EXHIBIT 4.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: February 8, 2005
Original Conversion Price (subject to adjustment herein): $1.30
$_______________
SECURED CONVERTIBLE DEBENTURE
DUE FEBRUARY 8, 2007
THIS DEBENTURE is one of a series of duly authorized and issued Secured
Convertible Debentures of RCG Companies Incorporated, a Delaware corporation,
having a principal place of business at _____________________________ (the
"Company"), designated as its Secured Convertible Debenture, due February 8,
2007 (the "Debenture(s)").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "Holder"), or shall have
paid pursuant to the terms hereunder, the principal sum of $_______________ by
February 8, 2007, or such earlier date as the Debentures are required or
permitted to be repaid as provided hereunder (the "Maturity Date"). This
Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in
Section 5(d).
"Base Conversion Price" shall have the meaning set forth in Section
5(b).
1
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on
which banking institutions in the State of New York and Charlotte, North
Carolina are authorized or required by law or other government action to
close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the date
hereof of any of (a) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 50% of the voting securities of the Company,
(b) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving
effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 50% of the aggregate voting power
of the Company or the successor entity of such transaction, or (c) the
Company sells or transfers its assets, as an entirety or substantially as
an entirety, to another Person and the stockholders of the Company
immediately prior to such transaction own less than 50% of the aggregate
voting power of the acquiring entity immediately after the transaction, or
(d) a replacement at one time or within a one year period of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving
as members of the board of directors on any date whose nomination to the
board of directors was approved by a majority of the members of the board
of directors who are members on the date hereof), or (e) the execution by
the Company of an agreement to which the Company is a party or by which it
is bound, providing for any of the events set forth above in (a) through
(d).
"Closing Price" means on any particular date (a) the last reported
closing bid price per share of Common Stock on such date on the Trading
Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b)
if there is no such price on such date, then the closing bid price on the
Trading Market on the date nearest preceding such date (as reported by
Bloomberg L.P. at 4:15 PM (New York time) for the closing bid price for
regular session trading on such day), or (c) if the Common Stock is not
then listed or quoted on a Trading Market and if prices for the Common
Stock are then quoted on the OTC Bulletin Board, the closing bid price of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board (as reported by Bloomberg L.P. at 4:15 PM (New York time),
(d) if the Common Stock is not then listed or quoted on the Trading Market
and if prices for the Common Stock are then reported in the "pink sheets"
published by the Pink Sheets LLC (formerly the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported, or (e) if the shares of Common Stock are not
then publicly traded the fair market value of a share of Common Stock as
determined by a qualified independent appraiser selected in good faith by
the Purchasers of a majority in interest of the Principal Amount of
Debentures then outstanding.
2
"Common Stock" means the common stock, par value $0.04 per share, of
the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Date" shall have the meaning set forth in Section 4(a).
"Conversion Price" shall have the meaning set forth in Section 4(b).
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of Debentures.
"Debenture Register" shall have the meaning set forth in Section
2(c).
"Dilutive Issuance" shall have the meaning set forth in Section
5(b).
"Dilutive Issuance Notice" shall have the meaning set forth in
Section 5(b).
"Effectiveness Period" shall have the meaning given to such term in
the Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question, (i)
the Company shall have duly honored or cured all conversions and
redemptions scheduled to occur or occurring by virtue of one or more
Notice of Conversions, if any, (ii) all liquidated damages and other
amounts thus owing in respect of the Debentures shall have been paid;
(iii) there is an effective Registration Statement pursuant to which the
Holder is permitted to utilize the prospectus thereunder to resell all of
the shares issuable pursuant to the Transaction Documents or the
Conversion Shares are available for resale under Rule 144(k) (and the
Company believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (iv) the Common Stock is
trading on the Trading Market and all of the shares issuable pursuant to
the Transaction Documents are listed for trading on a Trading Market (and
the Company believes, in good faith, that trading of the Common Stock on a
Trading Market will continue uninterrupted for the foreseeable future),
(v) there is a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock for the issuance of all of the shares
issuable pursuant to the Transaction Documents, (vi) there is then
existing no Event of Default, (vii) all of the shares issued or issuable
pursuant to the transaction proposed would not violate the limitations set
forth in Sections 4(c)(i) and 4(c)(ii) and (viii) no public announcement
of a pending or proposed Fundamental Transaction, Change of Control
Transaction or acquisition transaction has occurred that has not been
consummated.
"Event of Default" shall have the meaning set forth in Section 8.
3
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fundamental Transaction" shall have the meaning set forth in
Section 5(d).
"Late Fees" shall have the meaning set forth in Section 2(d).
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the greater of: (A) 120% of the Principal Amount of Debentures to
be prepaid, or (B) the principal amount of Debentures to be prepaid,
divided by the Conversion Price on (x) the date the Mandatory Prepayment
Amount is due or (y) the date the Mandatory Prepayment Amount is paid in
full, whichever is less, multiplied by the Closing Price on (x) the date
the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is
greater, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of such Debentures.
"New York Courts" shall have the meaning set forth in Section 9(d).
"Notice of Conversion" shall have the meaning set forth in Section
4(a).
"Optional Redemption" shall have the meaning set forth in Section
6(a).
"Optional Redemption Amount" shall mean the sum of (i) 130% of the
principal amount of the Debenture then outstanding, (ii) accrued but
unpaid interest and (iii) all liquidated damages and other amounts due in
respect of the Debenture.
"Optional Redemption Notice" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Notice Date" shall have the meaning set forth
in Section 6(a).
"Original Issue Date" shall mean the date of the first issuance of
the Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Permitted Liens" shall mean the following: (a) liens which arise by
operation of law for taxes, assessments or charges not yet due and payable
or which are being contested in good faith and by appropriate proceedings;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
liens; (c) pledges or deposits in connection with worker's compensation
and unemployment insurance laws and other social security legislation and
(d) purchase money security interests.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
4
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of February 8, 2005, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering
among other things the resale of the Conversion Shares and naming the
Holder as a "selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Shareholder Approval" shall have the meaning given to such term in
the Purchase Agreement.
"Subsidiary" shall have the meaning given to such term in the
Purchase Agreement.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq SmallCap Market, the American Stock Exchange, the New York
Stock Exchange or the Nasdaq National Market.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
Section 2. Interest.
a) No Payment of Interest. The Company shall not pay interest to the
Holder on this Debenture. The Company acknowledges and agrees that this
Debenture was issued for an Original Issue Discount in lieu of future cash
interest payments.
b) Prepayment. Except as otherwise set forth in this Debenture, the
Company may not prepay any portion of the principal amount of this
Debenture without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
5
a) Different Denominations. 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.
b) Investment Representations. This Debenture has been issued
subject to certain investment representations of the original Holder set
forth in the Purchase Agreement and may be transferred or exchanged only
in compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes,
whether or not this Debenture is overdue, and neither the Company nor any
such agent shall be affected by notice to the contrary.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date
until this Debenture is no longer outstanding, 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 (subject to the
limitations on conversion set forth in Section 4(c) hereof). The Holder
shall effect conversions by delivering to the Company the form of Notice
of Conversion attached hereto as Annex A (a "Notice of Conversion"),
specifying therein the principal amount of Debentures to be converted and
the date on which such conversion is to be effected (a "Conversion Date").
If no Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is
provided hereunder. To effect conversions hereunder, the Holder shall not
be required to physically surrender Debentures to the Company unless the
entire principal amount of this Debenture. Conversions hereunder shall
have the effect of lowering the outstanding principal amount of this
Debenture in an amount equal to the applicable conversion. The Holder and
the Company shall maintain records showing the principal amount converted
and the date of such conversions. The Company shall deliver any objection
to any Notice of Conversion within 2 Business Days of receipt of such
notice. In the event of any dispute or discrepancy, the records of the
Holder shall be controlling and determinative in the absence of manifest
error. THE HOLDER AND ANY ASSIGNEE, BY ACCEPTANCE OF THIS DEBENTURE,
ACKNOWLEDGE AND AGREE THAT, BY REASON OF THE PROVISIONS OF THIS PARAGRAPH,
FOLLOWING CONVERSION OF A PORTION OF THIS DEBENTURE, THE UNPAID AND
UNCONVERTED PRINCIPAL AMOUNT OF THIS DEBENTURE MAY BE LESS THAN THE AMOUNT
STATED ON THE FACE HEREOF.
b) Conversion Price. The conversion price shall equal $1.30 (subject to
adjustment herein)(the "Conversion Price").
c) Conversion Limitations.
6
i. Trading Market Limitations. Notwithstanding anything herein
to the contrary, if the Company has not obtained Shareholder
Approval (as defined below) and if required by the applicable rules
and regulations of the then Trading Market (or any successor
entity), then until such time as Shareholder Approval is obtained or
is not otherwise required, this Debenture shall not be convertible
into Conversion Shares.
ii. Holder's Restriction on Conversion. The Company shall not
effect any conversion of this Debenture, and the Holder shall not
have the right to convert any portion of this Debenture, pursuant to
Section 4(a) or otherwise, to the extent that after giving effect to
such conversion, the Holder (together with the Holder's affiliates),
as set forth on the applicable Notice of Conversion, would
beneficially own in excess of 4.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock
issuable upon conversion of this Debenture with respect to which the
determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A)
conversion of the remaining, nonconverted portion of this Debenture
beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of
any other securities of the Company (including, without limitation,
any other Debentures or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates. Except as
set forth in the preceding sentence, for purposes of this Section
4(c)(ii), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act. To the extent that the
limitation contained in this section applies, the determination of
whether this Debenture is convertible (in relation to other
securities owned by the Holder) and of which a portion of this
Debenture is convertible shall be in the sole discretion of such
Holder. To ensure compliance with this restriction, the Holder will
be deemed to represent to the Company each time it delivers a Notice
of Conversion that such Notice of Conversion has not violated the
restrictions set forth in this paragraph and the Company shall have
no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 4(c)(ii), in determining
the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as
reflected in (x) the Company's most recent Form 10-Q or Form 10-K,
as the case may be, (y) a more recent public announcement by the
Company or (z) any other written notice by the Company or the
Company's Transfer Agent setting forth the number of shares of
Common Stock outstanding. Upon the written or oral request of the
Holder, the Company shall within two Trading Days confirm orally and
in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Debenture, by
the Holder or its affiliates since the date as of which such number
of outstanding shares of Common Stock was reported. The provisions
of this Section 4(c) may be waived by the Holder upon, at the
election of the Holder, not less than 61 days' prior notice to the
Company, and the provisions of this Section 4(c) shall continue to
apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver).
7
d) Mechanics of Conversion
i. Conversion Shares Issuable Upon Conversion of Principal
Amount. The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to
be converted by (y) the Conversion Price. i.
ii. Delivery of Certificate Upon Conversion. Not later than
three Trading Days after any Conversion Date, the Company will
deliver to the Holder a certificate or certificates representing the
Conversion Shares which shall be free of restrictive legends and
trading restrictions (other than those required by the Purchase
Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of Debentures. The Company shall, if
available and if allowed under applicable securities laws, use its
reasonable best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions.
iii. Failure to Deliver Certificates. If in the case of any
Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the third
Trading Day after a Conversion Date, the Holder shall be entitled by
written notice to the Company at any time on or before its receipt
of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the
certificates representing the principal amount of Debentures
tendered for conversion.
8
iv. Obligation Absolute; Partial Liquidated Damages. If the
Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 4(d)(ii) by the
third Trading Day after the Conversion Date, the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty,
for each $1000 of principal amount being converted, $10 per Trading
Day (increasing to $20 per Trading Day after 5 Trading Days after
such damages begin to accrue) for each Trading Day after such third
Trading Day until such certificates are delivered. The Company's
obligations to issue and deliver the Conversion Shares upon
conversion of this Debenture in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction
by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach
or alleged breach by the Holder or any other Person of any
obligation to the Company or any violation or alleged violation of
law by the Holder or any other person, and irrespective of any other
circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of such
Conversion Shares; provided, however, such delivery shall not
operate as a waiver by the Company of any such action the Company
may have against the Holder. In the event a Holder of this Debenture
shall elect to convert any or all of the outstanding principal
amount hereof, the Company may not refuse conversion based on any
claim that the Holder or any one associated or affiliated with the
Holder of has been engaged in any violation of law, agreement or for
any other reason, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of this
Debenture shall have been sought and obtained and the Company posts
a surety bond for the benefit of the Holder in the amount of 150% of
the principal amount of this Debenture outstanding, which is subject
to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Holder to the extent it obtains
judgment. In the absence of an injunction precluding the same, the
Company shall issue Conversion Shares or, if applicable, cash, upon
a properly noticed conversion. Nothing herein shall limit a Xxxxxx's
right to pursue actual damages or declare an Event of Default
pursuant to Section 8 herein for the Company's failure to deliver
Conversion Shares within the period specified herein and such Holder
shall have the right to pursue all remedies available to it at law
or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such
rights shall not prohibit the Holders from seeking to enforce
damages pursuant to any other Section hereof or under applicable
law.
v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Conversion. In addition to any other rights
available to the Holder, if the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to
Section 4(d)(ii) by the third Trading Day after the Conversion Date,
and if after such third Trading Day the Holder is required by its
brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which the Holder anticipated
receiving upon such conversion (a "Buy-In"), then the Company shall
(A) pay in cash to the Holder (in addition to any remedies available
to or elected by the Holder) the amount by which (x) the Holder's
total purchase price (including brokerage commissions, if any) for
the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2)
the actual sale price of the Common Stock at the time of the sale
(including brokerage commissions, if any) giving rise to such
purchase obligation was exceeded and (B) at the option of the
Holder, either reissue Debentures in principal amount equal to the
principal amount of the attempted conversion or deliver to the
Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its delivery
requirements under Section 4(d)(ii). 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 actual sale price of the Conversion Shares
at the time of the sale (including brokerage commissions, if any)
giving rise to such purchase obligation was a total of $10,000 under
clause (A) of the immediately preceding sentence, the Company shall
be required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder
in respect of the Buy-In together with applicable confirmation and
other evidence reasonably requested by the Company. Notwithstanding
anything contained herein to the contrary, if a Holder requires the
Company to make payment in respect of a Buy-In for the failure to
timely deliver certificates hereunder and the Company timely pays in
full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 4(d)(iv) in respect of the
certificates resulting in such Buy-In.
9
vi. Reservation of Shares Issuable Upon Conversion. The
Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of the
Debentures, as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as
shall (subject to any additional requirements of the Company as to
reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of
Section 5) upon the conversion of the outstanding principal amount
of the Debentures. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and, if the
Registration Statement is then effective under the Securities Act,
registered for public sale in accordance with such Registration
Statement.
vii. Fractional Shares. Upon a conversion hereunder the
Company shall not be required to issue stock certificates
representing fractions of shares of the Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Closing Price at such time. If the
Company elects not, or is unable, to make such a cash payment, the
Holder shall be entitled to receive, in lieu of the final fraction
of a share, one whole share of Common Stock.
viii. Transfer Taxes. The issuance of certificates for shares
of the Common Stock on conversion of the Debentures shall be made
without charge to the Holders thereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or
delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder
of such Debentures so converted and the Company shall not be
required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
10
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time
while the Debentures are outstanding: (A) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its Common
Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include
any shares of Common Stock issued by the Company pursuant to this
Debenture), (B) subdivide outstanding shares of Common Stock into a larger
number of shares, (C) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (D)
issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of
shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary
thereof, as applicable, at any time while Debentures are outstanding,
shall sell, grant any option to purchase or sell or grant any right to
reprice its securities, or otherwise dispose of or issue any Common Stock
or Common Stock Equivalents entitling any Person to acquire shares of
Common Stock, at an effective price per share less than the then
Conversion Price (such lower price, the "Base Conversion Price" and such
issuances collectively, a "Dilutive Issuance"), as adjusted hereunder (if
the holder of the Common Stock or Common Stock Equivalents 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 an effective 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 the Conversion Price shall be reduced to equal the
Base Conversion Price. Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued. The Company shall notify the
Holder in writing, no later than the second Trading Day following the
issuance of any Common Stock or Common Stock Equivalents subject to this
section, indicating therein the applicable issuance price, or of
applicable reset price, exchange price, conversion price and other pricing
terms (such notice the "Dilutive Issuance Notice"). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance
Notice pursuant to this Section 5(b), after the occurrence of any Dilutive
Issuance and upon any conversion, the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price
regardless of whether the Holder accurately refers to the Base Conversion
Price in the Notice of Conversion.
11
c) Pro Rata Distributions. If the Company, at any time while
Debentures are outstanding, shall distribute to all holders of Common
Stock (and not to Holders) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (other than
Common Stock), then in each such case the Conversion Price shall be
determined by multiplying such Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled
to receive such distribution by a fraction of which the denominator shall
be the Closing Price determined as of the record date mentioned above, and
of which the numerator shall be such Closing 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 Holders of the portion of assets or
evidences of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
d) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person in which it is not the surviving
entity, or the Company's then existing shareholders will own less than 51%
of the surviving entity,, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, the result of which to the Company's
shareholders at such time own less than 51% of the shares of Common Stock
of the Company or (D) the Company effects any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities,
cash or property (in any such case, a "Fundamental Transaction"), then
upon any subsequent conversion of this Debenture, the Holder shall have
the right to receive, for each Conversion Share that would have been
issuable upon such conversion absent such Fundamental Transaction, the
same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if
it had been, immediately prior to such Fundamental Transaction, the holder
of one share of Common Stock (the "Alternate Consideration"). For purposes
of any such conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based on
the amount of Alternate Consideration issuable in respect of one share of
Common Stock in such Fundamental Transaction, and the Company shall
apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different
12
components of the Alternate Consideration. If holders of Common Stock are
given any choice as to the securities, cash or property to be received in
a Fundamental Transaction, then the Holder shall be given the same choice
as to the Alternate Consideration it receives upon any conversion of this
Debenture following such Fundamental Transaction. To the extent necessary
to effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder
a new debenture consistent with the foregoing provisions and evidencing
the Holder's right to convert such debenture into Alternate Consideration.
The terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this paragraph (d) and that this
Debenture (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.
e) Calculations. All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 5, the number of shares of Common Stock
deemed to be issued and outstanding as of a given date shall be the sum of
the number of shares of Common Stock (excluding treasury shares, if any)
issued and outstanding.
f) Exempt Issuance. Notwithstanding the foregoing, no adjustment
will be made under this Section 5 in respect of an Exempt Issuance.
g) Notice to Holders.
i. Adjustment to Conversion Price. Whenever the Conversion
Price is adjusted pursuant to any of this Section 5, the Company
shall promptly mail to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Company
issues a variable rate security, despite the prohibition thereon in
the Purchase Agreement, the Company shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be
converted or exercised in the case of a Variable Rate Transaction
(as defined in the Purchase Agreement).
ii. Notice to Allow Conversion by Xxxxxx. If (A) the Company
shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the Company
shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to
which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory
13
share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company; then, in each case, the Company shall
cause to be filed at each office or agency maintained for the
purpose of conversion of the Debentures, and shall cause to be
mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior
to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected
to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such
notice. Holders are entitled to convert Debentures during the 20-day
period commencing the date of such notice to the effective date of
the event triggering such notice.
Section 6. Redemption. [
a) Optional Redemption at Election of Company. Subject to the
provisions of this Section 6, the Company may deliver a notice to the
Holders (an "Optional Redemption Notice" and the date such notice is
deemed delivered hereunder, the "Optional Redemption Notice Date") of its
irrevocable election to redeem some or all of the then outstanding
Debentures, for an amount, in cash, equal to the Optional Redemption
Amount on the 20th Trading Day following the Optional Redemption Notice
Date (such date, the "Optional Redemption Date" and such redemption, the
"Optional Redemption"). The Optional Redemption Amount is due in full on
the Optional Redemption Date. The Company may only effect an Optional
Redemption if during the period commencing on the Optional Redemption
Notice Date through to the Optional Redemption Date, each of the Equity
Conditions shall have been met. If any of the Equity Conditions shall
cease to be satisfied at any time during the required period, then the
Holder may elect to nullify the Optional Redemption Notice by notice to
the Company within 3 Trading Days after the first day on which any such
Equity Condition has not been met (provided that if, by a provision of the
Transaction Documents the Company is obligated to notify the Holder of the
non-existence of an Equity Condition, such notice period shall be extended
to the third Trading Day after proper notice from the Company) in which
case the Optional Redemption Notice shall be null and void, ab initio. The
Company covenants and agrees that it will honor all Notice of Conversions
tendered from the time of delivery of the Optional Redemption Notice
through the date all amounts owing thereon are due and paid in full.
14
b) Redemption Procedure. The payment of cash pursuant to the
Optional Redemption shall be made on the Optional Redemption Date. If any
portion of the cash payment for an Optional Redemption shall not be paid
by the Company by the respective due date, interest shall accrue thereon
at the rate of 18% per annum (or the maximum rate permitted by applicable
law, whichever is less) until the payment of the Optional Redemption
Amount, plus all amounts owing thereon is paid in full. Alternatively, if
any portion of the Optional Redemption Amount remains unpaid after such
date, the Holders subject to such redemption may elect, by written notice
to the Company given at any time thereafter, to invalidate ab initio such
redemption, notwithstanding anything herein contained to the contrary,
and, with respect the failure to honor the Optional Redemption, the
Company shall have no further right to exercise such Optional Redemption.
Notwithstanding anything to the contrary in this Section 6, the Company's
determination to redeem under Section 6(a) shall be applied among the
Holders of Debentures ratably (based on the then outstanding principal
amount held by such Holder). The Holder may elect to convert the
outstanding principal amount of the Debenture pursuant to Section 4 prior
to actual payment in cash for any redemption under this Section 6 by fax
delivery of a Notice of Conversion to the Company.
Section 7. Negative Covenants. So long as any portion of this Debenture is
outstanding, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly:
a) except for Permitted Liens, enter into, create, incur, assume or
suffer to exist (other than as set forth on the Disclosure Schedules to
the Purchase Agreement) any indebtedness or liens of any kind, on or with
respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom that is senior
to, or pari passu with, in any respect, the Company's obligations under
the Debentures;
b) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Holder;
c) repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de minimis number of shares of its Common Stock or
other equity securities other than as to the Conversion Shares to the
extent permitted or required under the Transaction Documents or as
otherwise permitted by the Transaction Documents or as required under any
existing documents of the Company; or
d) enter into any agreement with respect to any of the foregoing.
Section 8. Events of Default.
15
a) "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 amount in
respect of, any Debenture, in each case free of any claim of
subordination, as and when the same shall become due and payable
(whether on a Maturity Date or by acceleration or otherwise) which
default, is not cured, if possible to cure, within 3 Trading Days);
ii. the Company shall materially fail to observe or perform
any other material covenant or agreement contained in this Debenture
(other than a breach by the Company of its obligations to deliver
shares of Common Stock to the Holder upon conversion which breach is
addressed in clause (xii) below) which material failure is not
cured, if possible to cure, within 10 Trading Days after notice of
such default sent by the Holder or by any other Holder;
iii. a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents
other than the Debentures, or (B) any other material agreement,
lease, document or instrument to which the Company or any Subsidiary
is bound;
iv. any material representation or material warranty made
herein, in any other Transaction Documents shall be untrue or
incorrect in any material respect as of the date when made or deemed
made;
v. (i) the Company or any of its Subsidiaries shall commence,
or there shall be commenced against the Company or any such
Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the
Company or any Subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the
Company or any Subsidiary thereof or (ii) there is commenced against
the Company or any Subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a
period of 60 days; or (iii) the Company or any Subsidiary thereof is
adjudicated by a court of competent jurisdiction insolvent or
bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or (iv) the Company or any Subsidiary
thereof suffers any appointment of any custodian or the like for it
or any substantial part of its property which continues undischarged
or unstayed for a period of 60 days; or (v) the Company or any
Subsidiary thereof makes a general assignment for the benefit of
creditors; or (vi) the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or (vii) the Company or any Subsidiary
thereof shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts;
or (viii) the Company or any Subsidiary thereof shall by any act or
failure to act expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or (ix) any corporate or other
action is taken by the Company or any Subsidiary thereof for the
purpose of effecting any of the foregoing;
16
vi. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an
amount exceeding $250,000, 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;
vii. the Common Stock shall not be eligible for quotation on
or quoted for trading on a Trading Market and shall not again be
eligible for and quoted or listed for trading thereon within five
Trading Days;
viii. the Company shall be a party to any Change of Control
Transaction, shall agree to sell or dispose of all or in excess of
33% of its assets in one or more transactions (whether or not such
sale would constitute a Change of Control Transaction) or shall
redeem or repurchase more than a de minimis number of its
outstanding shares of Common Stock or other equity securities of the
Company (other than redemptions of Conversion Shares and repurchases
of shares of Common Stock or other equity securities of departing
officers and directors of the Company; provided such repurchases
shall not exceed $100,000, in the aggregate, for all officers and
directors during the term of this Debenture);
ix. a Registration Statement shall not have been declared
effective by the Commission on or prior to the 180th calendar day
after the Closing Date;
x. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the
Registration Statement lapses for any reason or the Holder shall not
be permitted to resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Registration Statement, in
either case, other than as a result of any action or inaction of a
Holder, for more than 60 calendar days (which need not be
consecutive days) during any 12 month period; provided, however,
that in the event that the Company is negotiating a merger,
consolidation, acquisition or sale of all or substantially all of
its assets or a similar transaction and in the written opinion of
counsel to the Company, the Registration Statement, would be
required to be amended to include information concerning such
transactions or the parties thereto that is not available or may not
be publicly disclosed at the time, the Company shall be permitted an
additional 15 consecutive Trading Days during any 12 month period
relating to such an event;
17
xi. the Company shall fail for any reason to deliver
certificates to a Holder prior to the 10th Trading Day after such
shares are required to be delivered hereunder pursuant to and in
accordance with Section 4(d) or the Company shall provide notice to
the Holder, including by way of public announcement, at any time, of
its intention not to comply with requests for conversions of any
Debentures in accordance with the terms hereof; or
xii. any Person shall breach the agreements delivered to the
initial Holders pursuant to Section 2.2(a)(iv) of the Purchase
Agreement and the Company does not obtain Shareholder Approval. i.
b) Remedies Upon Event of Default. If any Event of Default occurs,
the full principal amount of this Debenture, together with other amounts
owing in respect thereof, to the date of acceleration shall become, at the
Holder's election, immediately due and payable in cash. The aggregate
amount payable upon an Event of Default shall be equal to the Mandatory
Prepayment Amount. Commencing 5 days after the occurrence of any Event of
Default that results in the eventual acceleration of this Debenture, the
interest rate on this Debenture shall accrue at the rate of 18% per annum,
or such lower maximum amount of interest permitted to be charged under
applicable law. All Debentures for which the full Mandatory Prepayment
Amount hereunder shall have been paid in accordance herewith shall
promptly be surrendered to or as directed by the Company. The Holder need
not provide and the Company hereby waives any presentment, demand, protest
or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and
remedies hereunder and all other remedies available to it under applicable
law. Such declaration may be rescinded and annulled by Xxxxxx at any time
prior to payment hereunder and the Holder shall have all rights as a
Debenture holder until such time, if any, as the full payment under this
Section shall have been received by it. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right
consequent thereon. a)
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holders hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight
courier service, addressed to the Company, at the address set forth above,
facsimile number (000) 000 0000, ATTN: XXXXXXX XXXXX, or such other
address or facsimile number as the Company may specify for such purposes
by notice to the Holders delivered in accordance with this Section. Any
and all notices or other communications or deliveries to be provided by
the Company hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile telephone number or address of
such Xxxxxx appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of
the Holder. Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile
at the facsimile telephone number specified in this Section prior to 5:00
p.m. (New York City time), (ii) the date after the date of transmission,
if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 5:00 p.m.
(New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) the second Business Day following the date
of mailing, if sent by nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to
be given.
18
b) Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
liquidated damages (if any) on, this Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed. This Debenture is a
direct debt obligation of the Company. This Debenture ranks pari passu
with all other Debentures now or hereafter issued under the terms set
forth herein.
c) Lost or Mutilated Debenture. If this Debenture shall be
mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen
or destroyed Debenture, a new Debenture for the principal amount of this
Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory
to the Company.
d) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the
state and federal courts sitting in the City of New York, Borough of
Manhattan (the "New York Courts"). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under
this Debenture and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial
by jury in any legal proceeding arising out of or relating to this
Debenture or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this
Debenture, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.
19
e) Waiver. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed to be
a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the
Holder to insist upon strict adherence to any term of this Debenture on
one or more occasions shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term
or any other term of this Debenture. Any waiver must be in writing.
f) Severability. 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 violates applicable laws governing usury,
the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum permitted rate of interest. The Company
covenants (to the extent that it may lawfully do so) that it shall not at
any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law or other law
which would prohibit or forgive the Company from paying all or any portion
of the principal of or interest on this Debenture as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company
(to the extent it may lawfully do so) hereby expressly waives all benefits
or advantage of any such law, and covenants that it will not, by resort to
any such law, hinder, delay or impeded the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every
such as though no such law has been enacted.
g) Next Business Day. 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.
h) Headings. The headings contained herein are for convenience only,
do not constitute a part of this Debenture and shall not be deemed to
limit or affect any of the provisions hereof.
20
i) Security Interest. This Debenture is a direct debt obligation of
the Company and, pursuant to the Security Agreement is secured by a
perfected security interest in all of the assets of the Company for the
benefit of the Holders.
*********************
21
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
RCG COMPANIES INCORPORATED
By:___________________________________
Name:
Title:
22
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Secured
Convertible Debenture of RCG Companies Incorporated, a Delaware corporation (the
"Company"), due on February 8, 2007, into shares of common stock, par value
$0.04 per share (the "Common Stock"), of the Company according to the conditions
hereof, as of the date written below. If shares are to be issued in the name of
a person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No fee
will be charged to the holder for any conversion, except for such transfer
taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the Exchange
Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debentures to be Converted:
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
23
SCHEDULE 1
CONVERSION SCHEDULE
The Secured Convertible Debentures due on February 8, 2007, in the aggregate
principal amount of $____________ issued by RCG Companies Incorporated. This
Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.
Dated:
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Aggregate Principal
Amount Remaining
Date of Conversion Subsequent to
(or for first entry, Original Conversion
Issue Date) Amount of Conversion (or original Company Attest
Principal Amount)
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