Exhibit 4.2
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND IS
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.
8 % CONVERTIBLE DEBENTURE
COMPANY: Sequiam Corporation
COMPANY ADDRESS: 000 Xxxxxxx Xxxx, Xxxxxxx, Xxxxxxx 00000
MATURITY DATE: March ___, 2005
PRINCIPAL AMOUNT: $300,000
Sequiam Corporation, a California corporation, and any successor or
resulting corporation by way of merger, consolidation, sale or exchange of all
or substantially all of the assets or otherwise (the "COMPANY"), for value
received, hereby promises to pay to the Holder (as such term is hereinafter
defined), or such other Person (as such term is hereinafter defined) upon order
of the Holder, on March ___, 2005 (the "MATURITY DATE"), the principal sum of
three hundred thousand dollars ($300,000), as such sum may be adjusted pursuant
to Article 3, and to pay interest on the Principal Amount (as hereinafter
defined) from the date received by the Company, monthly in arrears, on the 15th
day of each month (each an "INTEREST PAYMENT DUE DATE" and collectively, the
"INTEREST PAYMENT DUE DATES"), commencing on April 15, 2003, at the rate of
eight percent (8%) per annum (the "DEBENTURE INTEREST RATE"), until the
Principal Amount of this Debenture has been paid in full. All interest payable
on the Principal Amount of this Debenture shall be calculated on the basis of a
360-day year for the actual number of days elapsed. Payment of interest on this
Debenture shall be in cash. This Debenture may not be prepaid without the
written consent of the Holder.
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever
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used in this Debenture have the following respective meanings:
(i) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(ii) "BANKRUPTCY CODE" means the United States Bankruptcy Code of
1986, as amended (11 U.S.C. Sec.Sec. 101 et. seq.).
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(iii) "BUSINESS DAY" means a day other than Saturday, Sunday or any
day on which banks located in the State of California are authorized or
obligated to close.
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(iv) "CAPITAL SHARES" means the Common Stock and any other shares of
any other class or series of capital stock, whether now or hereafter authorized
and however designated, which have the right to participate in the distribution
of earnings and assets (upon dissolution, liquidation or winding-up) of the
Company.
(v) "CLOSING DATE" means March ___, 2003.
(vi) "COMMON SHARES" or "COMMON STOCK" means shares of the Company's
Common Stock.
(vii) "COMMON STOCK ISSUED AT CONVERSION", when used with reference to
the securities deliverable upon conversion of this Debenture, means all Common
Shares now or hereafter Outstanding and securities of any other class or series
into which this Debenture hereafter shall have been changed or substituted,
whether now or hereafter created and however designated.
(viii) "CONVERSION" or "CONVERSION" means the repayment by the Company
of the Principal Amount of this Debenture (and, to the extent the Holder elects
as permitted by Section 3.1, accrued and unpaid interest thereon) by the
delivery of Common Stock on the terms provided in Section 3.2, and "CONVERT,"
"CONVERTED," "CONVERTIBLE" and like words shall have a corresponding meaning.
(ix) "CONVERSION DATE" means any day on which all or any portion of
the Principal Amount of this Debenture is converted in accordance with the
provisions hereof.
(x) "CONVERSION NOTICE" means a written notice of conversion
substantially in the form annexed hereto as Exhibit A.
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(xi) "CONVERSION PRICE" on any date of determination means the
applicable price for the conversion of this Debenture into Common Shares on such
day as set forth in Section 3.1(a).
(xii) "CURRENT MARKET PRICE" on any date of determination means the
average closing trading price of a Common Share on such day as reported on the
NASDAQ OTCBB Exchange; provided that, if such security is not listed or admitted
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to trading on the NASDAQ OTCBB, as reported on the principal national security
exchange or quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the closing bid price of such
security on the over-the-counter market on the day in question as reported by
Bloomberg LP or a similar generally accepted reporting service, as the case may
be.
(xiii) "DEADLINE" means the date that is the 120th day from the
Closing Date, provided, however, the Deadline shall be extended by such time as
is necessary for the Company to respond to comments by the SEC, so long as the
Company files the appropriate registration statement within 30 days of the
Closing Date and thereafter responds to all SEC comments within 10 business days
of receipt thereof.
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(xiv) "DEBENTURE" or "DEBENTURES" means this 8 % Convertible Debenture
of the Company or such other convertible debenture(s) exchanged therefor as
provided in Section 2.1.
(xv) "DISCOUNT MULTIPLIER" has the meaning set forth in Section
3.1(a).
(xvi) "EVENT OF DEFAULT" has the meaning set forth in Section 6.1.
(xvii) "HOLDER" means La Jolla Cove Investors, Inc.
(xviii) "INTEREST PAYMENT DUE DATE" has the meaning set forth in the
opening paragraph of this Debenture.
(xix) "MARKET DISRUPTION EVENT" means any event that results in a
material suspension or limitation of trading of the Common Shares.
(xx) "MARKET PRICE" per Common Share means the lowest traded price of
the Common Shares during any Trading Day as reported on the NASDAQ OTCBB;
provided that, if such security is not listed or admitted to trading on the
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NASDAQ OTCBB, as reported on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the lowest traded price of the Common
Shares during any Trading Day on the over-the-counter market as reported by
Bloomberg LP or a similar generally accepted reporting service, as the case may
be.
(xxi) "MAXIMUM RATE" has the meaning set forth in Section 6.3.
(xxii) "OUTSTANDING" when used with reference to Common Shares or
Capital Shares (collectively, "SHARES") means, on any date of determination, all
issued and outstanding Shares, and includes all such Shares issuable in respect
of outstanding scrip or any certificates representing fractional interests in
such Shares; provided, however, that any such Shares directly or indirectly
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owned or held by or for the account of the Company or any Subsidiary of the
Company shall not be deemed "OUTSTANDING" for purposes hereof.
(xxiii) "PERSON" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(xxiv) "PRINCIPAL AMOUNT" means, for any date of calculation, the
principal sum set forth in the first paragraph of this Debenture (but only such
principal amount as to which the Holder has (a) actually advanced pursuant to
the Securities Purchase Agreement (b) not theretofore furnished a Conversion
Notice in compliance with Section 3.2).
(xxv) "REGISTRATION RIGHTS AGREEMENT" means that certain Registration
Rights Agreement of even date herewith by and between the Company and Holder, as
the same may be amended from time to time.
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(xxvi) "SEC" means the United States Securities and Exchange
Commission.
(xxvii) "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC thereunder, all as in effect at the
time.
(xxviii) "SECURITIES PURCHASE AGREEMENT" means that certain Securities
Purchase Agreement of even date herewith by and among the Company and Holder, as
the same may be amended from time to time.
(xxix) "SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Company.
(xxx) "TRADING DAY" means any day on which (i) purchases and sales of
securities on the principal national security exchange or quotation system on
which the Common Shares are traded are reported thereon, or, if not quoted or
listed or admitted to trading on any national securities exchange or quotation
system, as reported by Bloomberg LP or a similar generally accepted reporting
service, as the case may be, (ii) at least one bid for the trading of Common
Shares is reported and (iii) no Market Disruption Event occurs.
All references to "cash" or "$" herein means currency of the United
States of America.
ARTICLE 2
EXCHANGES, TRANSFER AND OPTIONAL REDEMPTION
SECTION 2.1 Registration of Transfer of Debentures. This Debenture,
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when presented for registration of transfer, shall (if so required by the
Company) be duly endorsed, or be accompanied by a written instrument of transfer
in form reasonably satisfactory to the Company duly executed, by the Holder duly
authorized in writing.
SECTION 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of
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evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Debenture and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security reasonably satisfactory to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Debenture, the Company shall make, issue and deliver, in
lieu of such lost, stolen, destroyed or mutilated Debenture, a new Debenture of
like tenor and unpaid Principal Amount dated as of the date hereof (which shall
accrue interest from the most recent Interest Payment Due Date on which an
interest payment was made in full). This Debenture shall be held and owned upon
the express condition that the provisions of this Section 2.2 are exclusive with
respect to the replacement of a mutilated, destroyed, lost or stolen Debenture
and shall preclude any and all other rights and remedies notwithstanding any law
or statute existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without the surrender
thereof.
SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the Person in
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whose name this Debenture shall be registered upon the registry books of the
Company to be, and may treat it as, the absolute owner of this Debenture
(whether or not this Debenture shall be
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overdue) for the purpose of receiving payment of or on account of the Principal
Amount of this Debenture, for the conversion of this Debenture and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
All such payments and such conversions shall be valid and effectual to satisfy
and discharge the liability upon this Debenture to the extent of the sum or sums
so paid or the conversion or conversions so made.
SECTION 2.4 Repayment at Maturity. At the Maturity Date, the Company shall
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repay the outstanding Principal Amount of this Debenture in whole in cash,
together with all accrued and unpaid interest thereon, in cash, to the Maturity
Date.
ARTICLE 3
CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Price; Valuation Event. (a) At the
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option of the Holder, this Debenture may be converted, either in whole or in
part, up to the full Principal Amount hereof (in increments of $1,000 in
Principal Amount) into Common Shares (calculated as to each such conversion to
the nearest 1/100th of a share), at any time and from time to time on any
Business Day, subject to compliance with Section 3.2. The number of Common
Shares into which this Debenture may be converted is equal to (i) the Principal
Amount of the Debenture being converted at the Conversion Date (plus, at the
option of the Holder, any accrued and unpaid interest on the Debenture being
converted through the Conversion Date) divided by (ii) the Conversion Price. In
addition, the Company shall pay to the Holder on the Conversion Date, in cash,
any accrued and unpaid interest on the Debenture being converted not included at
the option of the Holder in clause (i) of the immediately preceding sentence.
The "CONVERSION PRICE" shall be equal to the lesser of (i) $0.50, or (ii) eighty
percent (80%) of the average of the three lowest Market Prices during the twenty
(20) Trading Days prior to Holder's election to convert (a "DISCOUNT
MULTIPLIER"); provided, that in the event the Registration Statement has not
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been declared effective by the SEC by the Deadline or, if the Registration
Statement has theretofore been declared effective but is not thereafter
effective, then the applicable Discount Multiplier shall decrease by three
percentage points (3%) for each month or partial month occurring after the
Deadline that the Registration Statement is not effective. If the Holder elects
to convert a portion of the Debenture and, on the day that the election is made,
the Market Price is $0.50 or below, the Company shall have the right to prepay
that portion of the Debenture that Holder elected to convert, plus any accrued
and unpaid interest, at 150% of such amount, provided however that the Company
shall not have the right to prepay any portion of the Debenture that Holder
elects to convert in order to exercise its rights or satisfy its obligations
under the Put and Call Agreement between Xxxx XxxxxxXxxxxx, Xxxx Xxxxxxxxxxx and
Xxxxxx. In the event that the Company elects to prepay that portion of the
Debenture, Holder shall have the right to withdraw its Conversion Notice. Holder
may not convert more than 10% of the original Principal Amount of the Debenture
per calendar month, without the prior written consent of the Company, which
consent may be withheld in the Company's sole discretion.
(b) Notwithstanding the provisions of Section 3.1(a), in the event the
Company's Registration Statement has not been declared effective by the Deadline
or, if the Registration Statement has theretofore been declared effective but is
not thereafter effective, the following will also apply in addition to any
damages incurred by the Holder as a result thereof:
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(i) The Holder may demand repayment of one hundred and fifty
percent (150%) of the Principal Amount of the Debenture, together with all
accrued and unpaid interest thereon, in cash, at any time prior to the Company's
Registration Statement being declared effective by the SEC or during the period
that the Company's Registration Statement is not effective, such repayment to be
made within three (3) business days of such demand. In the event that the
Debenture is so accelerated, in addition to the repayment of one hundred and
fifty percent (150%) of the Principal Amount together with accrued interest as
aforesaid, the Company shall immediately issue and pay, as the case may be, to
the Holder 50,000 Shares of Common Stock and $15,000 for each thirty (30) day
period, or portion thereof, during which the Principal Amount, including
interest thereon, remains unpaid, with the monthly payment amount to increase to
$20,000 for each thirty (30) day period, or portion thereof, after the first
ninety (90) day period;
(ii) If the Holder does not elect to accelerate the Debenture,
the Company shall immediately issue or pay, as the case may be, to Holder 50,000
Shares of Common Stock and $15,000 for each thirty (30) day period, or portion
thereof, that the Registration Statement is not effective, with the monthly
payment amount to increase to $20,000 for each thirty (30) day period, or
portion thereof, after the first ninety (90) day period.
SECTION 3.2 Exercise of Conversion Privilege. (a) Conversion of this
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Debenture may be exercised on any Business Day by the Holder by telecopying an
executed and completed Conversion Notice to the Company prior to 5:00pm Eastern
Time for the City of New York. Each date on which a Conversion Notice is
telecopied to the Company in accordance with the provisions of this Section 3.2
shall constitute a Conversion Date. The Company shall convert this Debenture
and issue the Common Stock Issued at Conversion in the manner provided below in
this Section 3.2, and all voting and other rights associated with the beneficial
ownership of the Common Stock Issued at Conversion shall vest with the Holder,
effective as of the Conversion Date at the time specified in the Conversion
Notice. The Conversion Notice also shall state the name or names (with
addresses) of the persons who are to become the holders of the Common Stock
Issued at Conversion in connection with such conversion. As promptly as
practicable after the receipt of the Conversion Notice as aforesaid, but in any
event not more than five (5) Business Days after the Company's receipt of such
Conversion Notice, the Company shall (i) issue the Common Stock Issued at
Conversion in accordance with the provisions of this Article 3 and (ii) cause to
be mailed for delivery by overnight courier, or if a Registration Statement
covering the Common Stock has been declared effective by the SEC cause to be
electronically transferred, to Holder (x) a certificate or certificate(s)
representing the number of Common Shares to which the Holder is entitled by
virtue of such conversion, (y) cash, as provided in Section 3.3, in respect of
any fraction of a Common Share deliverable upon such conversion and (z) cash or
shares of Common Stock, as applicable, representing the amount of accrued and
unpaid interest on this Debenture as of the Conversion Date. Such conversion
shall be deemed to have been effected on the Conversion Date , and at such time
the rights of the Holder of this Debenture, as such (except if and to the extent
that any Principal Amount thereof remains unconverted), shall cease and the
Person and Persons in whose name or names the Common Stock Issued at Conversion
shall be issuable shall be deemed to have become the holder or holders of record
of the Common Shares represented thereby, and all voting and other rights
associated with the beneficial ownership of such Common Shares shall at such
time vest with such Person or Persons. The Conversion Notice shall constitute a
contract between the Holder
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and the Company, whereby the Holder shall be deemed to subscribe for the number
of Common Shares which it will be entitled to receive upon such conversion and,
in payment and satisfaction of such subscription (and for any cash adjustment to
which it is entitled pursuant to Section 3.4), to surrender this Debenture and
to release the Company from all liability thereon (except if and to the extent
that any Principal Amount thereof remains unconverted). No cash payment
aggregating less than $1.00 shall be required to be given unless specifically
requested by the Holder.
(b) If, at any time after the date of this Debenture, (i) the Company
challenges, disputes or denies the right of the Holder hereof to effect the
conversion of this Debenture into Common Shares or otherwise dishonors or
rejects any Conversion Notice delivered in accordance with this Section 3.2 or
(ii) any third party who is not and has never been an Affiliate of the Holder
commences any lawsuit or legal proceeding or otherwise asserts any claim before
any court or public or governmental authority which seeks to challenge, deny,
enjoin, limit, modify, delay or dispute the right of the Holder hereof to effect
the conversion of this Debenture into Common Shares, then the Holder shall have
the right, by written notice to the Company, to require the Company to promptly
redeem this Debenture for cash at one hundred and fifty (150%) of the Principal
Amount thereof, together with all accrued and unpaid interest thereon to the
date of redemption. Under any of the circumstances set forth above, the Company
shall be responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred in defending
itself in any such action or pursuing its rights hereunder (in addition to any
other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under the Bankruptcy Code. In the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C. Sec. 362 in respect of the Holder's conversion privilege. The Company
hereby waives to the fullest extent permitted any rights to relief it may have
under 11 U.S.C. Sec. 362 in respect of the conversion of this Debenture. The
Company agrees, without cost or expense to the Holder, to take or consent to any
and all action necessary to effectuate relief under 11 U.S.C. Sec. 362.
SECTION 3.3 Fractional Shares. No fractional Common Shares or scrip
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representing fractional Common Shares shall be delivered upon conversion of this
Debenture. Instead of any fractional Common Shares which otherwise would be
delivered upon conversion of this Debenture, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
multiplied by the Current Market Price on the Conversion Date. No cash payment
of less than $1.00 shall be required to be given unless specifically requested
by the Holder.
SECTION 3.4 Adjustments. The Conversion Price and the number of shares
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deliverable upon conversion of this Debenture are subject to adjustment from
time to time as follows:
(i) Reclassification, Etc. In case the Company shall reorganize its
----------------------
capital, reclassify its capital stock, consolidate or merge with or into another
Person (where the Company is not the survivor or where there is a change in or
distribution with respect to the Common
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Stock of the Company), sell, convey, transfer or otherwise dispose of all or
substantially all its property, assets or business to another Person, or
effectuate a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of (each, a
"FUNDAMENTAL CORPORATE CHANGE") and, pursuant to the terms of such Fundamental
Corporate Change, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or acquiring
corporation ("OTHER PROPERTY") are to be received by or distributed to the
holders of Common Stock of the Company, then the Holder of this Debenture shall
have the right thereafter, at its sole option, to (x) require the Company to
prepay this Debenture for cash at one hundred and fifty percent (150%) of the
Principal Amount thereof, together with all accrued and unpaid interest thereon
to the date of prepayment, (y) receive the number of shares of common stock of
the successor or acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property as is receivable upon or as a result of such
Fundamental Corporate Change by a holder of the number of shares of Common Stock
into which such the outstanding portion of this Debenture may be converted at
the Conversion Price applicable immediately prior to such Fundamental Corporate
Change or (z) require the Company, or such successor, resulting or purchasing
corporation, as the case may be, to, without benefit of any additional
consideration therefor, execute and deliver to the Holder a debenture with
substantial identical rights, privileges, powers, restrictions and other terms
as this Debenture in an amount equal to the amount outstanding under this
Debenture immediately prior to such Fundamental Corporate Change. For purposes
hereof, "COMMON STOCK OF THE SUCCESSOR OR ACQUIRING CORPORATION" shall include
stock of such corporation of any class which is not preferred as to dividends or
assets over any other class of stock of such corporation and which is not
subject to prepayment and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions shall
similarly apply to successive Fundamental Corporate Changes.
SECTION 3.5 Certain Conversion Limits.
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Notwithstanding anything herein to the contrary, if and to the extent that,
on any date, the conversion by the Holder of this Debenture would result in the
Holder's being deemed the beneficial owner of more than five percent (5%) of the
then Outstanding shares of Common Stock, then the Holder shall not have the
right, and the Company shall not have the obligation, to convert any portion of
this Debenture as shall cause such Holder to be deemed the beneficial owner of
more than five percent (5%) of the then Outstanding shares of Common Stock.
SECTION 3.6 Surrender of Debentures. Upon any redemption of this
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Debenture pursuant to Sections 3.2, 3.5 or 6.2, or upon maturity pursuant to
Section 2.4, the Holder shall either deliver this Debenture by hand to the
Company at its principal executive offices or surrender the same to the Company
at such address by nationally recognized overnight courier. Payment of the
redemption price or the amount due on maturity specified in Section 2.4, shall
be made by the Company to the Holder against receipt of this Debenture (as
provided in this Section 3.5) by wire transfer of immediately available funds to
such account(s) as the Holder shall specify by written notice to the Company.
If payment of such redemption price is not made in
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full by the redemption date, or the amount due on maturity is not paid in full
by the Maturity Date, the Holder shall again have the right to convert this
Debenture as provided in Article 3 hereof or to declare an Event of Default.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Debenture. This Debenture constitutes a legal,
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valid and binding obligation of the Company, enforceable in accordance with its
terms subject, as to enforceability, to general principles of equity and to
principles of bankruptcy, insolvency, reorganization and other similar laws of
general applicability relating to or affecting creditors' rights and remedies
generally.
SECTION 4.2 Restrictions on Transfer. This Debenture, and any Common
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Shares deliverable upon the conversion hereof, have not been registered under
the Securities Act. The Holder by accepting this Debenture agrees that this
Debenture and the shares of Common Stock to be acquired as interest on and upon
conversion of this Debenture may not be assigned or otherwise transferred unless
and until (i) an exemption from registration exists and the Company has received
the opinion of counsel for the Holder that this Debenture or such shares may be
sold pursuant to an exemption from registration under the Securities Act and in
accordance with Rule 144 or (ii) a registration statement relating to the
transfer of this Debenture or such shares has been filed by the Company and
declared effective by the SEC.
Each certificate for shares of Common Stock deliverable hereunder shall
bear a legend as follows unless and until such securities have been sold
pursuant to an effective registration statement under the Securities Act:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended
(the "Securities Act"). The securities may not be offered
for sale, sold or otherwise transferred except (i) pursuant
to an effective registration statement under the Securities
Act or (ii) pursuant to an exemption from registration under
the Securities Act in respect of which the issuer of this
certificate has received an opinion of counsel satisfactory
to the issuer of this certificate to such effect. Copies of
the agreement covering both the purchase of the securities
and restrictions on their transfer may be obtained at no
cost by written request made by the holder of record of this
certificate to the Secretary of the issuer of this
certificate at the principal executive offices of the issuer
of this certificate."
ARTICLE 5
COVENANTS
SECTION 5.1 Conversion. The Company shall cause the transfer agent,
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not later than three (3) Business Days after the Company's receipt of a
Conversion Notice, to issue and deliver to the Holder the requisite shares of
Common Stock Issued at Conversion. Such delivery
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shall be by electronic transfer if a Registration Statement covering the Common
Stock has been declared effective by the SEC.
SECTION 5.2 Notice of Default. If any one or more events occur which
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constitute or which, with notice, lapse of time, or both, would constitute an
Event of Default, the Company shall forthwith give notice to the Holder,
specifying the nature and status of the Event of Default or such other event(s),
as the case may be.
SECTION 5.3 Payment of Obligations. So long as this Debenture shall be
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outstanding, the Company shall pay, extend, or discharge at or before maturity,
all its respective material obligations and liabilities, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings.
SECTION 5.4 Compliance with Laws. So long as this Debenture shall be
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outstanding, the Company shall comply with all applicable laws, ordinances,
rules, regulations and requirements of governmental authorities, except for such
noncompliance which would not have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company and the Subsidiaries.
SECTION 5.5 Inspection of Property, Books and Records. So long as this
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Debenture shall be outstanding, the Company shall keep proper books of record
and account in which full, true and correct entries shall be made of all
material dealings and transactions in relation to its business and activities.
ARTICLE 6
REMEDIES
SECTION 6.1 Events of Default. "EVENT OF DEFAULT" wherever used herein
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means any one of the following events so long as this Debenture remains
outstanding:
(i) the Company shall default in the payment of principal of or
interest on this Debenture as and when the same shall be due and payable and, in
the case of an interest payment default, such default shall continue for five
(5) Business Days after the date such interest payment was due, or the Company
shall fail to perform or observe in any other covenant, agreement, term,
provision, undertaking or commitment under this Debenture, the Conversion
Warrants (as defined in the Securities Purchase Agreement), the Securities
Purchase Agreement or the Registration Rights Agreement and such default shall
continue for a period of ten (10) Business Days after the delivery to the
Company of written notice that the Company is in default hereunder or
thereunder;
(ii) any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration Rights Agreement
or in any certificate or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in connection with the
execution and delivery of this Debenture, the Warrants, the Securities Purchase
Agreement or the Registration Rights Agreement shall be false or misleading in a
material respect on the Closing Date;
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(iii) under the laws of any jurisdiction not otherwise covered by
clauses (iv) and (v) below, the Company or any Subsidiary (A) becomes insolvent
or generally not able to pay its debts as they become due, (B) admits in writing
its inability to pay its debts generally or makes a general assignment for the
benefit of creditors, (C) institutes or has instituted against it any proceeding
seeking (x) to adjudicate it a bankrupt or insolvent, (y) liquidation,
winding-up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors including any plan of compromise or
arrangement or other corporate proceeding involving or affecting its creditors
or (z) the entry of an order for relief or the appointment of a receiver,
trustee or other similar person for it or for any substantial part of its
properties and assets, and in the case of any such official proceeding
instituted against it (but not instituted by it), either the proceeding remains
undismissed or unstayed for a period of sixty (60) calendar days, or any of the
actions sought in such proceeding (including the entry of an order for relief
against it or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its properties and assets) occurs
or (D) takes any corporate action to authorize any of the above actions;
(iv) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under the Bankruptcy
Code or any other applicable Federal or state law, or appointing a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Company or of any substantial part of its property, or ordering the winding-up
or liquidation of its affairs, and any such decree or order continues and is
unstayed and in effect for a period of sixty (60) calendar days;
(v) the institution by the Company or any Subsidiary of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
Bankruptcy Code or any other applicable federal or state law, or the consent by
it to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Company or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as and when they become due, or the
taking of corporate action by the Company in furtherance of any such action;
(vi) a final judgment or final judgments for the payment of money
shall have been entered by any court or courts of competent jurisdiction against
the Company and remains undischarged for a period (during which execution shall
be effectively stayed) of thirty (30) days, provided that the aggregate amount
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of all such judgments at any time outstanding (to the extent not paid or to be
paid, as evidenced by a written communication to that effect from the applicable
insurer, by insurance) exceeds One Hundred Thousand Dollars ($100,000);
(vii) it becomes unlawful for the Company to perform or comply with
its obligations under this Debenture, the Conversion Warrant, the Securities
Purchase Agreement or the Registration Rights Agreement in any respect;
11
(viii) the Common Shares shall be delisted from the NASDAQ OTCBB (the
"TRADING MARKET") or suspended from trading on the Trading Market, and shall not
be reinstated, relisted or such suspension lifted, as the case may be, within
five (5) days or;
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. If an
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Event of Default occurs and is continuing, then and in every such case the
Holder may, by a notice in writing to the Company, rescind any outstanding
Conversion Notice and declare that all amounts owing or otherwise outstanding
under this Debenture are immediately due and payable and upon any such
declaration this Debenture shall become immediately due and payable in cash at a
price of one hundred and fifty percent (150%) of the Principal Amount thereof,
together with all accrued and unpaid interest thereon to the date of payment;
provided, however, in the case of any Event of Default described in clauses
-------- -------
(iii), (iv), (v) or (vii) of Section 6.1, such amount automatically shall become
immediately due and payable without the necessity of any notice or declaration
as aforesaid.
SECTION 6.3 Late Payment Penalty. If any portion of the principal of
----------------------
or interest on this Debenture shall not be paid within ten (10) days of when it
is due, the Discount Multiplier under this Debenture, and under all warrants
granted by the Company to the Holder, shall decrease by one percentage point
(1%) for all conversions of this Debenture and warrant exercises thereafter.
SECTION 6.4 Maximum Interest Rate. Notwithstanding anything herein to
-----------------------
the contrary, if at any time the applicable interest rate as provided for herein
shall exceed the maximum lawful rate which may be contracted for, charged, taken
or received by the Holder in accordance with any applicable law (the "MAXIMUM
RATE"), the rate of interest applicable to this Debenture shall be limited to
the Maximum Rate. To the greatest extent permitted under applicable law, the
Company hereby waives and agrees not to allege or claim that any provisions of
this Note could give rise to or result in any actual or potential violation of
any applicable usury laws.
SECTION 6.5 Remedies Not Waived. No course of dealing between the Company
-------------------
and the Holder or any delay in exercising any rights hereunder shall operate as
a waiver by the Holder.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Notice of Certain Events. In the case of the occurrence of
---------------------------
any event described in Section 3.4 of this Debenture, the Company shall cause to
be mailed to the Holder of this Debenture at its last address as it appears in
the Company's security registry, at least twenty (20) days prior to the
applicable record, effective or expiration date hereinafter specified (or, if
such twenty (20) days' notice is not possible, at the earliest possible date
prior to any such record, effective or expiration date), a notice thereof,
including, if applicable, a statement of (y) the date on which a record is to be
taken for the purpose of such dividend, distribution, issuance or granting of
rights, options or warrants, or if a record is not to be taken, the date as of
which the holders of record of Common Stock to be entitled to such dividend,
distribution, issuance or granting of rights, options or warrants are to be
determined or (z) the date on which such reclassification, consolidation,
12
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Common Stock will be entitled to exchange their shares for securities, cash
or other property deliverable upon such reclassification, consolidation, merger,
sale transfer, dissolution, liquidation or winding-up.
SECTION 7.2 Register. The Company shall keep at its principal office a
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register in which the Company shall provide for the registration of this
Debenture. Upon any transfer of this Debenture in accordance with Articles 2
and 4 hereof, the Company shall register such transfer on the Debenture
register.
SECTION 7.3 Withholding. To the extent required by applicable law, the
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Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction
over the Company from any payments made pursuant to this Debenture.
SECTION 7.4 Transmittal of Notices. Except as may be otherwise provided
------------------------
herein, any notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally, or sent by
telecopier machine or by a nationally recognized overnight courier service, and
shall be deemed given when so delivered personally, or by telecopier machine or
overnight courier service as follows:
(1) if to the Company, to:
Sequiam Corporation
000 Xxxxxxx Xxxx
Xxxxxxx, Xxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
with a copy to:
XXX & XXXXXXX, LLP
00000 Xxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxxxx X. Xxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
(2) if to the Holder, to:
La Jolla Cove Investors, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
13
Each of the Holder or the Company may change the foregoing address by notice
given pursuant to this Section 7.4.
SECTION 7.5 Attorneys' Fees. Should any party hereto employ an
-----------------
attorney for the purpose of enforcing or construing this Agreement, or any
judgment based on this Agreement, in any legal proceeding whatsoever, including
insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the
prevailing party shall be entitled to receive from the other party or parties
thereto reimbursement for all reasonable attorneys' fees and all reasonable
costs, including but not limited to service of process, filing fees, court and
court reporter costs, investigative costs, expert witness fees, and the cost of
any bonds, whether taxable or not, and that such reimbursement shall be included
in any judgment or final order issued in that proceeding. The "prevailing
party" means the party determined by the court to most nearly prevail and not
necessarily the one in whose favor a judgment is rendered.
SECTION 7.6 Governing Law. This Debenture shall be governed by, and
--------------
construed in accordance with, the laws of the State of California (without
giving effect to conflicts of laws principles). With respect to any suit,
action or proceedings relating to this Debenture, the Company irrevocably
submits to the exclusive jurisdiction of the courts of the State of California
sitting in San Diego and the United States District Court located in the City of
San Diego and hereby waives, to the fullest extent permitted by applicable law,
any claim that any such suit, action or proceeding has been brought in an
inconvenient forum. Subject to applicable law, the Company agrees that final
judgment against it in any legal action or proceeding arising out of or relating
to this Debenture shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a
certified copy of which judgment shall be conclusive evidence thereof and the
amount of its indebtedness, or by such other means provided by law.
SECTION 7.7 Headings. The headings of the Articles and Sections of this
--------
Debenture are inserted for convenience only and do not constitute a part of this
Debenture.
SECTION 7.8 Payment Dates. Whenever any payment hereunder shall be due on a
-------------
day other than a Business Day, such payment shall be made on the next succeeding
Business Day.
SECTION 7.9 Binding Effect. Each Holder by accepting this Xxxxxxxxx agrees
--------------
to be bound by and comply with the terms and provisions of this Debenture.
SECTION 7.10 No Stockholder Rights. Except as otherwise provided herein,
----------------------
this Debenture shall not entitle the Holder to any of the rights of a
stockholder of the Company, including, without limitation, the right to vote, to
receive dividends and other distributions, or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company, unless
and to the extent converted into shares of Common Stock in accordance with the
terms hereof.
SECTION 7.11 Facsimile Execution. Facsimile execution shall be deemed
--------------------
originals.
14
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed by
its duly authorized officer on the date of this Debenture.
Sequiam Corporation
By:
------------------------------
Title:
---------------------------
15
EXHIBIT A
DEBENTURE CONVERSION NOTICE
TO: Sequiam Corporation
The undersigned owner of this 8 % Convertible Debenture due March ___, 2005
(the "DEBENTURE") issued by Sequiam Corporation (the "COMPANY") hereby
irrevocably exercises its option to convert $__________ Principal Amount of the
Debenture [and accrued and unpaid interest thereon to the date of this Notice]
into shares of Common Stock in accordance with the terms of the Debenture. The
undersigned hereby instructs the Company to convert the portion of the Debenture
specified above into shares of Common Stock Issued at Conversion in accordance
with the provisions of Article 3 of the Debenture. The undersigned directs that
the Common Stock and certificates therefor deliverable upon conversion, the
Debenture reissued in the Principal Amount not being surrendered for conversion
hereby, [the check or shares of Common Stock in payment of the accrued and
unpaid interest thereon to the date of this Notice,] together with any check in
payment for fractional Common Stock, be registered in the name of and/or
delivered to the undersigned unless a different name has been indicated below.
All capitalized terms used and not defined herein have the respective meanings
assigned to them in the Debenture. The conversion pursuant hereto shall be
deemed to have been effected at the date and time specified below, and at such
time the rights of the undersigned as a Holder of the Principal Amount of the
Debenture set forth above shall cease and the Person or Persons in whose name or
names the Common Stock Issued at Conversion shall be registered shall be deemed
to have become the holder or holders of record of the Common Shares represented
thereby and all voting and other rights associated with the beneficial ownership
of such Common Shares shall at such time vest with such Person or Persons.
Date and time: __________________
_________________________________
By: ____________________________
Title: _________________________
Fill in for registration of Debenture:
Please print name and address
(including ZIP code number):
_________________________________
_________________________________
_________________________________
A-1
