with
all
accrued and unpaid interest thereon to the date of payment; provided, however,
in the case
of any Event of Default described in clause (xi) of Section 6.1 such amount
shall become immediately due and payable in cash at a price of one hundred
and
ten percent (110%) of the Principal Amount thereof, together with all accrued
and unpaid interest thereon to the date of payment; provided further, in
the case of any Event of Default described in clauses (iii), (iv), (v) or (vii)
of Section 6.1, all amounts owing or otherwise outstanding under this Debenture
automatically shall become immediately due and payable without the necessity
of
any notice or declaration as aforesaid. In the event that the Company
is obligated to pay any amount to the Holder in connection with an acceleration
of the maturity of this Debenture as set forth herein, the Company shall first
apply against such amount an amount equal to the outstanding amount owed by
the
Holder to the Company under the Promissory Note, if any, and the amount
otherwise owed by the Company to the Holder in connection with an acceleration
of the maturity of this Debenture shall be reduced by the outstanding amount
owed by the Holder to the Company under the Promissory Note, with the Promissory
Note deemed paid by Holder to the extent of and with respect to such amount,
and
if the amount due from the Company to the Holder in connection with an
acceleration of the maturity of this Debenture is equal to or greater than
the
outstanding amount owed under the Promissory Note, the Company shall cancel
and
deem the Promissory Note as paid in full in connection with the application
of
the amount owed by the Holder to the Company under Promissory Note against
the
amount otherwise owed by the Company to the Holder hereunder. The
Company shall immediately pay in cash to the Holder any remaining amount owed
by
the Company to the Holder in connection with the acceleration of the maturity
of
this Debenture as described herein, after the application of the outstanding
amount owed under the Promissory Note (as defined in the Securities Purchase
Agreement), if any, to such obligation.
SECTION
6.3
Late Payment
Penalty. If any portion of the principal of or interest on
this Debenture shall not be paid within ten (10) days of when it is due, the
Discount Multiplier under this Debenture shall decrease by one percentage point
(1%) for all conversions of this Debenture thereafter.
SECTION
6.4
Maximum Interest
Rate.
Notwithstanding anything herein to the contrary, if at any time the
applicable
interest rate as provided for herein shall exceed the maximum lawful rate which
may be contracted for, charged, taken or received by the Holder in accordance
with any applicable law (the “Maximum Rate”), the rate of
interest applicable to this Debenture shall be limited to the Maximum
Rate. To the greatest extent permitted under applicable law, the
Company hereby waives and agrees not to allege or claim that any provisions
of
this Note could give rise to or result in any actual or potential violation
of
any applicable usury laws.
SECTION
6.5
Remedies Not
Waived. No course of dealing between the Company and the
Holder or any delay in exercising any rights hereunder shall operate as a waiver
by the Holder.
SECTION
6.6
Remedies.The
Company acknowledges that a breach by it of its obligations hereunder will
cause
irreparable harm to the Holder, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that
the
remedy at law for a breach of its obligations under this Debenture will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Debenture, that the Holder shall be entitled
to all other available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Debenture and to enforce specifically
the terms and provisions thereof, without the necessity of showing economic
loss
and without any bond or other security being required.
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SECTION
6.7
Payment of Certain
Amounts. Whenever pursuant to this Debenture the Company is required
to pay an amount in excess of the Principal Amount plus accrued and unpaid
interest, the Company and the Holder agree that the actual damages to the Holder
from the receipt of cash payment on this Debenture may be difficult to determine
and the amount to be so paid by the Company represents stipulated damages and
not a penalty and is intended to compensate the Holder in part for loss of
the
opportunity to convert this Debenture and to earn a return from the sale of
shares of Common Stock acquired upon conversion of this Debenture at a price
in
excess of that price paid for such shares pursuant to this Debenture. The
Company and the Holder hereby agree that such amount of stipulated damages
is
not disproportionate to the possible loss to the Holder from the receipt of
a
cash payment without the opportunity to convert this Debenture into shares
of
Common Stock.
ARTICLE
7
MISCELLANEOUS
SECTION
7.1
Notice of Certain
Events. In the case of the occurrence of any event described
in Section 3.4 of this Debenture, the Company shall cause to be mailed to the
Holder of this Debenture at its last address as it appears in the Company’s
security registry, at least twenty (20) days prior to the applicable record,
effective or expiration date hereinafter specified (or, if such twenty (20)
days’ notice is not possible, at the earliest possible date prior to any such
record, effective or expiration date), a notice thereof, including, if
applicable, a statement of (y) the date on which a record is to be taken for
the
purpose of such dividend, distribution, issuance or granting of rights, options
or warrants, or if a record is not to be taken, the date as of which the holders
of record of Common Stock to be entitled to such dividend, distribution,
issuance or granting of rights, options or warrants are to be determined or
(z)
the date on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective, and
the
date as of which it is expected that holders of record of Common Stock will
be
entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up. Failure or delay in
delivering such notice shall not affect the validity of such action
taken.
SECTION
7.2
Register. The
Company shall keep at its principal office a register in which the Company
shall
provide for the registration of this Debenture. Upon any transfer of
this Debenture in accordance with Articles 2 and 4 hereof, the Company shall
register such transfer on the Debenture register.
SECTION
7.3
Withholding. To
the extent required by applicable law, the Company may withhold amounts for
or
on account of any taxes imposed or levied by or on behalf of any taxing
authority in the United States having jurisdiction over the Company from any
payments made pursuant to this Debenture.
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SECTION
7.4
Transmittal of
Notices. Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted hereunder shall
be in writing and shall be delivered personally, or sent by telecopier machine
or by a nationally recognized overnight courier service, and shall be deemed
given when so delivered personally, or by telecopier machine or overnight
courier service as follows:
(1)
If to the Company, to:
xXxxXxxxxx.xxx
0000
X.
Xxxxxxx, Xxxxx 000
Desoto,
Texas
Telephone:
000-000-0000
Facsimile:
[_______________________]
(2)
If to the Holder, to:
Golden
Gate Investors, Inc.
0000
Xxxxxxxx Xxxxxx, Xxxxx 000
La
Jolla,
California 92037
Telephone:
000-000-0000
Facsimile:
000-000-0000
Each
of
the Holder or the Company may change the foregoing address by notice given
pursuant to this Section 7.4.
SECTION
7.5
Attorneys’
Fees. Should any
party hereto employ an attorney for the
purpose of enforcing or construing this Debenture, or any judgment based on
this
Debenture, in any legal proceeding whatsoever, including insolvency, bankruptcy,
arbitration, declaratory relief or other litigation, the prevailing party shall
be entitled to receive from the other party or parties thereto reimbursement
for
all reasonable attorneys' fees and all reasonable costs, including but not
limited to service of process, filing fees, court and court reporter costs,
investigative costs, expert witness fees, and the cost of any bonds, whether
taxable or not, and that such reimbursement shall be included in any judgment
or
final order issued in that proceeding. The "prevailing party" means
the party determined by the court to most nearly prevail and not necessarily
the
one in whose favor a judgment is rendered.
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SECTION
7.6
Governing
Law. This Debenture shall be governed by, and construed in
accordance with, the laws of the State of California (without giving effect
to
conflicts of laws principles). With respect to any suit, action or
proceedings relating to this Debenture, the Company irrevocably submits to
the
exclusive jurisdiction of the courts of the State of California sitting in
San
Diego and the United States District Court located in the City of San Diego
and
hereby waives, to the fullest extent permitted by applicable law, any claim
that
any such suit, action or proceeding has been brought in an inconvenient
forum. Subject to applicable law, the Company agrees that final
judgment against it in any legal action or proceeding arising out of or relating
to this Debenture shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a
certified copy of which judgment shall be conclusive evidence thereof and the
amount of its indebtedness, or by such other means provided by law.
SECTION
7.7
Waiver of Jury
Trial. To the fullest extent permitted by law, each of the parties hereto
hereby knowingly, voluntarily and intentionally waives its respective rights
to
a jury trial of any claim or cause of action based upon or arising out of this
Debenture or any other document or any dealings between them relating to the
subject matter of this Debenture and other documents. Each party
hereto (i) certifies that neither of their respective representatives, agents
or
attorneys has represented, expressly or otherwise, that such party would not,
in
the event of litigation, seek to enforce the foregoing waivers and (ii)
acknowledges that it has been induced to enter into this Debenture by, among
other things, the mutual waivers and certifications herein.
SECTION
7.8
Headings. The
headings of the Articles and Sections of this Debenture are inserted for
convenience only and do not constitute a part of this Debenture.
SECTION
7.9
Payment
Dates. Whenever any payment hereunder shall be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day.
SECTION
7.10
Binding
Effect. Each Holder by accepting this Xxxxxxxxx agrees to be
bound by and comply with the terms and provisions of this Debenture.
SECTION
7.11
No Stockholder
Rights. Except as otherwise provided herein, 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.
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SECTION
7.12
Facsimile
Execution. Facsimile execution of this Debenture shall be
deemed original.
IN
WITNESS WHEREOF, the Company has caused this Debenture to be signed by its
duly
authorized officer on the date of this Debenture.
xXxxXxxxxx.xxx
By:
Name:
Title:
_____________________________________
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EXHIBIT A
DEBENTURE
CONVERSION
NOTICE
TO:
xXxxXxxxxx.xxx
0000
X.
Xxxxxxx, Xxxxx 000
Desoto,
Texas
Facsimile:
[_______________________]
The
undersigned owner of the Convertible Debenture due December 26, 2011 (the
“Debenture”) issued by
xXxxXxxxxx.xxx (the “Company”) hereby irrevocably
exercises its option to convert $__________ Principal Amount of the Debenture
into shares of Common Stock in accordance with the terms of the
Debenture. The undersigned hereby instructs the Company to convert
the portion of the Debenture specified above into shares of Common Stock Issued
at Conversion in accordance with the provisions of Article 3 of the
Debenture. The undersigned directs that the Common Stock and
certificates therefor deliverable upon conversion, the Debenture reissued in
the
Principal Amount not being surrendered for conversion hereby, [the check or
shares of Common Stock in payment of the accrued and unpaid interest thereon
to
the date of this Notice,] together with any check in payment for fractional
Common Stock, be registered in the name of and/or delivered to the undersigned
unless a different name has been indicated below. All capitalized
terms used and not defined herein have the respective meanings assigned to
them
in the Debenture. The conversion pursuant hereto shall be deemed to
have been effected at the date and time specified below, and at such time the
rights of the undersigned as a Holder of the Principal Amount of the Debenture
set forth above shall cease and the Person or Persons in whose name or names
the
Common Stock Issued at Conversion shall be registered shall be deemed to have
become the holder or holders of record of the Common Shares represented thereby
and all voting and other rights associated with the beneficial ownership of
such
Common Shares shall at such time vest with such Person or Persons.
Date
and
time: __________________
______________________________
By:
___________________________
Title:
_________________________
Fill
in
for registration of Debenture:
Please
print name and address
(including
ZIP code number):
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