EXHIBIT 10.4
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
XXXXXX ELECTRONICS, INC.
SECURED CONVERTIBLE DEBENTURE
Issuance Date: August 22, 2007 Original Principal Amount: $4,000,000
No. HRVE-1-3
FOR VALUE RECEIVED, XXXXXX ELECTRONICS, INC., a New York corporation (the
"Company"), hereby promises to pay to the order of YA GLOBAL INVESTMENTS, L.P.
or registered assigns (the "Holder") the amount set out above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant payment of
Installment Amount(s), redemption, conversion or otherwise, the "Principal")
when due, whether upon the Maturity Date (as defined below), on any Installment
Date with respect to the Installment Amount due on such Installment Date (each,
as defined herein), acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest ("Interest") of an
Interest Installment Amount due on such Interest Installment Date on any
outstanding Principal at the applicable Interest Rate from the date set out
above as the Issuance Date (the "Issuance Date") until the same becomes due and
payable, whether upon an Interest Installment Date (as defined below), or the
Maturity Date or acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof). This Secured Convertible Debenture
(including all Secured Convertible Debentures issued in exchange, transfer or
replacement hereof, this "Debenture") is one of an issue of Secured Convertible
Debentures issued pursuant to the Securities Purchase Agreement (collectively,
the "Debentures" and such other Senior Convertible Debentures, the "Other
Debentures"). Certain capitalized terms used herein are defined in Section 17.
(1) GENERAL TERMS
(a) Payment of Principal. On each Installment Date, the Company shall pay
to the Holder an amount equal to the Installment Amount due on such Installment
Date, provided however the Company shall not be obligated to make an payment of
an Installment Amount on an Installment Date provided that i) the Underlying
Shares Registration Statement is effective, (ii) no Event of Default has
occurred, iii) for five (5) consecutive Trading Day Volume Weighted Average
Price is at or above one hundred twenty five percent (125%) of the then
effective Conversion Price and iv) the average daily trading volume of the
Company's Common Stock, as quoted by Bloomberg LP, exceeds two hundred fifty
thousand (250,000) shares.
(b) On the Maturity Date, the Company shall pay to the Holder an amount in
cash representing all outstanding Principal, accrued and unpaid Interest. The
"Maturity Date" shall be August 22, 2010, as may be extended at the option of
the Holder (i) in the event that, and for so long as, an Event of Default (as
defined below) shall have occurred and be continuing on the Maturity Date (as
may be extended pursuant to this Section 1) or (ii) any event shall have
occurred and be continuing on the Maturity Date (as may be extended pursuant to
this Section 1) that with the passage of time and the failure to cure would
result in an Event of Default. Other than as specifically permitted by this
Debenture, the Company may not prepay or redeem any portion of the outstanding
Principal without the prior written consent of the Holder.
(c) Interest. Interest shall accrue on the outstanding principal balance
hereof at an annual rate equal to twelve percent (12%) ("Interest Rate").
Interest shall be calculated on the basis of a 365-day year and the actual
number of days elapsed, to the extent permitted by applicable law. Interest
hereunder shall be paid an amount equal to the Interest Installment Amount due
on each Interest Installment Date and on the Maturity Date (or sooner as
provided herein) to the Holder or its assignee in whose name this Debenture is
registered on the records of the Company regarding registration and transfers of
Debentures at the option of the Company in cash, or, provided that the Equity
Conditions are then satisfied converted into Common Stock at the Closing Bid
Price on the Trading Day immediately prior to the date paid.
(d) Security. The Debenture is secured by (i) a security interest in all of
the assets of the Company and of each of the Company's subsidiaries as evidenced
by the security agreement of even date herewith (the "Security Agreement") and
(ii) a security interest in all of the trademarks of the Company and of each of
the Company's subsidiaries as evidenced by the trademark security agreement of
even date herewith (the "Trademark Security Agreement").
(2) EVENTS OF DEFAULT.
(a) An "Event of Default", wherever used herein, means any one of the
following events which remains uncured for a period of ten (10) business days
from the date of receipt of written notice from the Holder to cure such Event of
Default (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) the Company's failure to pay to the Holder any amount of Principal,
Interest, or other amounts when and as due under this Debenture (including,
without limitation, the Company's failure to pay any redemption payments or
amounts hereunder) or any other Transaction Document;
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(ii) The Company or any subsidiary of the Company shall commence, or there
shall be commenced against the Company or any subsidiary of the Company under
any applicable bankruptcy or insolvency laws as now or hereafter in effect or
any successor thereto, or the Company or any subsidiary of the Company commences
any other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
subsidiary of the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 61 days; or the Company or any
subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or the
Company or any subsidiary of the Company suffers any appointment of any
custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Company or any subsidiary of the Company shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;
(iii) The Company or any subsidiary of the Company shall default in any of
its obligations under any other debenture or any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced
any indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company or any subsidiary of the Company in an
amount exceeding $100,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
become due and payable;
(iv) If the Common Stock ceases to be so quoted or listed for trading and
shall not again be quoted or listed for trading on the the Nasdaq Capital Market
(the "Primary Market");
(v) The Company or any subsidiary of the Company shall be a party to any
Change of Control Transaction (as defined in Section 6) unless in connection
with such Change of Control Transaction this Debenture is retired;
(vi) The Company shall fail to file the Underlying Shares Registration
Statement with the Commission, or the Underlying Shares Registration Statement
shall not have been declared effective by the Commission, in each case within
thirty (30) days of the periods set forth in the Registration Rights Agreement
("Registration Rights Agreement") dated August 22, 2007 among the Company and
each Buyer listed on Schedule I attached thereto, or, while the Underlying
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Shares Registration Statement is required to be maintained effective pursuant to
the terms of the Investor Registration Rights Agreement, the effectiveness of
the Underlying Shares Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of all of the Holder's Registrable Securities (as defined in the
Investor Registration Rights Agreement) in accordance with the terms of the
Investor Registration Rights Agreement, and such lapse or unavailability
continues for a period of more than ten (10) consecutive Trading Days or for
more than an aggregate of twenty (20) days in any 365-day period (which need not
be consecutive);
(vii) the Company's (A) failure to cure a Conversion Failure by delivery of
the required number of shares of Common Stock within five (5) Business Days
after the applicable Conversion Failure or (B) notice, written or oral, to any
holder of the Debentures, including by way of public announcement, at any time,
of its intention not to comply with a request for conversion of any Debentures
into shares of Common Stock that is tendered in accordance with the provisions
of the Debentures, other than pursuant to Section 4(c);
(viii) The Company shall fail for any reason to deliver the payment in cash
pursuant to a Buy-In (as defined herein) within three (3) Business Days after
such payment is due;
(ix) The Company shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach or default of
any provision of this Debenture (except as may be covered by Section 2(a)(i)
through 2(a)(vii) hereof) or any Transaction Document (as defined in Section 17)
which is not cured within the time prescribed.
(x) any Event of Default (as defined in the Other Debentures) occurs with
respect to any Other Debentures.
(b) During the time that any portion of this Debenture is outstanding, if
any Event of Default has occurred, which remains uncured for a period of ten
(10) business days from the date of receipt of written notice from the Holder to
cure such Event of Default, the full unpaid Principal amount of this Debenture,
together with interest and other amounts owing in respect thereof, to the date
of acceleration shall become at the Holder's election, immediately due and
payable in cash; provided however, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Company.
Furthermore, in addition to any other remedies, the Holder shall have the right
(but not the obligation) to convert this Debenture at any time after (x) an
Event of Default which remained uncured for a period of ten (10) business days
from the date of receipt of written notice from the Holder to cure such Event of
Default or (y) the Maturity Date at the lower of the Fixed Conversion Price or
the Market Conversion Price. Following any such Event of Default the Holder need
not provide and the Company hereby waives any presentment, demand, protest or
other notice of any kind, (other than required notice of conversion) and the
Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such declaration may be rescinded and annulled by
Xxxxxx at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
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(3) COMPANY REDEMPTION.
(a) Company's Cash Redemption. The Company at its option shall have the
right to redeem ("Redemption") a portion or all amounts outstanding under this
Debenture in addition to any Installment Amount prior to the Maturity Date
provided that as of the date of the Holder's receipt of a Redemption Notice (as
defined herein) (i) the Closing Bid Price is less than the Fixed Conversion
Price, (ii) the Underlying Shares Registration Statement is effective, and (iii)
no Event of Default has occurred or is continuing. The Company shall pay an
amount equal to the principal amount being redeemed plus a redemption premium
("Redemption Premium"), if the Redemption Notice is delivered prior to the
twelve (12) month anniversary date from the date hereof, equal to fifteen
percent (15%) of the Principal amount being redeemed, and accrued Interest, if
the Redemption Notice is delivered between the thirteenth (13th) and twenty
third (23rd) month anniversary date from the date hereof, equal to seven percent
(7%) of the Principal amount being redeemed, and accrued Interest, and if the
Redemption Notice is delivered after the twenty fourth (24th) anniversary date
from the date hereof, equal to five percent (5%) of the Principal amount being
redeemed, and accrued Interest, (collectively referred to as the "Company
Redemption Amount"). The Holder acknowledges that payments of Installment
Amounts made pursuant to Section 1(a) shall not be subject to any Redemption
Premium. In order to make a redemption pursuant to this Section, the Company
shall first provide written notice to the Holder of its intention to make a
redemption (the "Redemption Notice") setting forth the amount of Principal it
desires to redeem. After receipt of the Redemption Notice the Holder shall have
three (3) Business Days to elect to convert all or any portion of this
Debenture, subject to the limitations set forth in Section 4 (d).
(4) CONVERSION OF DEBENTURE. This Debenture shall be convertible into
shares of the Company's Common Stock, on the terms and conditions set forth in
this Section 4.
(a) Conversion Right. Subject to the provisions of Section 4(c), at any
time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and nonassessable shares of Common Stock in accordance
with Section 4(b), at the Conversion Rate (as defined below). The number of
shares of Common Stock issuable upon conversion of any Conversion Amount
pursuant to this Section 4(a) shall be determined by dividing (x) such
Conversion Amount by (y) the Conversion Price (the "Conversion Rate"). The
Company shall not issue any fraction of a share of Common Stock upon any
conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
transfer, stamp and similar taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any Conversion Amount.
(i) "Conversion Amount" means the portion of the Principal to be converted,
redeemed or otherwise with respect to which this determination is being made.
(ii) "Conversion Price" means, as of any Conversion Date (as defined below)
or other date of determination, $5.60, subject to adjustment as provided herein
(the "Fixed Conversion Price"). Provided however in the event that an Event of
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Default has occurred which remained uncured for a period of ten (10) business
days from the date of receipt of written notice from the Holder to cure such
Event of Default the Conversion Price shall mean the lesser of a) the Fixed
Conversion Price then in effect or b) eighty percent (80%) of the lowest Volume
Weighted Average Price during the ten (10) Trading Days immediately preceding
the Conversion Date (the "Market Conversion Price").
(b) Forced Conversion. Provided that the Underlying Shares Registration
Statement is effective, and no Event of Default has occurred, if for a period of
twenty (20) out of twenty five (25) consecutive Trading Days i) the Volume
Weighted Average Price of the Company's Common Stock is at or above one hundred
twenty five percent (125%) of the then effective Conversion Price and ii) the
average daily trading volume of the Company's Common Stock, as quoted by
Bloomberg LP, exceeds two hundred fifty thousand (250,000) shares the Company
shall have the right to cause the Holder to convert all or a portion of then
outstanding principal hereunder, subject to Section 4(d)(i), herein pursuant to
the Sections 4(a) and (c) herein.
(c) Mechanics of Conversion.
(i) Optional Conversion. To convert any Conversion Amount into shares of
Common Stock on any date (a "Conversion Date"), the Holder shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New
York Time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit I (the "Conversion Notice") to the Company and (B) if
required by Section 4(b)(iv), surrender this Debenture to a nationally
recognized overnight delivery service for delivery to the Company (or an
indemnification undertaking reasonably satisfactory to the Company with respect
to this Debenture in the case of its loss, theft or destruction). On or before
the third Business Day following the date of receipt of a Conversion Notice (the
"Share Delivery Date"), the Company shall (X) if legends are not required to be
placed on certificates of Common Stock pursuant to the Securities Purchase
Agreement and provided that the Transfer Agent is participating in the
Depository Trust Company's ("DTC") Fast Automated Securities Transfer Program,
credit such aggregate number of shares of Common Stock to which the Holder shall
be entitled to the Holder's or its designee's balance account with DTC through
its Deposit Withdrawal Agent Commission system or (Y) if the Transfer Agent is
not participating in the DTC Fast Automated Securities Transfer Program, issue
and deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled which certificates shall
not bear any restrictive legends unless required pursuant to Section 2(g) of the
Securities Purchase Agreement. If this Debenture is physically surrendered for
conversion and the outstanding Principal of this Debenture is greater than the
Principal portion of the Conversion Amount being converted, then the Company
shall as soon as practicable and in no event later than three (3) Business Days
after receipt of this Debenture and at its own expense, issue and deliver to the
holder a new Debenture representing the outstanding Principal not converted. The
Person or Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Debenture shall be treated for all purposes as the record
holder or holders of such shares of Common Stock upon the transmission of a
Conversion Notice. In the event of a partial conversion of this Debenture
pursuant hereto, the principal amount converted shall be deducted from the
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Installment Amounts relating to the Installment Dates as set forth in the
Conversion Notice.
(ii) Company's Failure to Timely Convert. If within three (3) Trading Days
after the Company's receipt of the facsimile copy of a Conversion Notice the
Company shall fail to issue and deliver a certificate to the Holder or credit
the Holder's balance account with DTC for the number of shares of Common Stock
to which the Holder is entitled upon such xxxxxx's conversion of any Conversion
Amount (a "Conversion Failure"), and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by the Holder of Common Stock issuable upon such
conversion that the Holder anticipated receiving from the Company (a "Buy-In"),
then the Company shall, within three (3) Business Days after the Holder's
request and in the Holder's discretion, either (i) pay cash to the Holder in an
amount equal to the Holder's total purchase price (including brokerage
commissions and other out of pocket expenses, if any) for the shares of Common
Stock so purchased (the "Buy-In Price"), at which point the Company's obligation
to deliver such certificate (and to issue such Common Stock) shall terminate, or
(ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Stock and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock, times (B) the Closing Bid Price on the
Conversion Date.
(iii) Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon conversion of any portion of this Debenture in accordance with the
terms hereof, the Holder shall not be required to physically surrender this
Debenture to the Company unless (A) the full Conversion Amount represented by
this Debenture is being converted or (B) the Holder has provided the Company
with prior written notice (which notice may be included in a Conversion Notice)
requesting reissuance of this Debenture upon physical surrender of this
Debenture. The Holder and the Company shall maintain records showing the
Principal and Interest converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the Company, so as
not to require physical surrender of this Debenture upon conversion.
(d) Limitations on Conversions.
(i) Beneficial Ownership. The Company shall not effect any conversions of
this Debenture and the Holder shall not have the right to convert any portion of
this Debenture or receive shares of Common Stock as payment of interest
hereunder to the extent that after giving effect to such conversion or receipt
of such interest payment, the Holder, together with any affiliate thereof, would
beneficially own (as determined in accordance with Section 13(d) of the Exchange
Act and the rules promulgated thereunder) in excess of 4.99% of the number of
shares of Common Stock outstanding immediately after giving effect to such
conversion or receipt of shares as payment of interest. Since the Holder will
not be obligated to report to the Company the number of shares of Common Stock
it may hold at the time of a conversion hereunder, unless the conversion at
issue would result in the issuance of shares of Common Stock in excess of 4.99%
of the then outstanding shares of Common Stock without regard to any other
shares which may be beneficially owned by the Holder or an affiliate thereof,
the Holder shall have the authority and obligation to determine whether the
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restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of this Debenture is convertible shall be the responsibility
and obligation of the Holder. If the Holder has delivered a Conversion Notice
for a principal amount of this Debenture that, without regard to any other
shares that the Holder or its affiliates may beneficially own, would result in
the issuance in excess of the permitted amount hereunder, the Company shall
notify the Holder of this fact and shall honor the conversion for the maximum
principal amount permitted to be converted on such Conversion Date in accordance
with Section 4(a) and, any principal amount tendered for conversion in excess of
the permitted amount hereunder shall remain outstanding under this Debenture.
The provisions of this Section may be waived by a Holder (but only as to itself
and not to any other Holder) upon not less than 65 days prior notice to the
Company. Other Holders shall be unaffected by any such waiver.
(ii) The Total Transaction Shares shall not be greater than 199,500 shares
(which is less than 19.99% of the 998,667 outstanding shares of Common Stock as
of the date of this Debenture), until the Company's shareholders approve
(without the vote of any shares acquired in this transaction and related
transactions) the issuance of the Total Transaction Shares in excess of 19.99%
of the outstanding shares of the Company's Common Stock.
(e) Other Provisions.
(i) The Company shall at all times reserve and keep available out of its
authorized Common Stock the full number of shares of Common Stock issuable upon
conversion of all outstanding amounts under this Debenture; and within three (3)
Business Days following the receipt by the Company of a Holder's notice that
such minimum number of Underlying Shares is not so reserved, the Company shall
promptly reserve a sufficient number of shares of Common Stock to comply with
such requirement.
(ii) All calculations under this Section 4 shall be rounded to the nearest
$0.0001 or whole share.
(iii) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
forth in this Debenture or in the Transaction Documents) be issuable (taking
into account the adjustments and restrictions set forth herein) upon the
conversion of the outstanding principal amount of this Debenture and payment of
interest hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and, if the Underlying Shares Registration
Statement has been declared effective under the Securities Act, registered for
public sale in accordance with such Underlying Shares Registration Statement.
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(iv) Nothing herein shall limit a Holder's right to pursue actual damages
or declare an Event of Default pursuant to Section 2 herein for the Company 's
failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
(5) Adjustments to Conversion Price
(a) Adjustment of Conversion Price upon Issuance of Common Stock. If the
Company, at any time while this Debenture is outstanding, issues or sells, or in
accordance with this Section 5(a) is deemed to have issued or sold, any shares
of Common Stock, excluding shares of Common Stock deemed to have been issued or
sold by the Company in connection with any Excluded Securities, for a
consideration per share (the "New Issuance Price") less than a price equal to
the Conversion Price in effect immediately prior to such issue or sale (such
price the "Applicable Price") (the foregoing a "Dilutive Issuance"), then
immediately after such Dilutive Issuance the Conversion Price then in effect
shall be reduced to an amount equal to the New Issuance Price For purposes of
determining the adjusted Conversion Price under this Section 5(a), the following
shall be applicable:
(i) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of such Option is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the granting or sale of such Option for such price per share. For purposes of
this Section, the "lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of such Option"
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of Common
Stock upon granting or sale of the Option, upon exercise of the Option and upon
conversion or exchange or exercise of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such share of Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange or exercise of such
Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per share for
which one share of Common Stock is issuable upon such conversion or exchange or
exercise thereof is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share. For the purposes of this Section, the "lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange or exercise" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
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one share of Common Stock upon the issuance or sale of the Convertible Security
and upon the conversion or exchange or exercise of such Convertible Security. No
further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock upon conversion or exchange or exercise
of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment
of the Conversion Price had been or are to be made pursuant to other provisions
of this Section, no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion, exchange or exercise of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable or exercisable for Common Stock changes at any time, the Conversion
Price in effect at the time of such change shall be adjusted to the Conversion
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section, if the terms of
any Option or Convertible Security that was outstanding as of the Issuance Date
are changed in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change. No adjustment shall be made if such adjustment would
result in an increase of the Conversion Price then in effect.
(iv) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for the difference of (x) the aggregate fair market value of
such Options and other securities issued or sold in such integrated transaction,
less (y) the fair market value of the securities other than such Option, issued
or sold in such transaction and the other securities issued or sold in such
integrated transaction will be deemed to have been issued or sold for the
balance of the consideration received by the Company. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the gross amount raised by the Company; provided, however, that such gross
amount is not greater than 110% of the net amount received by the Company
therefor. If any Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Company will be the Closing Bid Price of such
securities on the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the Holder. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
10
valuation (the "Valuation Event"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser jointly selected by
the Company and the Holder. The determination of such appraiser shall be deemed
binding upon all parties absent manifest error and the fees and expenses of such
appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
(b) Adjustment of Conversion Price upon Subdivision or Combination of
Common Stock. If the Company, at any time while this Debenture is outstanding,
shall (a) pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 4 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Debenture; provided that no
such adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 5.
(d) Other Corporate Events. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "Corporate Event"), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon a
conversion of this Debenture, at the Holder's option, (i) in addition to the
shares of Common Stock receivable upon such conversion, such securities or other
assets to which the Holder would have been entitled with respect to such shares
of Common Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
11
limitations or restrictions on the convertibility of this Debenture) or (ii) in
lieu of the shares of Common Stock otherwise receivable upon such conversion,
such securities or other assets received by the holders of shares of Common
Stock in connection with the consummation of such Corporate Event in such
amounts as the Holder would have been entitled to receive had this Debenture
initially been issued with conversion rights for the form of such consideration
(as opposed to shares of Common Stock) at a conversion rate for such
consideration commensurate with the Conversion Rate. Provision made pursuant to
the preceding sentence shall be in a form and substance satisfactory to the
Required Holders. The provisions of this Section shall apply similarly and
equally to successive Corporate Events and shall be applied without regard to
any limitations on the conversion or redemption of this Debenture.
(e) Whenever the Conversion Price is adjusted pursuant to Section 5 hereof,
the Company shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(f) In case of any (1) merger or consolidation of the Company or any
subsidiary of the Company with or into another Person, or (2) sale by the
Company or any subsidiary of the Company of more than one-half of the assets of
the Company in one or a series of related transactions, a Holder shall have the
right to (A) exercise any rights under Section 2(b), (B) convert the aggregate
amount of this Debenture then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of this Debenture could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled, or (C) in the case of a merger or consolidation, require the surviving
entity to issue to the Holder a convertible Debenture with a principal amount
equal to the aggregate principal amount of this Debenture then held by such
Holder, plus all accrued and unpaid interest and other amounts owing thereon,
which such newly issued convertible Debenture shall have terms identical
(including with respect to conversion) to the terms of this Debenture, and shall
be entitled to all of the rights and privileges of the Holder of this Debenture
set forth herein and the agreements pursuant to which this Debentures were
issued. In the case of clause (C), the conversion price applicable for the newly
issued shares of convertible preferred stock or convertible Debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Conversion Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger, sale or consolidation shall include such terms so as
to continue to give the Holder the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such events.
(6) REISSUANCE OF THIS DEBENTURE.
(a) Transfer. If this Debenture is to be transferred, the Holder shall
surrender this Debenture to the Company, whereupon the Company will, subject to
the satisfaction of the transfer provisions of the Securities Purchase
Agreement, forthwith issue and deliver upon the order of the Holder a new
Debenture (in accordance with Section 5(d)), registered in the name of the
registered transferee or assignee, representing the outstanding Principal being
transferred by the Holder and, if less then the entire outstanding Principal is
being transferred, a new Debenture (in accordance with Section 5(d)) to the
Holder representing the outstanding Principal not being transferred. The Holder
and any assignee, by acceptance of this Debenture, acknowledge and agree that,
by reason of the provisions of Section 4(b)(iii) following conversion or
redemption of any portion of this Debenture, the outstanding Principal
represented by this Debenture may be less than the Principal stated on the face
of this Debenture.
(b) Lost, Stolen or Mutilated Debenture. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Debenture, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of this
Debenture, the Company shall execute and deliver to the Holder a new Debenture
(in accordance with Section 5(d)) representing the outstanding Principal.
(c) Debenture Exchangeable for Different Denominations. This Debenture is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Debenture or Debentures (in accordance with Section 5(d))
representing in the aggregate the outstanding Principal of this Debenture, and
each such new Debenture will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such surrender.
(d) Issuance of New Debentures. Whenever the Company is required to issue a
new Debenture pursuant to the terms of this Debenture, such new Debenture (i)
shall be of like tenor with this Debenture, (ii) shall represent, as indicated
on the face of such new Debenture, the Principal remaining outstanding (or in
the case of a new Debenture being issued pursuant to Section 5(a) or Section
5(c), the Principal designated by the Holder which, when added to the principal
represented by the other new Debentures issued in connection with such issuance,
does not exceed the Principal remaining outstanding under this Debenture
immediately prior to such issuance of new Debentures), (iii) shall have an
issuance date, as indicated on the face of such new Debenture, which is the same
as the Issuance Date of this Debenture, (iv) shall have the same rights and
conditions as this Debenture, and (v) shall represent accrued and unpaid
Interest from the Issuance Date.
(7) NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms hereof 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 confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) Trading 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:
12
If to the Company, to: Xxxxxx Electronics, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention:
Telephone:
Facsimile:
With a copy to: Xxxx Xxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. XxXxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Holder: YA Global Investments, L.P.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Business Days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
(8) Except as expressly provided herein, no provision of this Debenture
shall alter or impair the obligations of the Company, which are absolute and
unconditional, to pay the principal of, interest and other charges (if any) on,
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct obligation of the Company. As long as
this Debenture is outstanding, the Company shall not and shall cause their
subsidiaries not to, without the consent of the Holder, (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder; (ii) repay, repurchase or offer to
repay, repurchase or otherwise acquire shares of its Common Stock or other
equity securities other than as to the Underlying Shares to the extent permitted
13
or required under the Transaction Documents; or (iii) enter into any agreement
with respect to any of the foregoing.
(9) 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.
(10) No indebtedness of the Company is senior to this Debenture in right of
payment, whether with respect to interest, damages or upon liquidation or
dissolution or otherwise. Without the Holder's consent, the Company will not and
will not permit any of their subsidiaries to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any indebtedness of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits there from that is senior in
any respect to the obligations of the Company under this Debenture.
(11) This Debenture shall be governed by and construed in accordance with
the laws of the State of New Jersey, without giving effect to conflicts of laws
thereof. Each of the parties consents to the jurisdiction of the Superior Courts
of the State of New Jersey sitting in Xxxxxx County, New Jersey and the U.S.
District Court for the District of New Jersey sitting in Newark, New Jersey in
connection with any dispute arising under this Debenture and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens to the bringing of any such proceeding in such
jurisdictions.
(12) If the Company fails to strictly comply with the terms of this
Debenture, then the Company shall reimburse the Holder promptly for all fees,
costs and expenses, including, without limitation, attorneys' fees and expenses
incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the
Holder's rights, remedies and obligations, (ii) collecting any sums which become
due to the Holder, (iii) defending or prosecuting any proceeding or any
counterclaim to any proceeding or appeal; or (iv) the protection, preservation
or enforcement of any rights or remedies of the Holder.
(13) Any waiver by the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver must be in writing.
(14) If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
14
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
(15) Whenever any payment or other obligation hereunder shall be due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day.
(16) THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS AGREEMENT.
(17) CERTAIN DEFINITIONS For purposes of this Debenture, the following
terms shall have the following meanings:
(a) "Approved Stock Plan" means a stock option plan that has been approved
by the Board of Directors of the Company, pursuant to which the Company's
securities may be issued only to any employee, officer, or director for services
provided to the Company.
(b) "Bloomberg" means Bloomberg Financial Markets.
(c) "Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.
(d) "Change of Control Transaction" means the occurrence of (a) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of fifty percent
(50%) of the voting securities of the Company (except that the acquisition of
voting securities by the Holder or any other current holder of convertible
securities of the Company shall not constitute a Change of Control Transaction
for purposes hereof), (b) a replacement at one time or over time of more than
one-half of the members of the board of directors of the Company which is not
approved by a majority of those individuals who are members of the board of
15
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (c) the merger, consolidation or sale of fifty
percent (50%) or more of the assets of the Company or any subsidiary of the
Company in one or a series of related transactions with or into another entity,
or (d) the execution by the Company of an agreement to which the Company is a
party or by which it is bound, providing for any of the events set forth above
in (a), (b) or (c).
(e) "Closing Bid Price" means the price per share in the last reported
trade of the Common Stock on a Primary Market or on the exchange which the
Common Stock is then listed as quoted by Bloomberg.
(f) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Common Stock.
(g) "Commission" means the Securities and Exchange Commission.
(h) "Common Stock" means the common stock, par value $0.01, of the Company
and stock of any other class into which such shares may hereafter be changed or
reclassified.
(i) "Equity Conditions" means that each of the following conditions is
satisfied: (i) on each day during the period beginning two (2) weeks prior to
the applicable date of determination and ending on and including the applicable
date of determination (the "Equity Conditions Measuring Period"), either (x) the
Underlying Shares Registration Statement filed pursuant to the Registration
Rights Agreement shall be effective and available for the resale of all
applicable shares of Common Stock to be issued in connection with the event
requiring determination or (y) all applicable shares of Common Stock to be
issued in connection with the event requiring determination shall be eligible
for sale without restriction and without the need for registration under any
applicable federal or state securities laws; (ii) on each day during the Equity
Conditions Measuring Period, the Common Stock is designated for quotation on the
Principal Market and shall not have been suspended from trading on such exchange
or market nor shall delisting or suspension by such exchange or market been
threatened or pending either (A) in writing by such exchange or market or (B) by
falling below the then effective minimum listing maintenance requirements of
such exchange or market; (iii) during the Equity Conditions Measuring Period,
the Company shall have delivered Conversion Shares upon conversion of the
Debentures to the Holder on a timely basis as set forth in Section 4(b)(ii)
hereof; (iv) any applicable shares of Common Stock to be issued in connection
with the event requiring determination may be issued in full without violating
Section 4(c) hereof and the rules or regulations of the Primary Market; (v)
during the Equity Conditions Measuring Period, there shall not have occurred
either (A) an Event of Default or (B) an event that with the passage of time or
giving of notice would constitute an Event of Default; and (vii) the Company
shall have no knowledge of any fact that would cause (x) the Registration
Statements required pursuant to the Registration Rights Agreement not to be
effective and available for the resale of all applicable shares of Common Stock
to be issued in connection with the event requiring determination or (y) any
applicable shares of Common Stock to be issued in connection with the event
16
requiring determination not to be eligible for sale without restriction and
without the need for registration under any applicable federal or state
securities laws.
(j) "Equity Conditions Failure" means that on any applicable date the
Equity Conditions have not been satisfied (or waived in writing by the Holder).
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Excluded Securities" means, (a) shares issued or deemed to have been
issued by the Company pursuant to an Approved Stock Plan (b) shares of Common
Stock issued or deemed to be issued by the Company upon the conversion, exchange
or exercise of any right, option, obligation or security outstanding on the date
prior to date of the Securities Purchase Agreement, provided that the terms of
such right, option, obligation or security are not amended or otherwise modified
on or after the date of the Securities Purchase Agreement, and provided that the
conversion price, exchange price, exercise price or other purchase price is not
reduced, adjusted or otherwise modified and the number of shares of Common Stock
issued or issuable is not increased (whether by operation of, or in accordance
with, the relevant governing documents or otherwise) on or after the date of the
Securities Purchase Agreement, (c) shares issued in connection with any
acquisition by the Company, whether through an acquisition of stock or a merger
of any business, assets or technologies, leasing arrangement or any other
transaction the primary purpose of which is not to raise equity capital, and (d)
the shares of Common Stock issued or deemed to be issued by the Company upon
conversion of this Debenture.
(m) "Installment Amount" means with respect to any Installment Date,
$125,000 and $250,000 commencing on December 21, 2008 and continuing on the
first (1st) Business Day of each successive calendar month thereafter. In the
event the Holder shall sell or otherwise transfer any portion of this Debenture,
the transferee shall be allocated a pro rata portion of the each unpaid
Installment Amount hereunder.
(n) "Installment Date" means the first Business Day on or after June 21,
2008, and continuing on the first (1st) Business Day of each successive calendar
month thereafter.
(o) "Interest Installment Amount" means with respect to any Interest
Installment Date an amount equal interest accrued on the outstanding principal
balance hereof at an annual rate equal to Interest Rate. Interest shall be
calculated on the basis of a 365-day year and the actual number of days elapsed,
to the extent permitted by applicable law. In the event the Holder shall sell or
otherwise transfer any portion of this Debenture, the transferee shall be
allocated a pro rata portion of the each unpaid Interest Installment Amount
hereunder.
(p) "Interest Installment Date" means the first Business Day of the end of
each calendar quarter and continuing on the first (1st) Business Day of each
successive calendar quarter thereafter.
17
(q) "Options" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(r) "Original Issue Date" means the date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.
(s) "Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
(t) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
(u) "Securities Purchase Agreement" means the Securities Purchase Agreement
dated August 22, 2007 by and among the Company and the Buyers listed on Schedule
I attached thereto.
(v) "Total Transaction Shares" shall mean, in the aggregate, any shares of
Common Stock issued under this Debenture and all related transactions,
including, (a) this Debenture to the Holder, or its affiliates, and transferees,
subsequent transferees, or any other debentures issued or to be issued to the
Holder and/or any other party pursuant to the Securities Purchase Agreement, (b)
the Warrant Shares (as defined in the Securities Purchase Agreement), and (c)
any shares of Common Stock issued as Liquidated Damages (as defined in the
Registration Rights Agreement).
(w) "Trading Day" means a day on which the shares of Common Stock are
quoted on the OTCBB or quoted or traded on such Primary Market on which the
shares of Common Stock are then quoted or listed; provided, that in the event
that the shares of Common Stock are not listed or quoted, then Trading Day shall
mean a Business Day.
(x) "Transaction Documents" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Security Agreement, the Irrevocable Transfer
Agent Instructions, and the Registration Rights Agreement.
(y) "Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
(z) "Underlying Shares Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
(aa) "Volume Weighted Average Price" means, for any security as of any
date, the daily dollar volume-weighted average price for such security on the
Primary Market as reported by Bloomberg through its "Historical Prices - Px
Table with Average Daily Volume" functions, or, if no dollar volume-weighted
18
average price is reported for such security by Bloomberg, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the "pink sheets" by Pink Sheets LLC.
(bb) "Warrants" has the meaning ascribed to such term in the Securities
Purchase Agreement, and shall include all warrants issued in exchange therefor
or replacement thereof.
[Signature Page Follows]
19
IN WITNESS WHEREOF, the Company has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
COMPANY:
XXXXXX ELECTRONICS, INC.
By: /s/ Xxxxxxx Xxxxx
----------------------------------
Name: Xxxxxxx Xxxxx
Title: Chief Executive Officer
EXHIBIT I
CONVERSION NOTICE
-----------------
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $----------- of the
principal amount of Debenture No.ABCD-1-___ into Shares of Common Stock of
XXXXXX ELECTRONICS, INC., according to the conditions stated therein, as of the
Conversion Date written below.
Conversion Date: --------------------------------
Conversion Amount to be converted: $-------------------------------
Conversion Price: $-------------------------------
Number of shares of Common Stock to be
issued: --------------------------------
Amount of Debenture Unconverted: $-------------------------------
Please issue the shares of Common Stock in the following name and to the
following address: Issue to:
Authorized Signature: ---------------------------------
Name: ---------------------------------
Title: ---------------------------------
Broker DTC Participant Code:
Account Number:
