ITEM 27
Exhibit 10.6
Compensation Debenture given by Xxxxxxx Xxx, Inc. to Cornell Capital Partners,
LP between Xxxxxxx Xxx, Inc. and Cornell Capital Partners, LP
THIS DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY,
THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE
SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER
REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD UNLESS
THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION D OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE
AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE
EXCEPT IN COMPLIANCE WITH THE ACT.
CONVERTIBLE DEBENTURE
XXXXXXX XXX, INC.
CONVERTIBLE DEBENTURE
JUNE 10, 2007
No. CCP-001 $740,000.00
This Convertible Debenture is issued by Xxxxxxx Xxx, Inc., a Nevada
corporation (the "COMPANY"), to CORNELL CAPITAL PARTNERS, LP (together with its
permitted successors and assigns, the "HOLDER") pursuant to exemptions from
registration under the Securities Act of 1933, as amended.
ARTICLE I.
SECTION 1.01 PRINCIPAL. For value received, on June 10, 2004, the
Company hereby promises to pay to the order of the Holder in lawful money of the
United States of America and in immediately available funds the principal sum of
Seven Hundred Forty Thousand Dollars (US $740,000). This Debenture is
non-interest bearing. At the Company's option, the entire principal amount and
all accrued interest shall be either (a) paid to the Holder on the third (3rd)
year anniversary from the date hereof or (b) converted in accordance with
Section 1.02 herein provided, however, that in no event shall the Holder be
entitled to convert this Debenture for a number of shares of Common Stock in
excess of that number of shares of Common Stock which, upon giving effect to
such conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by the Holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such conversion.
SECTION 1.02 OPTIONAL CONVERSION. The Holder is entitled, at its
option, to convert, and sell on the same day, at any time and from time to time,
until payment in full of this Debenture, all or any part of the principal amount
of the Debenture into shares (the "CONVERSION SHARES") of the Company's common
stock, par value $0.001 per share ("COMMON STOCK"), at the price per share (the
"CONVERSION PRICE") equal to the lowest closing bid price (the "CONVERSION
PRICE") of the Common Stock as listed on a Principal Market (as defined herein),
as quoted by Bloomberg L.P. (the "CLOSING BID PRICE") for the five (5) trading
days immediately preceding the Conversion Date (as defined herein). As used
herein, "PRINCIPAL MARKET" shall mean The National Association of Securities
Dealers Inc.'s Over-The-Counter Bulletin Board, Nasdaq SmallCap Market, or
American Stock Exchange. If the Common Stock is not traded on a Principal
Market, the Closing Bid Price shall mean, the reported Closing Bid Price for the
Common Stock, as furnished by the National Association of Securities Dealers,
Inc., for the applicable periods. No fraction of shares or scrip representing
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fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. To convert this Debenture,
the Holder hereof shall deliver written notice thereof, substantially in the
form of Exhibit "A" to this Debenture, with appropriate insertions (the
"CONVERSION NOTICE"), to the Company at its address as set forth herein. The
date upon which the conversion shall be effective (the "CONVERSION DATE") shall
be deemed to be the date set forth in the Conversion Notice.
SECTION 1.03 RESERVATION OF COMMON STOCK. The Company shall reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of this Debenture, such number of
shares of Common Stock as shall from time to time be sufficient to effect such
conversion, based upon the Conversion Price. If at any time the Company does not
have a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its stockholders within sixty
(60) days of that time for the sole purpose of increasing the number of
authorized shares of Common Stock.
SECTION 1.04 REGISTRATION RIGHTS. The Company is obligated to register
the resale of the Conversion Shares under the Securities Act of 1933, as
amended, pursuant to the terms of a Registration Rights Agreement, between the
Company and the Holder of even date herewith (the "INVESTOR REGISTRATION RIGHTS
AGREEMENT").
SECTION 1.05 PAYING AGENT AND REGISTRAR. Initially, the Company will
act as paying agent and registrar. The Company may change any paying agent,
registrar, or Company-registrar by giving the Holder not less than ten (10)
business days' written notice of its election to do so, specifying the name,
address, telephone number and facsimile number of the paying agent or registrar.
The Company may act in any such capacity.
ARTICLE II.
SECTION 2.01 AMENDMENTS AND WAIVER OF DEFAULT. The Debenture may not be
amended. Notwithstanding the above, without the consent of the Holder, the
Debenture may be amended to cure any ambiguity, defect or inconsistency, or to
provide for assumption of the Company obligations to the Holder.
ARTICLE III.
SECTION 3.01 EVENTS OF DEFAULT. An Event of Default is defined as
follows: (a) failure by the Company to pay amounts due hereunder within fifteen
(15) days of the date of maturity of this Debenture; (b) failure by the Company
to comply with the terms of the Irrevocable Transfer Agent Instructions; (c)
failure by the Company's transfer agent to issue freely tradeable Common Stock
to the Holder within five (5) days of the Company's receipt of the attached
Notice of Conversion from Holder; (d) failure by the Company for ten (10) days
after notice to it to comply with any of its other agreements in the Debenture;
(e) events of bankruptcy or insolvency; (f) a breach by the Company of its
obligations under the Securities Purchase Agreement, the Escrow Agreement, the
Security Agreement, the Investor Registration Rights Agreement or any other
agreement entered into on the date hereof between the Company and the Holder
which is not cured by the Company within ten (10) days after receipt of written
notice thereof. Upon the occurrence of an Event of Default, the Holder may, in
its sole discretion, accelerate full repayment of all debentures outstanding and
accrued interest thereon or may, notwithstanding any limitations contained in
this Debenture and/or the Securities Purchase Agreement of even date herewith
between the Company and Cornell Capital Partners, L.P. (the "SECURITIES PURCHASE
AGREEMENT"), convert all debentures outstanding and accrued interest thereon
into shares of Common Stock pursuant to Section 1.02 herein.
SECTION 3.02 FAILURE TO ISSUE UNRESTRICTED COMMON STOCK. As indicated
in Article III Section 3.01, a breach by the Company of its obligations under
the Investor Registration Rights Agreement shall be deemed an Event of Default,
which if not cured within ten (10) days, shall entitle the Holder to accelerate
full repayment of all debentures outstanding and accrued interest thereon or,
notwithstanding any limitations contained in this Debenture and/or the
Securities Purchase Agreement, to convert all debentures outstanding and accrued
interest thereon into shares of Common Stock pursuant to Section 1.02 herein.
The Company acknowledges that failure to honor a Notice of Conversion shall
cause irreparable harm to the Holder.
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ARTICLE IV.
SECTION 4.01 RIGHTS AND TERMS OF CONVERSION. This Debenture, in whole
or in part, may be converted at any time following the date of closing, into
shares of Common Stock at a price equal to the Conversion Price as described in
Section 1.02 above.
SECTION 4.02 RE-ISSUANCE OF DEBENTURE. When the Holder elects to
convert a part of the Debenture, then the Company shall reissue a new Debenture
in the same form as this Debenture to reflect the new principal amount.
SECTION 4.03 TERMINATION OF CONVERSION RIGHTS. The Holder's right to
convert the Debenture into the Common Stock in accordance with paragraph 4.01
shall terminate on the date that is the third (3rd) year anniversary from the
date hereof and this Debenture shall be automatically converted on that date in
accordance with the formula set forth in Section 4.01 hereof, and the
appropriate shares of Common Stock and amount of interest shall be issued to the
Holder.
ARTICLE V.
SECTION 5.01 ANTI-DILUTION. In the event that the Company shall at any
time subdivide the outstanding shares of Common Stock, or shall issue a stock
dividend on the outstanding Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in the event that the Company shall at any time
combine the outstanding shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision, dividend or
combination as the case may be.
SECTION 5.02 CONSENT OF HOLDER TO SELL CAPITAL STOCK OR GRANT SECURITY
INTERESTS. Except for the Standby Equity Distribution Agreement dated the date
hereof between the Company and Cornell Capital Partners, LP. so long as any of
the principal of or interest on this Note remains unpaid and unconverted, the
Company shall not, without the prior consent of the Holder, issue or sell to any
bona fide, unrelated party (i) any Common Stock or Preferred Stock for
consideration of less than 40% of the Bid Price on the date of issuance or (ii)
issue or sell any warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock or
Preferred Stock for consideration of less than 40% of the Bid Price on the date
of issuance, (iii) enter into any security instrument granting the holder a
security interest in any of the assets of the Company, or (iv) file any
registration statement on Form S-8 (except with respect to an employee stock or
option plan that registers no more than 5.0% of the Company's outstanding common
stock). With respect to issuances to related parties (including, without
limitations, any officer, director or holder of 10% or more of the Company's
outstanding capital stock or persons that become an officer, director or holder
of 10% or more of the Company's outstanding capital stock in connection with or
as a result of such issuance, but excluding the Holder), the Company shall not,
issue or sell (i) any Common Stock or Preferred Stock without consideration or
for a consideration per share less than the Bid Price on the date of issuance or
(ii) issue or sell any warrant, option, right, contract, call, or other security
or instrument granting the holder thereof the right to acquire Common Stock or
Preferred Stock for consideration per share less than the Bid Price on the date
of issuance. ,
ARTICLE VI.
SECTION 6.01 NOTICE. Notices regarding this Debenture shall be sent to
the parties at the following addresses, unless a party notifies the other
parties, in writing, of a change of address:
If to the Company, to: Xxxxxxx Xxx, Inc.
000 Xxxx Xxx Xxxxx, Xxxxx X
Xxxxxx Xxxxx, Xxxxxxxx 00000
Attention: Xxxxxxxxx X. XxXxxx, President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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With a copy to: Xxxxxxxxxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxxxxx Xxxxxxxxx - Xxxxx 0000
Xxxxx, XX 00000-2399
Attention: Xxxxxxx X. Xxxxxx, Esquire
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Holder: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esquire
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
SECTION 6.02 GOVERNING LAW. This Debenture shall be deemed to be made
under and shall be construed in accordance with the laws of the State of New
Jersey without giving effect to the principals of conflict of laws thereof. Each
of the parties consents to the jurisdiction of the U.S. District Court sitting
in the District of the State of New Jersey or the state courts of the State of
New Jersey sitting in Xxxxxx County, New Jersey in connection with any dispute
arising under this Debenture and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on FORUM NON CONVENIENS to
the bringing of any such proceeding in such jurisdictions.
SECTION 6.03 SEVERABILITY. The invalidity of any of the provisions of
this Debenture shall not invalidate or otherwise affect any of the other
provisions of this Debenture, which shall remain in full force and effect.
SECTION 6.04 ENTIRE AGREEMENT AND AMENDMENTS. This Debenture represents
the entire agreement between the parties hereto with respect to the subject
matter hereof and there are no representations, warranties or commitments,
except as set forth herein. This Debenture may be amended only by an instrument
in writing executed by the parties hereto.
SECTION 6.05 COUNTERPARTS. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
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IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
Company as executed this Debenture as of the date first written above.
XXXXXXX XXX, INC.
By: /S/ Xxxxxxxxx X. Xxxxxx
-----------------------
Name: Xxxxxxxxx X. XxXxxx
Title: President
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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
Xxxxxxx Xxx, 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: ______________________________________
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