Exhibit 10.14
DATED: NOVEMBER 9, 2005
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
No. MEP-4 $2,579,925
ENCLAVES GROUP, INC.
AMENDED AND RESTATED SECURED CONVERTIBLE DEBENTURE
DUE JANUARY 15, 2007
This Amended and Restated Secured Convertible Debenture (the
"DEBENTURE") is issued on November 9, 2005 by ENCLAVES GROUP, INC. (f/k/a
Alliance Towers, Inc.), a Delaware corporation (the "OBLIGOR"), to XXXXXXXXXX
EQUITY PARTNERS, LTD. (the "HOLDER"), pursuant to that certain Securities
Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT") dated December 28, 2004
by and among Enclaves Group, Inc. ("ENCLAVES") and the Buyers listed on Schedule
I attached thereto, including the Holder. Enclaves issued to the Holder on
December 28, 2004 a secured debenture in the amount of Seven Hundred Fifty
Thousand Dollars ($750,000) (the "DECEMBER 2004 Debenture"), on January 13,
2005, a secured debenture in the amount of One Million Dollars ($1,000,000) (the
"JANUARY 2005 DEBENTURE"), and on May 16, 2005, a secured debenture in the
amount of Three Million Seven Hundred Eighty One Thousand One Hundred Thirty
Dollars ($3,781,130) (the "MAY 2005 DEBENTURE"), reflecting the consolidation of
the December 2004 Debenture and the January 2005 Debenture (including accrued
interest through May 16, 2005) plus additional new funding in the principal
amount of Two Million Dollars ($2,000,000) (collectively referred to as the
"PRIOR DEBENTURES"). The Holder assigned the amount of One Million Seven Hundred
Thousand Dollars ($1,750,000) of the Prior Debentures to Highgate House Funds,
Ltd. pursuant to the Assignment Agreement dated August 12, 2005 (the "HIGHGATE
ASSIGNMENT"). Enclaves was subsequently acquired by the Obligor (f/k/a Alliance
Towers, Inc., a Florida corporation) on April 27, 2005 (the "ACQUISITION"). The
obligations of Enclaves under the Securities Purchase Agreement and the Prior
Debentures issued thereto have been assumed by the Obligor pursuant to the
Assignment and Assumption Agreement dated as of July 1, 2005, by and between
Enclaves and the Obligor and acknowledged by the Holder. In addition, Cornell
Capital Partners, LP ("CORNELL"), assigned to the Holder on April 30, 2005 the
convertible debentures issued by Alliance Towers, Inc. ("ALLIANCE") under the
Securities Purchase Agreement dated May 25, 2004 between Cornell and Alliance
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(the "ALLIANCE DEBENTURES"). This Debenture is being re-issued to the Holder to
(i) amend and restate the May 2005 Debenture to reflect the Highgate Assignment
and accrued and unpaid interest to the date hereof ($109,393.79 as and for
interest on the principal amount of $3,781,130 from May 16, 2005 through August
12, 2005 and $58,520.55 as and for interest from August 12, 2005 through the
date hereof on the principal amount of $2,000,000), (ii) to consolidate the
assignment of the Alliance Debentures in the amount of Four Hundred One Thousand
Four Hundred Four Dollars ($401,404) (representing $375,000 of outstanding
principal for the Alliance Debentures and $26,404 of accrued and unpaid interest
through the date hereof, and (iii) to reflect liquidated damages in the amount
of $120,000, for a total principal sum of Two Million Five Hundred Seventy Nine
Thousand Nine Hundred Twenty Five Dollars ($2,579,925).
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder or
its successors and assigns the principal sum of Two Million Five Hundred Seventy
Nine Thousand Nine Hundred Twenty Five Dollars ($2,579,925), together with
accrued but unpaid interest on the following terms:
PAYMENTS. Interest on the outstanding principal balance hereof shall
begin to accrue from the date hereof and shall be due and payable monthly, in
arrears, as set forth below (each, an "INTEREST PAYMENT DATE"). Principal shall
be due and payable in 12 equal installments of $214,993.75 each, plus accrued
interest and a redemption premium equal to 12% ("REDEMPTION PREMIUM") of each
such installment or the highest rate permitted by applicable law, if lower. The
installments of principal shall be due and payable commencing January 15, 2006,
and subsequent installments shall be due and payable on the fifteenth day of
each calendar month thereafter ("PRINCIPAL PAYMENT DATE") until the outstanding
principal balance is paid in full; however, all amounts of outstanding principal
shall be paid in full no later than January 15, 2007 (the "MATURITY DATE"). All
payments in respect of the indebtedness evidenced hereby shall be made in
collected funds, and shall be applied to principal, accrued interest and charges
and expenses owing under or in connection with this Debenture in such order as
the Holder elects, except that payments shall be applied to accrued interest
before principal. Notwithstanding the foregoing, this Debenture shall become due
and immediately payable, including all accrued but unpaid interest, upon the
closing of a Funding Event (as defined in SECTION 4 hereof) or pursuant to an
Event of Default (as defined in SECTION 2 hereof).
INTEREST. Interest shall accrue on the outstanding principal balance
hereof at an annual rate equal to 12%. Interest shall be calculated on the basis
of a 360-day year and the actual number of days elapsed, to the extent permitted
by applicable law. Interest hereunder will be paid to the Holder or its assignee
(as defined in SECTION 4) in whose name this Debenture is registered on the
records of the Obligor regarding registration and transfers of Debentures (the
"DEBENTURE REGISTER").
RIGHT OF REDEMPTION. The Obligor at its option shall have the right,
with three (3) business days advance written notice, to redeem a portion or all
amounts outstanding under this Debenture prior to the Maturity Date or any
Principal Payment date. The Redemption Premium shall apply to all payments
whether on, before, or after any Principal Payment Date.
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So long as any portion of this Debenture is outstanding, the Obligor
shall not redeem this Debenture with the proceeds of the Amended and Restated
Standby Equity Distribution Agreement between the Company and Cornell Capital
Partners, LP. of even date herewith.
SECURITY AGREEMENT. This Debenture is secured by a Security Agreement
(the "SECURITY AGREEMENT") dated December 28, 2004 between the Obligor and the
Holder. In addition, this Debenture is secured by the mortgages given to the
Holder for the North Fort Myers, Florida and Mesquite and Fort Worth, Texas
properties as more fully described in the Securities Purchase Agreement dated
December 28, 2004.
CONSENT OF HOLDER TO SELL CAPITAL STOCK OR GRANT SECURITY INTERESTS.
Prior to the Obligor's Common Stock being listed on the Principal Market (as
defined in the Standby Equity Distribution Agreement dated December 28, 2004),
the Obligor shall not issue shares of Common Stock or Preferred Stock except as
provided by the merger and share exchange with Alliance Towers, Inc. and
described in the Obligor's 8-K filing dated may 2, 2005, or otherwise permitted
herein or under the Securities Purchase Agreement. Once the Obligor's Common
Stock is listed on the Principal Market, so long as any of the principal or
interest on this Debenture remains unpaid and unconverted, the Obligor shall
not, without the prior consent of the Holder, issue or sell (i) any capital
stock without consideration or for a consideration per share less than its fair
market value determined immediately prior to its issuance, (ii) issue or sell
any preferred stock, warrant, option, right, contract, call, or other security
or instrument granting the holder thereof the right to acquire Common Stock
without consideration or for a consideration per share less than such Common
Stock's fair market value or the preferred stock's conversion price determined
immediately prior to its issuance, (iii) enter into any security instrument
granting the holder a security interest in any of the assets of the Obligor,
except for any security instrument granting the holder a security interest in
any and all assets of the Obligor in connection with permanent or construction
financing obtained for the development of any real property, or for any security
instruments of a non-material nature or entered into in the ordinary course of
business, provided that in each case the Obligor gives the Holder prior notice
of such security interest, or (iv) file any registration statement on Form S-8.
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. EVENTS OF DEFAULT.
(a) An "EVENT OF DEFAULT", wherever used herein, 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 other charges in respect of this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether on an
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installment, a Principal Payment Date, an Interest Payment Date, a Conversion
Date or the Maturity Date or by acceleration or otherwise);
(ii) The Obligor 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) hereof) or any Transaction Document (as defined in SECTION 4)
which is not cured with in the time prescribed;
(iii) The Obligor or any subsidiary of the Obligor shall
commence, or there shall be commenced against the Obligor or any subsidiary of
the Obligor under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Obligor or any subsidiary
of the Obligor 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 Obligor or any subsidiary of the Obligor or there is
commenced against the Obligor or any subsidiary of the Obligor any such
bankruptcy, insolvency or other proceeding which remains undismissed for a
period of 61 days; or the Obligor or any subsidiary of the Obligor is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Obligor or any
subsidiary of the Obligor 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 Obligor or any subsidiary of the Obligor makes a general assignment
for the benefit of creditors; or the Obligor or any subsidiary of the Obligor
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 Obligor or any subsidiary
of the Obligor shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or the Obligor or any
subsidiary of the Obligor 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 Obligor or any subsidiary of the
Obligor for the purpose of effecting any of the foregoing;
(iv) The Obligor or any subsidiary of the Obligor shall
default in any of its obligations under any other Debenture, including but not
limited to the Amended and Restated Secured Debenture issued by the Obligor to
Cornell Capital Partners, LP of even date herewith, the Secured Debenture issued
by the Obligor to Highgate House Funds, Ltd. of even date herewith, 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 Obligor or any
subsidiary of the Obligor 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;
(v) The Common Stock shall cease to be quoted for trading
or listed for trading on the Nasdaq OTC Bulletin Board ("OTC"), Nasdaq SmallCap
Market, New York Stock Exchange, American Stock Exchange or the Nasdaq National
Market (each, a "SUBSEQUENT MARKET") and shall not again be quoted or listed for
trading thereon within five (5) Trading Days of such delisting;
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(vi) The Obligor or any subsidiary of the Obligor shall be
a party to any Change of Control Transaction (as defined in SECTION 4);
(vii) The Obligor shall fail to file the Underlying Shares
Registration Statement (as defined in SECTION 4) with the Commission (as defined
in SECTION 4), or the Underlying Shares Registration Statement shall not have
been declared effective by the Commission, in each case within the time periods
set forth in the Amended and Restated Investor Registration Rights Agreement of
even date herewith between the Obligor and the Holder;
(viii) If the effectiveness of the Underlying Shares
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell the shares of Common Stock underlying this Debenture under
the Underlying Shares Registration Statement, in either case, for more than five
(5) consecutive Trading Days or an aggregate of eight Trading Days (which need
not be consecutive Trading Days);
(ix) The Obligor shall fail for any reason to deliver
Common Stock certificates to a Holder prior to the fifth (5th) Trading Day after
a Conversion Date or the Obligor 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 this Debenture in accordance with the terms hereof;
(x) The Obligor shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within three (3) days
after notice is claimed delivered hereunder;
(xi) A material breach of the Guaranty Agreement with
Homes for America Holdings, Inc. dated December 28, 2004;
(xii) A material breach of the mortgages given to the
Holder for the Fort Xxxxx, Florida and Mesquite, Texas properties or any other
mortgage given by the Obligor to the Holder before or after the date hereof;
(xiii) A material breach by the Obligor of its obligations
under the Securities Purchase Agreement and the Escrow Agreement, both dated
December 28, 2004, the Amended and Restated Security Agreement, the Amended and
Restated Investor Registration Rights Agreement, the Transfer Agent
Instructions, or any other agreement entered into on the date hereof between the
Obligor and the Holder which is not cured by the Obligor within ten (10) days
after receipt of written notice thereof; or
(b) During the time that any portion of this Debenture is
outstanding, if any Event of Default has occurred, the full 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 Obligor. If an Event of Default occurs and remains uncured, the
Conversion Price shall be reduced to ninety percent (90 %) of the Conversion
Price defined herein. 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 or (y) the Maturity Date at the Conversion Price then
in-effect. The Holder need not provide and the Obligor hereby waives any
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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. Upon an
Event of Default, notwithstanding any other provision of this Debenture or any
Transaction Document, the Holder shall have no obligation to comply with or
adhere to any limitations, if any, on the conversion of this Debenture or the
sale of the Underlying Shares.
SECTION 3. CONVERSION.
(a) (i) CONVERSION AT OPTION OF HOLDER.
(A) 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 (as defined in Section
4) (subject to the limitations on conversion set forth in SECTION 3(A)(II)
hereof). The number of shares of Common Stock issuable upon a conversion
hereunder equals the sum of (i) the quotient obtained by dividing (x) the
outstanding amount of this Debenture to be converted by (y) the Conversion Price
(as defined in SECTION 3(C)(I)). The Obligor shall deliver Common Stock
certificates to the Holder prior to the Fifth (5th) Trading Day after a
Conversion Date.
(B) Notwithstanding anything to the contrary
contained herein, if on any Conversion Date: (1) the number of shares of Common
Stock at the time authorized, unissued and unreserved for all purposes, or held
as treasury stock, is insufficient to pay principal and interest hereunder in
shares of Common Stock; (2) the Common Stock is not listed or quoted for trading
on the OTC or on a Subsequent Market; (3) the Obligor has failed to timely
satisfy its conversion; or (4) the issuance of such shares of Common Stock would
result in a violation of SECTION 3(A)(II), then, at the option of the Holder,
the Obligor, in lieu of delivering shares of Common Stock pursuant to SECTION
3(A)(I)(A), shall deliver, within three (3) Trading Days of each applicable
Conversion Date, an amount in cash equal to the product of the outstanding
principal amount to be converted plus any interest due therein divided by the
Conversion Price and multiplied by the highest closing price of the stock from
date of the conversion notice till the date that such cash payment is made.
Further, if the Obligor shall not have delivered any cash due in
respect of conversion of this Debenture or as payment of interest thereon by the
fifth (5th) Trading Day after the Conversion Date, the Holder may, by notice to
the Obligor, require the Obligor to issue shares of Common Stock pursuant to
SECTION 3(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 provisions of this Section.
(C) The Holder shall effect conversions by
delivering to the Obligor a completed notice in the form attached hereto as
Exhibit A (a "CONVERSION NOTICE"). The date on which a Conversion Notice is
delivered is the "CONVERSION DATE." Unless the Holder is converting the entire
principal amount
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outstanding under this Debenture, the Holder is not required to physically
surrender this Debenture to the Obligor in order to effect conversions.
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. The Holder and the Obligor
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.
(ii) CERTAIN CONVERSION RESTRICTIONS.
(A) A Holder may not convert this Debenture 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 4.9% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, this Debenture held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Obligor 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 4.9% 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 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
Obligor 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 3(A)(I)(A) 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 65 days prior notice to the Obligor. Other Holders shall be
unaffected by any such waiver.
(B) The Holder may not convert this Debenture at
any time after receipt of an Advance Notice or during the Pricing Period
applicable to such Advance Notice, as such terms are defined in the Amended and
Restated Standby Equity Distribution Agreement of even date herewith by and
between the Obligor and Cornell Capital Partners, LP.
(b) (i) 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 Obligor '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
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seeking to enforce damages pursuant to any other Section hereof or under
applicable law.
(ii) In addition to any other rights available to the
Holder, if the Obligor fails to deliver to the Holder such certificate or
certificates pursuant to SECTION 3(A)(I)(A) by the fifth Trading Day after the
Conversion Date, and if after such fifth (5th) 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 Obligor 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
a Debenture in the 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 Obligor timely complied with its
delivery requirements under SECTION 3(A)(I)(A). 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
Obligor shall be required to pay the Holder $1,000. The Holder shall provide the
Obligor written notice indicating the amounts payable to the Holder in respect
of the Buy-In.
(c) (i) The conversion price (the "CONVERSION PRICE") in
effect on any Conversion Date shall be equal to one hundred percent (100 %) of
the average closing bid price of the Common Stock, as quoted by Bloomberg, LP
for the five (5) trading days immediately preceding the filing of the Underlying
Shares Registration Statement, which conversion price may be adjusted pursuant
to the other terms of this Debenture.
(ii) If the Obligor, 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 Obligor, 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 Obligor, at any time while this Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Conversion Price, then the
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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 the Conversion Price. 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 Obligor or any subsidiary thereof, as
applicable, at any time while this Debenture is outstanding, shall issue shares
of Common Stock or rights, warrants, options or other securities or debt that
are convertible into or exchangeable for shares of Common Stock ("COMMON STOCK
EQUIVALENTS") entitling any Person to acquire shares of Common Stock, at 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 per share
which is issued in connection with such issuance, be entitled to receive shares
of Common Stock at a price per share which is less than the Conversion Price,
such issuance shall be deemed to have occurred for less than the Conversion
Price), then, at the sole option of the Holder, the Conversion Price shall be
adjusted to mirror the conversion, exchange or purchase price for such Common
Stock or Common Stock Equivalents (including any reset provisions thereof) at
issue. Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. The Obligor shall notify the Holder in writing, no later
than one (1) business 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. No adjustment under this Section shall be made as a
result of issuances and exercises of options to purchase shares of Common Stock
issued for compensatory purposes pursuant to any of the Obligor's stock option
or stock purchase plans.
(v) If the Obligor, at any time while this Debenture is
outstanding, shall distribute to all holders of Common Stock (and not to the
Holder) 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 this Debenture 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
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distribution by a fraction of which the denominator shall be the Closing Bid
Price determined as of the record date mentioned above, and of which the
numerator shall be such Closing Bid Price 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 Holder 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 Holder shall have the right
thereafter to, at its 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 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
Holder of this Debenture shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of the
Obligor 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
Obligor to prepay the outstanding principal amount of this Debenture, plus all
interest and other amounts due and payable thereon. The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vii) The Obligor shall maintain a share reserve of not
less than 500% of the shares of Common Stock issuable upon conversion of this
Debenture; and within three (3) Business Days following the receipt by the
Obligor of a Holder's notice that such minimum number of Underlying Shares is
not so reserved, the Obligor shall promptly reserve a sufficient number of
shares of Common Stock to comply with such requirement.
(viii) All calculations under this SECTION 3 shall be
rounded up to the nearest $0.001 of a share.
(ix) Whenever the Conversion is adjusted pursuant to
SECTION 3 hereof, the Obligor 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.
(x) If (A) the Obligor shall declare a dividend (or any
other distribution) on the Common Stock; (B) the Obligor shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Obligor 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 Obligor
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Obligor is a party, any sale or
10
transfer of all or substantially all of the assets of the Obligor, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Obligor shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Obligor; then, in each case, the Obligor shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the Obligor, at least twenty (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. The Holder is entitled to convert this Debenture during the
20-day calendar period commencing the date of such notice to the effective date
of the event triggering such notice.
(xi) In case of any (1) merger or consolidation of the
Obligor or any subsidiary of the Obligor with or into another Person, or (2)
sale by the Obligor or any subsidiary of the Obligor of more than one-half of
the assets of the Obligor 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.
(d) The Obligor 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
11
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 Obligor as to reservation of such shares set
forth in this Debenture) be issuable (taking into account the adjustments and
restrictions of SECTIONS 2(B) AND 3(C)) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder. The
Obligor covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Obligor 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 Closing Bid Price at such time. If the
Obligor elects not, or is unable, to make such a cash payment, the Holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder 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 Obligor 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 Debenture so converted and the Obligor
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 Obligor
the amount of such tax or shall have established to the satisfaction of the
Obligor that such tax has been paid.
(g) 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:
If to the Obligor, to: Enclaves Group, Inc.
00 Xxxxxxxxx Xxxx, Xxxxx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
12
Park Avenue Tower
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Holder: Xxxxxxxxxx Equity Partners, Ltd.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
With a copy to: Xxxx Xxxxx, 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.
SECTION 4. 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 are authorized or required by law or other government action to
close.
"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 Obligor, by contract or otherwise) of in excess of fifty percent
(50%) of the voting securities of the Obligor (except that the acquisition of
voting securities by the Holder 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 Obligor 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
13
who are members on the date hereof), (c) the merger, consolidation or sale of
fifty percent (50%) or more of the assets of the Obligor or any subsidiary of
the Obligor in one or a series of related transactions with or into another
entity, or (d) the execution by the Obligor of an agreement to which the Obligor
is a party or by which it is bound, providing for any of the events set forth
above in (a), (b) or (c).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $0.001, of the Obligor
and stock of any other class into which such shares may hereafter be changed or
reclassified.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FUNDING EVENT" means any transaction or series of transactions closed
after the Original Issue Date in which the Obligor raises $10,000,000 or more
through the sale of their equity securities or securities exercisable or
convertible into equity securities.
"ORIGINAL ISSUE DATE" shall mean 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.
"CLOSING BID PRICE" means the price per share in the last reported
trade of the Common Stock on the OTC or on the exchange which the Common Stock
is then listed as quoted by Bloomberg, LP.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"TRADING DAY" means a day on which the shares of Common Stock are
quoted on the OTC or quoted or traded on such Subsequent 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.
"TRANSACTION DOCUMENTS" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Escrow Agreement, the Guaranty Agreement by
and among Homes For America Holdings, Inc., Cornell Capital Partners, LP and
Xxxxxxxxxx Equity Partners, Ltd. and the Investor Registration Rights Agreement,
all dated December 28, 2004 and the mortgages given to the Holder for the North
Fort Myers, Florida and Mesquite, Texas properties as more fully described in
the Securities Purchase Agreement dated December 28, 2004 and the mortgage of
even date herewith given to the Holder for the Fort Worth, Texas property, and
the Amended and Restated Investor Registration Rights Agreement, the Transfer
Agent Instructions, the Amended and Restated Security Agreement and the Guaranty
given by Enclaves Group, Inc., a wholly owned subsidiary of the Obligor to the
Holder, all of which are date of even date herewith.
14
"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.
"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 5. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligations of the Obligor, 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
Obligor. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Obligor 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 or required under the Transaction
Documents; or (iii) enter into any agreement with respect to any of the
foregoing.
SECTION 6. This Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Obligor, 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 Obligor, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
SECTION 7. If this Debenture is mutilated, lost, stolen or
destroyed, the Obligor shall execute and deliver, in exchange and substitution
for and upon cancellation of the 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 Obligor.
SECTION 8. No indebtedness of the Obligor 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
Obligor 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 Obligor under
this Debenture.
SECTION 9. 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,
15
including any objection based on FORUM NON CONVENIENS to the bringing of any
such proceeding in such jurisdictions.
SECTION 10. If the Obligor fails to strictly comply with the
terms of this Debenture, then the Obligor 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.
SECTION 11. 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.
SECTION 12. 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 Obligor 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 Obligor 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 Obligor (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 13. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
SECTION 14. 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
16
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
ENCLAVES GROUP, INC.
By: /s/ Xxxxxx X. Xxxxx
----------------------------
Name: Xxxxxx X. Xxxxx
Title: President and CEO
17
EXHIBIT "A"
NOTICE OF CONVERSION
(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 the above Debenture into Shares of Common Stock of
Enclaves Group, Inc., according to the conditions stated therein, as of the
Conversion Date written below.
CONVERSION DATE: ____________________________________________
APPLICABLE CONVERSION PRICE: ____________________________________________
SIGNATURE: ____________________________________________
NAME: ____________________________________________
ADDRESS: ____________________________________________
AMOUNT TO BE CONVERTED: $___________________________________________
AMOUNT OF DEBENTURE UNCONVERTED: $___________________________________________
CONVERSION PRICE PER SHARE: $___________________________________________
NUMBER OF SHARES OF COMMON
STOCK TO BE ISSUED: ____________________________________________
PLEASE ISSUE THE SHARES OF
COMMON STOCK IN THE FOLLOWING
NAME AND TO THE FOLLOWING
ADDRESS: ____________________________________________
ISSUE TO: ____________________________________________
AUTHORIZED SIGNATURE: ____________________________________________
NAME: ____________________________________________
TITLE:
PHONE NUMBER: ____________________________________________
BROKER DTC PARTICIPANT CODE: ____________________________________________
ACCOUNT NUMBER: ____________________________________________
