NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF THE SENIOR INDEBTEDNESS (AS DEFINED IN THE SUBORDINATION
AGREEMENT HEREINAFTER REFERRED TO) PURSUANT TO, AND TO THE EXTENT PROVIDED IN,
THE SUBORDINATION AGREEMENT EFFECTIVE AS OF SEPTEMBER 8, 2000, BY THE MAKER
HEREOF AND XXXXX NAMED HEREIN IN FAVOR OF LENDER OR THE HOLDER OF SENIOR
INDEBTEDNESS REFERRED TO IN SUCH SUBORDINATION AGREEMENT.
No. [ ] $[ ]
TIDEL TECHNOLOGIES, INC.
6% CONVERTIBLE DEBENTURE
DUE SEPTEMBER 8, 2004
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of Tidel Technologies, Inc., a Delaware corporation, having a
principal place of business at 0000 Xxx Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000
(the "Company"), designated as its 6% Convertible Debentures, due September 8,
2004, in the aggregate principal amount of Twenty Million Dollars ($20,000,000)
(the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to Montrose
Investments Ltd. or its registered assigns (the "Holder"), the principal sum of
[ ] ($), on September 8, 2004 or such earlier date as the Debentures are
required or permitted to be repaid as provided hereunder (the "Maturity Date")
and to pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 6% per annum,
payable on a quarterly basis on March 31, June 30, September 30 and December 31
of each year while such Debentures are outstanding, commencing on the earlier to
occur of a Conversion Date (as defined herein) for such principal amount and
December 31, 2000 (each an "Interest Payment Date"), in cash or shares of Common
Stock (as defined in Section 6). Subject to the terms and conditions herein, the
decision
whether to pay interest hereunder in shares of Common Stock or cash shall be at
the discretion of the Company. Not less than five Trading Days (as defined in
Section 6) prior to each Interest Payment Date, the Company shall provide the
Holder with written notice of its election to pay interest hereunder in cash or
in shares of Common Stock pursuant to the terms of Section 4(a)(i) (the Company
may indicate in such notice that the election contained in such notice shall
continue for later periods until revised). Failure to timely provide such
written notice shall be deemed an election by the Company to pay the interest on
such Interest Payment Date in shares of Common Stock pursuant to the terms of
Section 4(a)(i). If interest is paid by the Company in shares of its Common
Stock, then the number of shares of Common Stock issuable on account of such
interest shall equal the cash amount of such interest on such Interest Payment
Date divided by the Conversion Price (as defined below) on such date. Interest
shall be calculated on the basis on a 360-day year and shall accrue daily
commencing on the Original Issue Date (as defined in Section 6) until payment in
full of the principal sum, together with all accrued and unpaid interest and
other amounts which may become due hereunder, has been made. Interest hereunder
will be paid to the Person (as defined in Section 6) in whose name this
Debenture is registered on the records of the Company regarding registration and
transfers of Debentures (the "Debenture Register"). All overdue accrued and
unpaid interest to be paid in cash hereunder shall entail a late fee at the rate
of 15% per annum (or such lower maximum amount of interest permitted to be
charged under applicable law) ("Late Fee") (to accrue daily, from the date such
interest is due hereunder through and including the date of payment), payable in
cash. If such Late Fee is paid by the Company in shares of its Common Stock,
then the number of shares of Common Stock issuable on account of such Late Fee
shall equal the cash amount of such Late Fee on such Late Fee payment date
divided by the Conversion Price on such date.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the Person (as defined in Section 6) in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 3. Events of Default.
(a) "Event of Default", wherever used in Sections 3 or 4, means
any one of the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of the principal of,
interest on or liquidated damages in respect of, any Debentures, free
of any claim of subordination, as and when the same shall become due
and payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) or, in the case of interest on any
Debentures, within 3 days of the applicable Interest Payment Date;
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of any of the Transaction Documents (as defined in Section 6),
and such failure or breach shall not have been remedied within five
days after the date on which notice of such failure or breach shall
have been given;
(iii) the Company or any of its subsidiaries shall
commence, or there shall be commenced against the Company or any such
subsidiary a case under any applicable bankruptcy or insolvency laws
as now or hereafter in effect or any successor thereto, or the Company
commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any subsidiary thereof
or there is commenced against the Company or any subsidiary thereof
any such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 60 days; or the Company or any subsidiary
thereof is adjudicated insolvent or bankrupt; or any order of relief
or other order approving any such case or proceeding is entered; or
the Company or any subsidiary thereof suffers any appointment of any
custodian or the like for it or any substantial part of its property
which continues undischarged or unstayed for a period of 60 days; or
the Company or any subsidiary thereof makes a general assignment for
the benefit of creditors; or the Company shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or the Company
or any subsidiary thereof shall by any act or failure to act expressly
indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company or
any subsidiary thereof for the purpose of effecting any of the
foregoing;
(iv) the Company shall default in any of its obligations
under any other Debenture or any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument
under which there may be
issued, or by which there may be secured or evidenced any indebtedness
for borrowed money or money due under any long term leasing or
factoring arrangement of the Company in an amount exceeding $750,000,
whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise
become due and payable;
(v) the Common Stock shall fail to be quoted for trading on
the Nasdaq National Market ("NASDAQ") or listed for trading on the New
York Stock Exchange, American Stock Exchange or the Nasdaq SmallCap
Market (each, a "Subsequent Market") for three (3) consecutive Trading
Days or an aggregate of ten (10) Trading Days (which need not be
consecutive Trading Days);
(vi) the Company shall be a party to any Change of Control
Transaction (as defined in Section 6), shall agree to sell or dispose
all or in excess of 50% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction), or shall redeem or repurchase more than a de minimis
number of shares of Common Stock or other equity securities of the
Company (other than redemptions of Underlying Shares (as defined in
Section 6));
(vii) an Underlying Shares Registration Statement (as
defined in Section 6) shall not have been declared effective by the
Commission (as defined in Section 6) on or prior to the 150th day
after the Original Issue Date;
(viii) if, during the Effectiveness Period (as defined in
the Registration Rights Agreement (as defined in Section 6)), the
effectiveness of the Underlying Shares Registration Statement lapses
for any reason or the Holder shall not be permitted to resell
Registrable Securities (as defined in the Registration Rights
Agreement) under the Underlying Shares Registration Statement, in
either case, for more than five consecutive Trading Days or an
aggregate of fifteen Trading Days (which need not be consecutive
Trading Days);
(ix) an Event (as defined in the Registration Rights
Agreement) shall not have been cured to the satisfaction of the Holder
prior to the expiration of thirty days from the Event Date (as defined
in the Registration Rights Agreement) relating thereto (other than an
Event resulting from a failure of an Underlying Shares Registration
Statement to be declared effective by the Commission on or prior to
the 180th day after the Original Issue Date, which shall be covered by
Section 3(a)(vii));
(x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the fifth Trading Day after a
Conversion Date pursuant to and in accordance with Section 4(b) or the
Company shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with
requests for conversions of any Debentures in accordance with the
terms hereof;
(xi) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within five
days after notice is deemed delivered hereunder.
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become at the
Holder's election, immediately due and payable in cash, provided, that if the
Company fails to pay the amounts due as a result of an Event of Default by the
seventh Trading Day following the declaration of an Event of Default in cash,
the Holder may request payment of such amounts in stock, determined by reference
to the Conversion Price then in effect. The number of shares of Common Stock
issuable in payment thereof shall be determined by dividing the aggregate amount
due to the Holder by the Conversion Price. The aggregate amount payable upon an
Event of Default shall be equal to the sum of (i) the Mandatory Prepayment
Amount (as defined in Section 6) plus (ii) the product of (A) the number of
Underlying Shares issued in respect of conversions hereunder within thirty days
of the date of a declaration of an Event of Default and then held by the Holder
and (B) the Closing Price (as defined in Section 6) on the date prepayment is
due or the date the full prepayment price is paid, whichever is greater.
Interest shall accrue on the prepayment amount hereunder from the seventh day
after such amount is due (being the date of an Event of Default) through the
date of prepayment in full thereof at the rate of 15% per annum (or such lesser
maximum amount that is permitted to be paid by applicable law), to accrue daily
from the date such payment is due hereunder through and including the date of
payment. All Debentures and Underlying Shares for which the full prepayment
price hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. The Holder need not provide and
the Company hereby waives any presentment, demand, protest or other notice of
any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be rescinded
and annulled by Xxxxxx at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
Section 4. Conversion.
(a) (i) Conversion at Option of Holder. This Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time, after the Original Issue Date
(subject to the limitations on conversion set forth in Section 4(a)(iv) hereof).
The Holder shall effect conversions at its option by delivering to the Company
of the form of conversion notice attached hereto as Exhibit A (a "Holder
Conversion Notice"), specifying therein the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Holder Conversion Notice is deemed to have
been delivered hereunder (a "Holder Conversion Date") and shall contain a
schedule in the form of Schedule 1 to the Holder Conversion Notice (as amended
on
each Holder Conversion Date, the "Conversion Schedule") reflecting the remaining
principal amount of this Debenture and all accrued and unpaid interest thereon
subsequent to the conversion at issue. If no Holder Conversion Date is specified
in a Holder Conversion Notice, the Holder Conversion Date shall be the date that
such Holder Conversion Notice is deemed delivered hereunder. Notwithstanding
anything herein to the contrary, a Holder Conversion Notice shall be revocable
by a Holder at any time prior to the receipt by such Holder of a certificate
representing the Underlying Shares issuable in connection with such Holder
Conversion Notice. To effect conversions hereunder (including conversion
pursuant to a Company Conversion Notice), the Holder shall not be required to
physically surrender this Debenture to the Company unless the aggregate
principal amount of this Debenture is so converted. Conversions hereunder shall
have the effect of lowering the outstanding principal amount of this Debenture
plus all accrued and unpaid interest thereon in an amount equal to the
applicable conversion, which shall be evidenced by entries set forth in the
Conversion Schedule. The Holder and the Company shall maintain records showing
the principal amount converted and the date of such conversions. In the event of
any dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any assignee, by
acceptance of this Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this Debenture may be
less than the amount stated on the face hereof.
(ii) Conversion At Option of the Company. Subject to the
conditions of this section, the Company may require conversions of all or a
portion of the then outstanding principal amount of the Debentures if (i) the
Per Share Market Value exceeds 150% of the then applicable Conversion Price for
20 Trading Days (which need not be consecutive Trading Days) in a period of 30
consecutive Trading Days at any time after the date on which an Underlying
Shares Registration Statement shall have first been declared effective by the
Securities and Exchange Commission (the "Effective Date"), (ii) the Underlying
Shares Registration Statement shall have been effective and the prospectus
thereunder available to the Holders for the resale of all Underlying Shares
issuable upon such conversion during the entire 30 Trading Day period and on the
Company Conversion Date (as defined below) or the Underlying Shares may be sold
by the Holder subject to such conversion without volume limitation under Rule
144(k) promulgated under the Securities Act, (iii) the Company has available
sufficient unreserved and available shares of Common Stock to fulfill its share
delivery requirements upon such conversion, (iv) the Common Stock is listed or
quoted for trading on the NASDAQ or a Subsequent Market during the entire thirty
Trading Day calculation period described above in this subsection, and (v) such
conversion would not result in a violation of Section 4(a)(iv). The Company
shall exercise its right to require conversions under Section 4(a)(ii) by
delivering to the Holder a completed conversion notice in the form attached as
Exhibit B (a "Company Conversion Notice"). Each of a Company Conversion Notice
and a Holder Conversion Notice are sometimes referred to herein as a Conversion
Notice. Each Company Conversion Notice shall specify the principal amount of
Debentures to be converted. The date such Company Conversion Notice is deemed to
have been delivered hereunder (a "Company Conversion Date"). Each of a Company
Conversion Date and a Holder Conversion Date are referred to herein as a
"Conversion Date." Subject to the Holder's rights under Section 4(b), the
conversion subject to
each Company Conversion Notice, once given, shall be irrevocable. Conversions at
the request of the Company shall be reflected in the Conversion Schedule.
(iii) Number of Underlying Shares Issuable Upon Conversion. The
number of shares of Common Stock issuable upon a conversion hereunder shall be
determined by adding the sum of (i) the quotient obtained by dividing (x) the
outstanding principal amount of this Debenture to be converted by (y) the
Conversion Price (as defined herein), and (ii) the amount equal to (I) the
product of (x) the outstanding principal amount of this Debenture to be
converted and (y) the product of (1) the quotient obtained by dividing .06 by
360 and (2) the number of days for which such principal amount was outstanding,
divided by (II) the Conversion Price on the Conversion Date, provided, that if
the Company shall have elected to deliver the interest due on an Interest
Payment Date in cash pursuant to the terms hereof, subsection (ii) shall not be
used in the calculation of the number of shares of Common Stock issuable upon a
conversion hereunder.
(iv) Certain Conversion Restrictions.
(A) A Holder may not convert Debentures or receive shares of
Common Stock as payment of interest hereunder to the extent such conversion or
receipt of such interest payment would result in the Holder, together with any
affiliate thereof, beneficially owning (as determined in accordance with Section
13(d) of the Exchange Act and the rules promulgated thereunder) in excess of
4.999% of the then issued and outstanding shares of Common Stock, including
shares issuable upon conversion of, and payment of interest on, the Debentures
held by such Holder after application of this Section. Since the Holder will not
be obligated to report to the Company the number of shares of Common Stock it
may hold at the time of a conversion hereunder, unless the conversion at issue
would result in the issuance of shares of Common Stock in excess of 4.999% of
the then outstanding shares of Common Stock without regard to any other shares
which may be beneficially owned by the Holder or an affiliate thereof, the
Holder shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of Debentures are convertible shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Conversion Notice for a
principal amount of Debentures that, without regard to any other shares that the
Holder or its affiliates may beneficially own, would result in the issuance in
excess of the permitted amount hereunder, the Company shall notify the Holder of
this fact and shall honor the conversion for the maximum principal amount
permitted to be converted on such Conversion Date in accordance with the periods
described in Section 4(b) and, at the option of the Holder, either retain any
principal amount tendered for conversion in excess of the permitted amount
hereunder for future conversions or return such excess principal amount to the
Holder. The provisions of this Section may be waived by a Holder (but only as to
itself and not to any other Holder) upon not less than 61 days prior notice to
the Company. Other Holders shall be unaffected by any such waiver.
(B) A Holder may not convert Debentures or receive shares of
Common Stock as payment of interest hereunder to the extent such conversion or
receipt of such
interest payment would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of
the then issued and outstanding shares of Common Stock, including shares
issuable upon conversion of, and payment of interest on, the Debentures held by
such Holder after application of this Section. Since the Holder will not be
obligated to report to the Company the number of shares of Common Stock it may
hold at the time of a conversion hereunder, unless the conversion at issue would
result in the issuance of shares of Common Stock in excess of 9.999% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of
Debentures are convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a principal amount
of Debentures that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date in accordance with the periods described in
Section 4(b) and, at the option of the Holder, either retain any principal
amount tendered for conversion in excess of the permitted amount hereunder for
future conversions or return such excess principal amount to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.
(C) If the Common Stock is then listed for trading on the
NASDAQ or the Nasdaq SmallCap Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company may not issue in
excess of 3,456,209 shares of Common Stock (which equals 19.999% of the number
of shares of Common Stock outstanding on the Trading Day immediately preceding
the Original Issue Date) upon conversions of the Debenture at a price per share
that is less than the Closing Price on the Trading Day immediately preceding the
Original Issue Date (such number of shares, the "Issuable Maximum"). Each Holder
shall be entitled to a portion of the Issuable Maximum equal to the quotient
obtained by dividing (x) the aggregate principal amount of the Debentures issued
and sold to such Holder on the Original Issue Date by (y) the number of the
Debenture issued and sold by the Company on the Original Issue Date. If any
Holder shall no longer hold the Debenture, then such Xxxxxx's remaining portion
of the Issuable Maximum shall be allocated pro-rata among the remaining Holders.
If on any Conversion Date (A) the shares of Common Stock are listed for trading
on the NASDAQ or Nasdaq SmallCap Market, (B) the Conversion Price then in effect
is such that the aggregate number of shares of Common Stock that would then be
issuable upon conversion in full of all then outstanding Debentures, together
with any shares of Common Stock previously issued upon conversion of the
Debenture would exceed the Issuable Maximum, and (C) the Company shall not have
previously obtained the vote of shareholders (the "Shareholder Approval"), if
any, as may be required by the applicable rules and regulations of the NASDAQ
(or any successor entity) applicable to approve the issuance of shares of Common
Stock in excess of the Issuable Maximum pursuant to the terms hereof, then the
Company shall issue to the Holder requesting a conversion a number of shares of
Common Stock equal to such Holder's pro-rata portion (which shall be calculated
pursuant to the terms hereof) of the Issuable Maximum and, with respect to the
remainder of the aggregate principal amount of the Debentures then held by such
Holder for which a conversion in accordance with the Conversion Price would
result in an issuance of shares of Common Stock in excess of such Holder's
pro-rata portion (which shall be calculated pursuant to the terms hereof) of the
Issuable Maximum (the "Excess Principal"), the converting Holder shall have the
option to require the Company to either: (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but in
any event not later than the 60th day after such request, or (2) pay cash to the
converting Holder in an amount equal to the Excess Principal as liquidated
damages and not as penalty. If the converting Holder shall have elected the
first option pursuant to the immediately preceding sentence and the Company
shall have failed to obtain the Shareholder Approval on or prior to the 60th day
after such request, then within three days of such 60th day, the Company shall
pay cash to the converting Holder an amount equal to the Excess Principal as
liquidated damages and not as penalty. If the Company fails to pay the Excess
Principal in full pursuant to this Section within seven days after the date
payable, the Company will pay interest thereon at a rate of 15% per annum or
such lesser maximum amount that is permitted to be paid by applicable law, to
the converting Holder, accruing daily from the Conversion Date until such
amount, plus all such interest thereon, is paid in full. The Company and the
Holder understand and agree that shares of Common Stock issued to and then held
by the Holder as a result of conversions of Debentures shall not be entitled to
cast votes on any resolution to obtain Shareholder Approval pursuant hereto.
(b) (i) Not later than three Trading Days after any Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of Debentures, and
(ii) a bank check in the amount of accrued and unpaid interest (if the Company
has timely elected or is required to pay accrued interest in cash), provided,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon conversion of the principal amount of
Debentures until Debentures are delivered for conversion to the Company, or the
Holder notifies the Company that such Debentures have been lost, stolen or
destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the Holder, if
available, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any Conversion
Notice such certificate or certificates are not delivered to or as directed by
the applicable Holder by the fifth Trading Day after a Conversion Date, the
Holder shall be entitled by written notice to the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return the
certificates representing the principal amount of Debentures tendered for
conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) by the fifth Trading Day
after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $5,000 for each Trading Day after such
fifth Trading Day until such certificates are delivered. Nothing herein shall
limit a Xxxxxx's right to pursue actual damages or declare an Event of Default
pursuant to Section 3 herein for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Debentures or as payment of
interest thereon by the fifth Trading Day after the Conversion Date, the Holder
may, by notice to the Company, require the Company to issue shares of Common
Stock pursuant to Section 4(c), except that for such purpose the Conversion
Price applicable thereto shall be the lesser of the Conversion Price on the
Conversion Date and the Conversion Price on the date of such Holder demand. Any
such shares will be subject to the provision of this Section.
(iii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 4(b)(i) by the fifth Trading Day after the Conversion Date,
and if after such fifth Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Underlying Shares which the Holder anticipated receiving upon
such conversion (a "Buy-In"), then the Company shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Common Stock so purchased exceeds (y) the product
of (1) the aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue Debentures in
principal amount equal to the principal amount of the attempted conversion or
deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its delivery requirements under
Section 4(b)(i). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with respect to which the market price of the
Underlying Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages under
Section 4(b)(ii) in respect of the certificates resulting in such Buy-In.
(c) (i) The conversion price (the "Conversion Price") in effect on
any Conversion Date shall be $9.50 (subject to adjustment pursuant to the terms
hereof).
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Conversion Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at such Per Share Market Value. Such adjustment shall be
made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of any
such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant to
this Section, if any such right, option or warrant shall expire and shall not
have been exercised, the Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number of shares of the
Common Stock actually purchased upon the exercise of such rights, options or
warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable
with respect to Common Stock Equivalents (as defined below), at any time while
any principal amount
is outstanding under the Debentures, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that is convertible into
or exchangeable for shares of Common Stock ("Common Stock Equivalents")
entitling any Person to acquire shares of Common Stock, at a price per share
less than the Conversion Price (if the holder of the Common Stock or Common
Stock Equivalent so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights issued in connection
with such issuance, be entitled to receive shares of Common Stock at a price
less than the Conversion Price, such issuance shall be deemed to have occurred
for less than the Conversion Price), then, at the option of the Holder, the
Conversion Price shall be replaced with the conversion, exchange or purchase
price for such Common Stock or Common Stock Equivalents (including any reset
provisions thereof) for all subsequent conversions of principal amount under the
Debentures or such conversions. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. The Company shall notify
the Holder in writing, no later than the Trading Day following the issuance of
any Common Stock or Common Stock Equivalent subject to this section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms. Notwithstanding the foregoing,
the following shall not be deemed to be Common Stock Equivalents: (i) issuances
pursuant to a grant or exercise of stock, warrants or options which may
hereafter be granted or exercised under any employee or director benefit plan or
compensation program of the Company now existing or to be implemented in the
future and (ii) shares of Common Stock, for an aggregate market price of up to
$2,000,000, issued as payment of the purchase price in connection with a
Strategic Transaction. For purposes of this Section, a "Strategic Transaction"
shall mean a transaction or relationship in which the Company issues shares of
Common Stock to an entity which is, itself or through its subsidiaries, an
operating company in a business related to the business of the Company and in
which the Company receives material benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital.
(v) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price at which Debentures shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Per Share Market Value
determined as of the record date mentioned above, and of which the numerator
shall be such Per Share Market Value on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holders shall have the right thereafter
to, at their option, (A) convert the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange, and the Holders of the
Debentures shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Company
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled or (B) require the Company to prepay
the aggregate of its outstanding principal amount of Debentures, plus all
interest and other amounts due and payable thereon pursuant to the terms hereof.
The entire prepayment price shall be paid in cash. This provision shall
similarly apply to successive reclassifications or share exchanges.
(vii) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. No
adjustments in the Conversion Price shall be required if such adjustment is less
than $0.01, provided, that any adjustments which by reason of this Section are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment.
(viii) Whenever the Conversion Price is adjusted pursuant to any
of Section 4(c)(ii) - (v), the Company shall promptly mail to each Holder a
notice setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(ix) If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Debentures, and shall
cause to be mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange, provided, that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice. Holders are
entitled to convert Debentures during the 20-day period commencing the date of
such notice to the effective date of the event triggering such notice.
(x) In case of any (1) merger or consolidation of the Company
with or into another Person, or (2) sale by the Company of more than one-half of
the assets of the Company (on an as valued basis) in one or a series of related
transactions, a Holder shall have the right to (A) if permitted under Section
3(b) hereof, exercise its rights of prepayment under Section 3(b) with respect
to such event, (B) convert its aggregate principal amount of Debentures then
outstanding into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and such Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and
property as the shares of Common Stock into which such aggregate principal
amount of Debentures could have been converted immediately prior to such merger,
consolidation or sales would have been entitled, or (C) in the case of a merger
or consolidation, (x) require the surviving entity to issue convertible
debentures in an aggregate principal amount equal to the aggregate principal
amount of Debentures then held by such Holder, plus all accrued and unpaid
interest and other amounts owing thereon, which newly issued convertible
debentures 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 a Holder of Debentures set forth herein and the agreements
pursuant to which the Debentures were issued (including, without limitation, as
such rights relate to the acquisition, transferability, registration and listing
of such shares of stock other securities issuable upon conversion thereof), and
(y) simultaneously with the issuance of such convertible debentures, shall have
the right to convert such instrument only into shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger or consolidation. In the case of clause (C),
the conversion price applicable for the newly issued convertible debentures
shall be based upon the amount of securities, cash and property that each share
of Common Stock would receive in such transaction and the Conversion Price in
effect immediately prior to the effectiveness or closing date for such
transaction. The terms of any such merger, sale or consolidation shall include
such terms so as to continue to give the Holders the right to receive the
securities, cash and property set forth in this Section upon any conversion or
redemption following such event. This provision shall similarly apply to
successive such events.
(d) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share
Market Value at such time. If the Company elects not, or is unable, to make such
a cash payment, the Holder shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(e) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(f) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the Company, at 0000 Xxx Xxxxxx,
Xxxxx 000, Xxxxxxx, Xxxxx 00000, Facsimile No.: (000) 000-0000, attention Chief
Financial Officer, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holders delivered in accordance with
this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to each Holder at
the facsimile telephone number or address of such Holder appearing on the books
of the Company, or if no such facsimile telephone number or address appears, at
the principal place of business of the Holder. Any notice or other communication
or deliveries hereunder shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
6:00 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 6:00 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) four days after deposit in the United States mail, (iv) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (v) upon actual receipt by the party to whom such notice is
required to be given.
Section 5. Put Option. On each of the 270th day and 540th day following
the Original Issue Date (each such date, a "Put Date" and the 60th day following
a Put Date, a "Put Payment Date"), the Holders shall have the right, at their
sole discretion (the "Put Right"), to require the Company to prepay all or a
portion of the then outstanding principal amount and interest under the
Debentures by delivering to the Company a written notice (a "Put Notice"),
specifying therein the outstanding principal amount and interest subject to the
Put Right. Subject to the right to deliver shares of Common Stock as described
in the immediately following sentence, not later than the Put
Payment Date, the Company will pay and deliver to the Holder exercising its Put
Right, free of any claim of subordination, an amount of cash (in immediately
available funds) equal to the sum of: (i) the principal amount of Debentures to
be prepaid, plus all accrued and unpaid interest thereon (each as indicated in
the Put Notice), and (ii) all other amounts, costs, expenses and liquidated
damages then owing in respect of such principal amount (the "Put Price"). The
Company may deliver a written notice to the Holders no later than 20 Trading
Days prior to the applicable Put Date (a "Company Notice"), indicating therein
its intention not to pay in excess of a maximum dollar amount in cash as part of
any subsequent Put Price (the "Maximum Cash Amount"), in which case, in response
to a Put Notice, the Company shall: (i) pay to the Holder the Maximum Cash
Amount no later than the Put Payment Date and (ii) deliver to the Holder not
later than the third Trading Day following the applicable Put Date a number of
shares of Common Stock equal to the quotient obtained by dividing (A) the
difference between the Put Price and the Maximum Cash Amount by (B) the average
of the Per Share Market Values for the five Trading Days preceding the Put Date.
The Company's obligations to deliver shares of Common Stock pursuant to this
Section 5 shall be subject to the provisions of Section 4(b)(ii) and (iii)
hereof. If the Company shall fail to timely deliver a Company Notice to the
Holders, the Company will be required to pay the entire Put Price in cash. If
any portion of the cash portion of the Put Price shall not be paid on or prior
to the Put Payment Date, then, notwithstanding anything herein to the contrary,
the Holder shall have the right, no later than 20 Trading Days following the Put
Payment Date, to either (i) rescind the Put Notice or (ii) convert all or a
portion of the principal amount and interest under the Debentures previously
subject to the Put Right at a conversion price equal to the lower of (A) the
Conversion Price and (B) the average of the Per Share Market Values during the
ten Trading Days immediately preceding either the Put Payment Date or the date
the Holder rescinds the Put Notice, whichever is lower.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on which
banking institutions in the State of New York or Texas are authorized or
required by law or other government action to close.
"Change of Control Transaction" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 40% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity that is not wholly-owned by the Company, consolidation or sale of
50% or more of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"Closing Price" means on any particular date (a) the closing
sales price per share of Common Stock on such date on the Subsequent Market on
which the shares of Common Stock are then listed or quoted, or if there is no
such price on such date, then the closing sales price on the Subsequent Market
on the date nearest preceding such date, or (b) if the shares of Common Stock
are not then listed or quoted on a Subsequent Market, the closing sales price
for a share of Common Stock in the NASDAQ, as reported by the National Quotation
Bureau Incorporated or similar organization or agency succeeding to its
functions of reporting prices) at the close of business on such date, or (c) if
the shares of Common Stock are not then reported by the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices), then the average of the "Pink Sheet" quotes for
the relevant conversion period, as determined in good faith by the Holder, or
(d) if the shares of Common Stock are not then publicly traded the fair market
value of a share of Common Stock as determined by an Appraiser selected in good
faith by the Holders of a majority in interest of the principal amount of
Debentures then outstanding.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $.01 par value per share,
of the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Mandatory Prepayment Amount" for any Debentures shall equal the
sum of (i) the greater of (A) 100% of the principal amount of Debentures to be
prepaid, plus all accrued and unpaid interest thereon, and (B) the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Closing
Price on (x) the date the Mandatory Prepayment Amount is demanded or otherwise
due or (y) the date the Mandatory Prepayment Amount is paid in full, whichever
is greater, and (ii) all other amounts, costs, expenses and liquidated damages
due in respect of such Debentures.
"Original Issue Date" shall mean the date of the first issuance
of the Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence such
Debenture.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the shares of Common Stock are then listed or
quoted, or if there is no such price on such date, then the closing bid price on
the NASDAQ or on such Subsequent Market on the date nearest preceding such
date, or (b) if the shares of Common Stock are not then listed or quoted on the
NASDAQ or a Subsequent Market, the closing bid price for a share of Common Stock
in the over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the shares of
Common Stock are not then reported by the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the shares of
Common Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the Holders
of a majority in interest of the principal amount of Notes then outstanding.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Day" means (a) a day on which the shares of Common
Stock are traded on the NASDAQ or on such Subsequent Market on which the shares
of Common Stock are then listed or quoted, or (b) if the shares of Common Stock
are not listed on the NASDAQ or a Subsequent Market, a day on which the shares
of Common Stock are traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (c) if the shares of Common Stock are not quoted on the
OTC Bulletin Board, a day on which the shares of Common Stock are quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, that in the event that the shares of Common Stock
are not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading
Day shall mean any day except a Business Day.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"Underlying Shares Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 7. Notwithstanding anything herein to the contrary, upon the
occurrence of an Event of Default under the loan documents with The Chase
Manhattan Bank or any other holder of a majority of the principal amount of
indebtedness of the Company or if the Company shall not be permitted to make a
cash payment hereunder (including, but not limited to, liquidated damages and
mandatory prepayment of principal and interest hereunder) due to a written
notice delivered to the Company by The Chase Manhattan Bank precluding the
Company from making a cash payment then, at the option of each Holder, with
respect to each such cash payment: (i) as of the date due pursuant to the terms
hereof, such cash payment shall be added to the principal amount outstanding
under the Debentures held by it or (ii) the Company shall, no later than the
third day following the date such cash payment is due pursuant to the terms
hereof, deliver to such Holder a number of shares of Common Stock equal to the
quotient obtained by dividing (A) the amount of such cash payment by (B) the
average of the Per Share Market Values for the five Trading Days preceding the
date such cash payment is due pursuant to the terms hereof. The Company's
obligations to deliver shares of Common Stock pursuant to subsection (ii) of the
immediately preceding sentence shall be subject to the provisions of Section
4(b)(ii) and (iii) hereof.
Section 8. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as there are
Debentures outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holders holding no less than 2/3 of the
outstanding principal amount outstanding under the Debentures, (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holders; (ii) repay, repurchase or offer to
repay, repurchase or otherwise acquire shares of its Common Stock or other
equity securities other than as to the Underlying Shares to the extent permitted
or required under the Transaction Documents; or (iii) enter into any agreement
with respect to any of the foregoing.
Section 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.
Section 10. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 11. Except as set forth in Schedule 2.1(p) to the Purchase
Agreement, no indebtedness of the Company is senior to this Debenture in right
of payment, whether with respect to interest, damages or upon liquidation or
dissolution or otherwise. The Company will not and will not permit any of its
subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any indebtedness of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom that is senior in any respect to the Company's
obligations under the Debentures.
Section 12. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
Section 13. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
Section 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
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 the Debentures 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.
Section 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.
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SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.
TIDEL TECHNOLOGIES, INC.
By:______________________________________
Name:
Title:
EXHIBIT A
NOTICE OF HOLDER CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $.01 par value per share (the "Common Stock"), of Tidel
Technologies, Inc. (the "Company") according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations: ______________________________________________
Date to Effect Conversion
______________________________________________
Principal Amount of Debentures to be Converted
______________________________________________
Number of shares of Common Stock to be Issued
Payment of Interest in Kind / / Yes / / No
If yes, $ _______ of Interest Accrued on
Account of Conversion at Issue
______________________________________________
Applicable Conversion Price
______________________________________________
Signature
______________________________________________
Name
______________________________________________
Address
EXHIBIT B
NOTICE OF COMPANY CONVERSION
(To be Executed by the Company
in order to convert the Debenture)
The undersigned in the name and on behalf of Tidel Technologies, Inc., a
Delaware company (the "Company"), hereby notifies the addressee hereof of its
election to exercise its right to convert the principal amount of the Debenture
set forth below, into shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company, according to the conditions hereof, as of the
date written below. No fee will be charged to the Holder for any conversion,
except for such transfer taxes, if any, which may be incurred by the Company if
shares are to be issued in the name of a person other than in the name of the
addressee.
Conversion calculations: ______________________________________________
Date to Effect Conversion
______________________________________________
Principal Amount of Debentures to be Converted
______________________________________________
Number of shares of Common Stock to be Issued
Payment of Interest in Kind / / Yes / / No
If yes, $ _______ of Interest Accrued on
Account of Conversion at Issue
______________________________________________
Applicable Conversion Price
______________________________________________
Signature
______________________________________________
Name
______________________________________________
Address
Schedule 1
CONVERSION SCHEDULE
6% Convertible Debentures, due September 8 , 2004, in the aggregate principal
amount of $15,000,000 issued by Tidel Technologies, Inc. This Conversion
Schedule reflects conversions made under Section 4(a)(i) and 4(a)(ii) of the
above referenced Debentures.
Dated:
Amount of Aggregate
Date of Conversion Conversion Principal Company Attest Holder Attest
Amount
Remaining
Subsequent to
Conversion
