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EXHIBIT 10.1
FIRST AMENDMENT TO
INVESTMENT AGREEMENT
THIS FIRST AMENDMENT TO INVESTMENT AGREEMENT (this "Amendment") is made
and dated as of July 30, 2001 between XXX ENTERPRISES, INCORPORATED, a Delaware
corporation (the "Purchaser"), and XXXXXXXXXX.XXX CORP., a Florida corporation
(the "Company"), and amends that certain Investment Agreement dated as of
November 1, 2000, between the Company and the Purchaser (the "Investment
Agreement").
RECITALS
WHEREAS, Company and Purchaser desire to enter into this First
Amendment to Investment Agreement, which will initially re-evidence the
purchases under the Investment Agreement and thereafter provide for additional
purchases and other financial accommodations to Company;
WHEREAS, the parties wish to provide for the terms and conditions upon
which all such purchases or other financial accommodations shall be made;
WHEREAS, all terms used herein shall have the same meanings as in the
Investment Agreement unless otherwise defined herein. All references to the
Investment Agreement shall mean the Investment Agreement as hereby amended;
NOW THEREFORE, in consideration of any purchase or advance or grant of
credit (including any advance or grant of credit by renewal or extension)
heretofore or hereafter made to Company by Purchaser, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Purchaser and the Company hereby agree to amend the Investment
Agreement as follows:
1. AMENDMENTS. Effective as of July 30, 2001, the Investment
Agreement shall be amended in the following respects:
1.1 Authorization of Debentures. Section 1 is hereby deleted in
its entirety and the following is substituted therefor:
"The Company will authorize the issue and sale of:
(a) $250,000 Series A Floating Rate Subordinated
Convertible Debentures (the "Series A Debenture"), such term
to include each Series A Debenture delivered from time to time
in accordance with this Agreement);
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(b) $250,000 Series B Floating Rate Subordinated
Convertible Debentures (the "Series B Debenture"), such term
to include each Series B Debenture delivered from time to time
in accordance with this Agreement);
(c) $250,000 Series C Floating Rate Subordinated
Convertible Debentures (the "Series C Debenture"), such term
to include each Series C Debenture delivered from time to time
in accordance with this Agreement);
(d) $250,000 Series D Floating Rate Subordinated
Convertible Debentures (the "Series D Debenture"), such term
to include each Series D Debenture delivered from time to time
in accordance with this Agreement);
(e) $250,000 Series E Floating Rate Subordinated
Convertible Debentures (the "Series E Debenture"), such term
to include each Series E Debenture delivered from time to time
in accordance with this Agreement);
(f) $250,000 Series F Floating Rate Subordinated
Convertible Debentures (the "Series F Debenture"), such term
to include each Series F Debenture delivered from time to time
in accordance with this Agreement);
(g) $310,000 Series G Floating Rate Subordinated
Convertible Debentures (the "Series G Debenture"), such term
to include each Series G Debenture delivered from time to time
in accordance with this Agreement);
(h) $200,000 Series H Floating Rate Subordinated
Convertible Debentures (the "Series H Debenture"), such term
to include each Series H Debenture delivered from time to time
in accordance with this Agreement);
(i) $200,000 Series I Floating Rate Subordinated
Convertible Debentures (the "Series I Debenture"), such term
to include each Series I Debenture delivered from time to time
in accordance with this Agreement);
(j) $50,000 Series J Floating Rate Subordinated
Convertible Debentures (the "Series J Debenture"), such term
to include each Series J Debenture delivered from time to time
in accordance with this Agreement);
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(k) $50,000 Series K Floating Rate Subordinated
Convertible Debentures (the "Series K Debenture"), such term
to include each Series K Debenture delivered from time to time
in accordance with this Agreement);
(l) $100,000 Series L Floating Rate Subordinated
Convertible Debentures (the "Series L Debenture"), such term
to include each Series L Debenture delivered from time to time
in accordance with this Agreement);
(m) $100,000 Series M Floating Rate Subordinated
Convertible Debentures (the "Series M Debenture"), such term
to include each Series M Debenture delivered from time to time
in accordance with this Agreement);
(n) $100,000 Series N Floating Rate Subordinated
Convertible Debentures (the "Series N Debenture"), such term
to include each Series N Debenture delivered from time to time
in accordance with this Agreement);
(o) $100,000 Series O Floating Rate Subordinated
Convertible Debentures (the "Series O Debenture"), such term
to include each Series O Debenture delivered from time to time
in accordance with this Agreement);
(p) $100,000 Series P Floating Rate Subordinated
Convertible Debentures (the "Series P Debenture"), such term
to include each Series P Debenture delivered from time to time
in accordance with this Agreement);
(q) $100,000 Series Q Floating Rate Subordinated
Convertible Debentures (the "Series Q Debenture"), such term
to include each Series Q Debenture delivered from time to time
in accordance with this Agreement); and
(r) $90,000 Series R Floating Rate Subordinated
Convertible Debentures (the "Series R Debenture"), such term
to include each Series R Debenture delivered from time to time
in accordance with this Agreement).
The Series A Debenture, Series B Debenture, Series C
Debenture, Series D Debenture, Series E Debenture, Series F
Debenture, Series G Debenture, Series H Debenture, Series I
Debenture, Series J Debenture, Series K Debenture, Series L
Debenture, Series M Debenture, Series N Debenture, Series O
Debenture, Series P Debenture, Series Q Debenture and Series R
Debenture shall be referred to in this Agreement collectively
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as the "Debentures" (the Series R Debenture, together with the
Series I Debenture, Series J Debenture, Series K Debenture,
Series L Debenture, Series M Debenture, Series N Debenture,
Series O Debenture, Series P Debenture and Series Q Debenture,
are sometimes collectively referred to as the "Discretionary
Purchase Debentures"), such term to include any such
debentures issued in substitution therefor pursuant to Section
13 of this Agreement. The Series A Debenture, Series B
Debenture, Series C Debenture, Series D Debenture, Series E
Debenture, Series F Debenture, Series G Debenture, Series H
Debenture, Series I Debenture, Series J Debenture, Series K
Debenture, Series L Debenture, Series M Debenture, Series N
Debenture, Series O Debenture, Series P Debenture, Series Q
Debenture and Series R Debenture shall be substantially in the
forms set out in EXHIBIT 1, EXHIBIT 2, EXHIBIT 3, EXHIBIT 4,
EXHIBIT 5, EXHIBIT 6, EXHIBIT 7, EXHIBIT 8, EXHIBIT 9, EXHIBIT
10, EXHIBIT 11, EXHIBIT 12, EXHIBIT 13, EXHIBIT 14, EXHIBIT
15, EXHIBIT 16, EXHIBIT 17 AND EXHIBIT 18 respectively, with
such changes therefrom, if any, as may be approved by
Purchaser and the Company. Certain capitalized terms used in
this Agreement are defined in this Agreement or in SCHEDULE A.
References to a "Schedule" or an "Exhibit" are, unless
otherwise specified, to a Schedule or an Exhibit attached to
this Agreement, and references to Sections are, unless
otherwise specified, references to Sections of this
Agreement."
1.2 Sale and Purchase of Debenture. Section 2 is hereby deleted in
its entirety and the following is substituted therefor:
"Subject to the terms and conditions of this Agreement, the
Company will issue and sell to Purchaser and Purchaser will
purchase from the Company, at the Closing, Additional Closings
and Additional Discretionary Purchase Closings provided for in
Section 3, Debentures in the principal amount and in the
Series specified in EXHIBITS 1 through 18, at the purchase
price of 100% of the principal amount thereof, and Reference
Rate of interest, redemption and conversion rights and other
terms and conditions as provided therein."
1.3 Additional Closings. Section 3.2 is hereby deleted in its
entirety and the following is substituted therefor:
"The sale and purchase of the Series B-I Debentures to be
purchased by Purchaser shall occur at closings (the
"Additional Closing") on the dates set forth on SCHEDULE 3.2
(each an "Additional Closing Date"). The Company acknowledges
receipt of Purchaser's $60,000 payment on July 30, 2001 and
Purchaser's $250,000 payment on August 10, 2001 for the Series
G Debenture. At each Additional Closing the Company will
deliver the appropriate Series B-H Debentures to be purchased
by Purchaser in accordance with each Additional Closing Date
in the form of a single Debenture (or such greater number of
Debentures in denominations of at
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least $50,000 as Purchaser may request) registered in
Purchaser's name (or in the name of Purchaser's nominee),
against delivery by Purchaser to the Company or its order of
immediately available funds in the amount of the purchase
price therefor by wire transfer of immediately available funds
for the account of the Company or by Purchaser check sent via
courier for next day delivery. If at any Additional Closing
the Company shall fail to tender such Debenture to Purchaser
as provided above in this Section 3, or any of the conditions
specified in Section 4 shall not have been fulfilled to
Purchaser's reasonable satisfaction, Purchaser shall, at
Purchaser's election, be relieved of all further obligations
under this Agreement, without thereby waiving any rights
Purchaser may have by reason of such failure or such
nonfulfillment. The Company shall deliver to Purchaser an
Officer's Certificate and a Secretary's Certificate dated the
Additional Closing Date in a form reasonably acceptable to
Purchaser's counsel."
1.4 Additional Closings of Discretionary Purchase Debentures.
Section 3.3 is hereby added as follows:
"Subject to the terms and conditions of this Agreement, the
sale and purchase of the Series J-R Debentures to be purchased
by Purchaser shall occur at closings on the dates set forth on
Schedule 3.2 (each an "Additional Discretionary Purchase
Closing" and each an "Additional Discretionary Purchase
Closing Date"). At each Additional Discretionary Purchase
Closing the Company will deliver the appropriate Series J-R
Debentures to be purchased by Purchaser in accordance with
each Additional Discretionary Purchase Closing Date in the
form of a single Debenture (or such greater number of
Debentures in denominations of at least $50,000 as Purchaser
may request) registered in Purchaser's name (or in the name of
Purchaser's nominee), against delivery by Purchaser to the
Company or its order of immediately available funds in the
amount of the purchase price therefor by wire transfer of
immediately available funds for the account of the Company or
by Purchaser check sent via courier for next day delivery. If
at any Additional Discretionary Purchase Closing the Company
shall fail to tender such Debenture to Purchaser as provided
above in this Section 3, or any of the conditions specified in
Section 4 shall not have been fulfilled, Purchaser shall, at
Purchaser's election, be relieved of all further obligations
under this Agreement, without thereby waiving any rights
Purchaser may have by reason of such failure or such
nonfulfillment. The Company shall deliver to Purchaser an
Officer's Certificate and a Secretary's Certificate dated the
Additional Discretionary Purchase Closing Date in a form
reasonably acceptable to Purchaser's counsel."
1.5 Condition to Closing. Section 4 is hereby deleted in its
entirety and the following is substituted therefor:
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"The Purchaser's obligation to purchase and pay for the
Debentures and the Company's obligation to sell the Debentures
to Purchaser at the Closing, each Additional Closing and each
Discretionary Purchase Closing is subject to the condition
that the Company shall have performed and complied with all
agreements and conditions contained in this Agreement required
to be performed or complied with by it prior to or at the
Closing, each Additional Closing and each Additional
Discretionary Purchase Closing after giving effect to the
issue and sale of the Debentures. No Default or Event of
Default shall have occurred and be continuing. The purchase of
each Discretionary Purchase Debenture is subject to
Purchaser's sole and absolute discretion, irrespective of
whether the Company shall have performed and complied with all
agreements and conditions contained in this Agreement required
to be performed and complied with by it prior to each
Additional Discretionary Purchase Closing."
1.6 Representations and Warranties of the Company. The first
sentence of Section 5 is hereby deleted in its entirety and the following is
substituted therefor:
"The Company represents and warrants to Purchaser on the
Closing Date and on the Additional Closing Date for the Series
G Debenture that:"
1.7 No Undisclosed Liabilities. Section 5.3 is hereby deleted in
its entirety and the following is substituted therefor:
"Except as disclosed in the financial statements referred to
in Section 5.5, such financial statements taken as a whole do
not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements
therein not misleading in light of the circumstances under
which they were made. As of the Closing Date, with respect to
the financial statements referred to in Section 5.5, for the
period ended September 30, 2000, there has been no change in
the financial condition, operations, business or Properties of
the Company or any of its Subsidiaries except changes
disclosed in such financial statements that individually or in
the aggregate would not reasonably be expected to have a
Material Adverse Effect. With respect to the financial
statements referred to in Section 5.5, for the period ended
June 30, 2001, there has been no change in the financial
condition, operations, business or Properties of the Company
or any of its Subsidiaries except changes disclosed in such
financial statements that individually or in the aggregate
would not reasonably be expected to have a Material Adverse
Effect."
1.8 Financial Statements. Section 5.5 is hereby deleted in its
entirety and the following is substituted therefor:
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"The Company has delivered to Purchaser copies of the
financial statements of the Company and its Subsidiaries as of
(a) the Closing attached as Schedule 5.5 and (b) June 30, 2001
attached as Schedule 5.5.1, and additional financial
statements as required in Section 7.1 hereof. All of said
financial statements (including in each case the related
schedules and notes) fairly present in all material respects
the consolidated financial position of the Company and its
Subsidiaries as of the respective dates specified in such
Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have
been prepared in accordance with GAAP consistently applied
throughout the periods involved except as set forth in the
notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments)."
1.9 Additional Disclosures. Section 5.20 is hereby deleted in its
entirety and the following is substituted therefor:
"The Company has provided Purchaser with the latest version of
(a) its Business Plan and (b) most recent draft of the
Company's budget for the fiscal year 2000 and 2001, both of
which are complete and correct as of the date hereof. The
Company will apply the proceeds from the sale of the
Debentures consistent with the Business Plan."
1.10 Authorized Capital Stock. Section 5.21 is hereby deleted in
its entirety and the following substituted therefor:
"The authorized capital stock of the Company on this date of
this Agreement is set forth on SCHEDULE 5.21. The Company
covenants and agrees that at the time of any Conversion Date
(as defined in Section 8.6), 15,425,156 shares (reduced to
reflect conversions previously made under Section 8.6) of the
Company's Common Stock, par value 0.001 per share ("Common
Stock"), will be validly authorized, issued and outstanding,
fully paid and nonassessable, free from all preemptive rights,
taxes, Liens and charges with respect to the issue thereof,
with no personal liability attaching to the ownership thereof.
On the date of this Agreement, there are 15,425,156 shares of
Common Stock reserved for issuance in connection with
Purchaser's conversion rights set forth in Section 8.6. The
Company covenants and agrees that it will at all times have
authorized and reserved, free from preemptive rights, a
sufficient number of shares of Common Stock to provide for
issuance in connection with your conversion rights set forth
in Section 8.6. The Company further covenants and agrees the
Company will from time to time take all such action as may be
required to assure that the stated or par value per share of
Common Stock is at all times equal to or less than the
effective conversion price per share of Common Stock issuable
upon conversion of the Debentures. As of the date of this
Agreement SCHEDULE 5.21 sets forth shares of Common Stock
reserved for issuance in connection with options which have
been
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granted or are currently committed to be granted or have not
yet been exercised. As of the date of this Agreement the
number of shares of Common Stock and number of subscriptions,
warrants, options, convertible securities and other rights
(contingent or other) to purchase or otherwise acquire equity
securities of the Company are set forth in SCHEDULE 5.21. The
designations, powers, preferences rights, qualifications,
limitations and restrictions on the date of this Agreement in
respect of each class and series of authorized capital stock
of the Company are set forth in SCHEDULE 5.21. The Company on
the date of this Agreement has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its
equities securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof
except as set forth in this Agreement, the Registration Rights
Agreement dated November 1, 2000 by and between the Company
and Purchaser (the "Registration Rights Agreement") and
SCHEDULE 5.21. The Company on the date of this Agreement is
not a party to any voting trusts or agreements, stockholders
agreements, pledge agreements, buy-sell agreements, agreements
containing rights of first refusal or preemptive rights, and
there are no proxies relating to any securities of the
Company, except for this Agreement. To the knowledge of the
Company's Chief Financial Officer, assuming the accuracy of
the representations and warranties contained in SCHEDULE 5.21,
all of the outstanding securities of the Company have been
issued in compliance with all applicable U.S. and Canadian
securities laws concerning the issuance of securities."
1.11 Intellectual Property; Proprietary Information of Third
Parties. Section 5.22 is hereby deleted in its entirety and the following is
substituted therefor:
"The Company is in compliance as of the date of this Agreement
and will be in compliance on the Additional Closing Date for
the Series G Debenture with all of its representations,
warranties and covenants with respect to the Intellectual
Property, as defined in the Amended and Restated Loan and
Security Agreement made and dated as of July 30, 2001 among
Purchaser and XxxxXxxxxx.Xxx Corp., a Florida corporation, and
its Wholly-Owned Subsidiaries Xceedx Technologies Inc. and
Welcome To Search Engine Inc., corporations organized under
the laws of the province of British Columbia, Canada (the
"Borrowers"), which amends and supercedes that certain Loan
and Security Agreement dated as of August 16, 2000, as
amended, among the Borrowers and the Purchaser (the "Loan and
Security Agreement")."
1.12 Conversion. Section 8.6 is hereby deleted in its entirety and
the following is substituted therefor:
"A Debenture Holder may convert any Debenture, in whole or in
part, into fully paid and non-assessable Common Stock of the
Company at any time
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before the close of business on the Optional Redemption Date
or Mandatory Redemption Date, as the case may be (each such
conversion is a "Conversion Date"), subject at all times
thereafter to the benefits of the Registration Rights
Agreement in accordance with the terms thereof and the terms
of the Debentures attached as EXHIBITS 1 through 18. If the
Debenture is called for redemption, the holder may convert it
at any time before the close of business on the Optional
Redemption Date or Mandatory Redemption Date, as the case may
be. The Series A-F Debentures shall be converted, subject to
adjustment as provided in each Debenture, on the basis of the
aggregate of (a) one (1) share of Common Stock of the Company
for each $0.2173 of principal debt balance due on the
Debenture (the " Series A-F Debentures Conversion Price"), and
(b) one (1) share of Common Stock of the Company times the
quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in
Section 8.1 hereof (the "Interest Conversion Rate"). The
Series G-R Debentures shall be converted, subject to
adjustment as provided in each Debenture, on the basis of the
aggregate of (a) one (1) share of Common Stock of the Company
for each $0.1760 of principal debt balance due on the
Debenture (the "Series G-R Debentures Conversion Price"), and
(b) one (1) share of Common Stock of the Company times the
Interest Conversion Rate. No fraction of a share of Common
Stock shall be deliverable in payment of principal or accrued
interest on the Debenture, but any fraction of a share shall
be rounded upwards to the nearest whole share."
1.13 Reservation of Common Stock. Section 9.7 is hereby added as
follows:
"The Company shall at all times keep reserved out of its
authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the Debentures into
Common Stock, sufficient shares of Common Stock to allow for
such conversions."
1.14 Other Agreements. Section 9.8 is hereby added as follows:
"The Company will not enter into any agreement, or any
amendment or modification of any existing agreement, which
expressly restricts or prohibits the Company from performing
this Agreement or the Other Agreements."
1.15 Total Indebtedness. Section 10.1 is hereby deleted in its
entirety and the following is substituted therefor:
"The Company will not, and will not permit any Subsidiary to,
at any time, directly or indirectly create, incur, issue,
assume, guaranty or otherwise become liable with respect to
any Indebtedness outstanding other than (a) the Existing
Indebtedness existing on the date hereof and as contemplated
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under the terms of the Series A-R Debentures or (b)
Indebtedness incurred in respect of and not exceeding the
amount of any Lien permitted under clauses (i), (ii), (iii),
(iv), (v), and (vi) of Section 10.6(a), unless the consent of
the Purchaser shall have been obtained."
1.16 Events of Default. Section 11(c) is hereby deleted in its
entirety and the following is substituted therefor:
"(c) the Company defaults in the performance of or compliance
with any term not referred to in clauses (a) and (b) of this
Section 11 and contained in Section 10.1 through Section 10.7
hereto or under the Other Agreements, including, without
limitation, the Loan and Security Agreement and such default
is not remedied within 5 days after the earlier of (i) a
Responsible Officer obtaining actual knowledge of such default
and (ii) the Company receiving written notice of such default
from any holder of a Debenture (any such written notice to be
identified as a 'notice of default' and to refer specifically
to this clause (c) of Section 11); or"
1.17 Events of Default. Section 11(i) is hereby deleted in its
entirety and the following is substituted therefor:
"(i) A judgement and order requiring payment in excess of
$50,000 shall be rendered against the Company and its
Significant Subsidiaries or any of them and such judgment or
order shall remain unsatisfied or undischarged and in effect
for ninety (90) consecutive days without judicial enforcement
or execution, provided that this subsection (i) shall not
apply to any judgment for which the Company and its
Significant Subsidiaries or any of them are fully insured and
with respect to which the insurer has admitted in writing its
liability for a full payment thereof."
1.18 Events of Default. Section 11(j) is hereby added as follows:
"Company shall fail to secure the following 'Qualifying
Customer Agreements' between August 1, 2001 and October 31,
2001: (i) agreement(s) with one or more new customers to
launch the Company's products in a minimum of four newspapers
within eight weeks of the customer's signature of the
agreement; (ii) agreements with customers of the Company prior
to August 1, 2001, to launch the Company's products in a
minimum of four newspapers; and (iii) agreements resulting in
two new E-Team assisted launches per month in each of the
months of August, September and October with newspapers, with
Company's E-Team providing training services for the
newspaper's sales force. The agreements referred to in items
(i) and (iii) of this subsection 11(j) shall contain the
Company's standard terms providing for revenues from editorial
content and for insertion fees from the sale of the Company's
promotional products to the newspaper's advertisers. On the
last business
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day of each of the monthly periods, the Company shall submit
to the Purchaser a written summary of Qualifying Customer
Agreements, by category by newspaper."
1.19 Transfer and Exchange of Debentures. The third sentence of
Section 13.2 is hereby deleted in its entirety and the following is substituted
therefor:
"Each such new Debenture shall be payable to such Person as
such holder may request and shall be substantially in the form
of EXHIBIT 1, EXHIBIT 2, EXHIBIT 3, EXHIBIT 4, EXHIBIT 5,
EXHIBIT 6, EXHIBIT 7, EXHIBIT 8, EXHIBIT 9, EXHIBIT 10,
EXHIBIT 11 EXHIBIT 12, EXHIBIT 13, EXHIBIT 14, EXHIBIT 15,
EXHIBIT 16, EXHIBIT 17 OR EXHIBIT 18 as applicable."
1.20 Schedules. The following defined terms in Schedule A are
hereby deleted and the following are substituted therefor:
"'HOLDER' means, with respect to any Debenture, the Person in
whose name such Debenture is registered in the register
maintained by the Company pursuant to Section 13.1.
'OTHER AGREEMENTS' shall mean the Debentures, Loan and
Security Agreement, the Notes issued thereunder, Registration
Rights Agreement and Collateral License Agreement dated as of
July 30, 2001 and any other instrument delivered pursuant
hereto or thereto.
'SERIES' means any or all of any series of Debentures issued
hereunder."
1.21 Schedules. Schedule 3.2 is hereby deleted in its entirety and
the attached Schedule 3.2 is substituted therefor.
1.22 Schedules. Schedule 5.5 and Schedule 5.5.1 are hereby added to
this Agreement.
1.23 Schedules. Schedule 5.15 is hereby deleted in its entirety and
the attached Schedule 5.15 is substituted therefor.
1.23 Schedules. Schedule 5.21 is hereby deleted in its entirety and
the attached Schedule 5.21 is substituted therefor.
1.25 Exhibits. Exhibits 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17 and
18 are hereby added to the Investment Agreement in the form attached hereto.
2. REPRESENTATIONS AND WARRANTIES. The Company represent and
warrant to the Purchaser that, on and as of the date hereof, and after giving
effect to this Amendment:
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2.1 AUTHORITY. The Company has all the necessary corporate power
to make, execute and deliver this Amendment and the Debentures, and this
Amendment is the legal, valid and enforceable obligation of the Company it
purports to be.
2.2 NO LEGAL OBSTACLE TO AMENDMENT. Neither the execution of this
Amendment, the making by the Company of any sales under the Investment
Agreement, nor the performance of the Investment Agreement has constituted or
resulted in or will constitute or result in a breach of the provisions of any
contract to which the Company is a party, or the violation of any law, judgment,
decree or governmental order, rule or regulation applicable to the Company, or
result in the creation under any agreement or instrument of any security
interest, lien, charge or encumbrance upon any of the assets of the Company. No
approval or authorization of any governmental authority is required to permit
the execution, delivery or performance by the Company of this Amendment and the
Other Agreements, or the transactions contemplated hereby or thereby, or the
making of any sales to Purchaser under the Investment Agreement.
2.3 INCORPORATION OF CERTAIN REPRESENTATIVES. The representations
and warranties set forth in Section 5 of the Investment Agreement are true and
correct in all respects on and as of the date hereof as though made on and as of
the date hereof.
2.4 DEFAULT. No unmatured Event of Default or Event of Default has
occurred and is continuing under the Investment Agreement.
3. MISCELLANEOUS.
3.1 EFFECTIVENESS OF THE AMENDMENT; EXECUTION IN COUNTERPARTS.
Except as hereby expressly amended, the Investment Agreement shall remain in
full force and effect and is hereby ratified and confirmed in all respects. This
Amendment shall become effective upon the execution hereof by each of the
Company and the Purchaser and delivery of the same to the Purchaser. This
Amendment may be executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
3.2 WAIVERS. This Amendment is specific in time and in intent and
does not constitute, nor should it be construed as, a waiver of any other right,
power or privilege under the Investment Agreement, any Other Agreement or under
any agreement, contract, indenture, document or instrument mentioned in the
Investment Agreement; nor does it preclude any exercise thereof, nor shall any
future waiver of any right, power, privilege or default hereunder, or under any
agreement, contract, indenture, document or instrument mentioned in this
Amendment, constitute a waiver of any other default of the same or of any other
term or provision.
3.3 JURISDICTION. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE LAWS OF THE STATE OF IOWA.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the date first written above.
COMPANY: PURCHASER:
XXXXXXXXXX.XXX CORP. XXX ENTERPRISES, INCORPORATED
/s/ Xxx Xxxxxxx /s/ Xxxxxxx Xxxxxxxx
Chief Operating Officer & CFO Vice President Interactive Media
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SCHEDULE 3.2
SCHEDULE OF ADDITIONAL CLOSING DATES
Closing Date
------------
Series A $250,000 Floating Rate Subordinated Convertible Debenture November 10, 2000
Series B $250,000 Floating Rate Subordinated Convertible Debenture November 10, 2000
Series C $250,000 Floating Rate Subordinated Convertible Debenture December 1, 2000
Series D $250,000 Floating Rate Subordinated Convertible Debenture January 1, 2001
Series E $250,000 Floating Rate Subordinated Convertible Debenture March 1, 2001
Series F $250,000 Floating Rate Subordinated Convertible Debenture May 1, 2001
Series G $310,000 Floating Rate Subordinated Convertible Debenture August 10, 2001
Series H $200,000 Floating Rate Subordinated Convertible Debenture September 1, 2001
Series I $200,000 Floating Rate Subordinated Convertible Debenture October 1, 2001
Series J $50,000 Floating Rate Subordinated Convertible Debenture November 1, 2001
Series K $50,000 Floating Rate Subordinated Convertible Debenture December 1, 2001
Series L $100,000 Floating Rate Subordinated Convertible Debenture January 2, 2002
Series M $100,000 Floating Rate Subordinated Convertible Debenture February 1, 2002
Series N $100,000 Floating Rate Subordinated Convertible Debenture March 1, 2002
Series O $100,000 Floating Rate Subordinated Convertible Debenture April 1, 2002
Series P $100,000 Floating Rate Subordinated Convertible Debenture May 1, 2002
Series Q $100,000 Floating Rate Subordinated Convertible Debenture June 1, 2002
Series R $90,000 Floating Rate Subordinated Convertible Debenture July 1, 2002
15
EXHIBIT 1
FORM OF $250,000 SERIES A FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
16
EXHIBIT 2
FORM OF $250,000 SERIES B FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
17
EXHIBIT 3
FORM OF $250,000 SERIES C FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
18
EXHIBIT 4
FORM OF $250,000 SERIES D FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
19
EXHIBIT 5
FORM OF $250,000 SERIES E FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
20
EXHIBIT 6
FORM OF $250,000 SERIES F FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
21
EXHIBIT 7
FORM OF $310,000 SERIES G FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
22
EXHIBIT 8
FORM OF $200,000 SERIES H FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
23
EXHIBIT 9
FORM OF $200,000 SERIES I FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
24
EXHIBIT 10
FORM OF $50,000 SERIES J FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
25
EXHIBIT 11
FORM OF $50,000 SERIES K FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
26
EXHIBIT 12
FORM OF $100,000 SERIES L FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
27
EXHIBIT 13
FORM OF $100,000 SERIES M FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
28
EXHIBIT 14
FORM OF $100,000 SERIES N FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
29
EXHIBIT 15
FORM OF $100,000 SERIES O FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
30
EXHIBIT 16
FORM OF $100,000 SERIES P FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
31
EXHIBIT 17
FORM OF $100,000 SERIES Q FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
32
EXHIBIT 18
FORM OF $90,000 SERIES R FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
33
SCHEDULE 5.5
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2000
34
Consolidated Quarterly
Financial Statements
XXXXXXXXXX.XXX CORP.
September 30, 2000
35
XXXXXXXXXX.XXX CORP.
CONSOLIDATED BALANCE SHEETS
[See Nature of Operations and Basis of Presentation - Note 1]
As at September 30 (Expressed in U.S. dollars)
SEPTEMBER 30 JUNE 30
2000 2000
$ $
-------------------------------------------------------------------------------------------------------------------
ASSETS [note 4]
CURRENT
Cash and cash equivalents -- 38,963
Accounts receivable, net of allowance for doubtful accounts
of nil in 2000 34,666 28,903
Other receivables 8,064 26,220
Prepaid expenses and other 129,277 159,557
-------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 172,007 253,643
Property and equipment, net 59,629 67,348
eCommerce technology, net of amortization of $787,000
at September 30, 2000 and $668,950 at June 30, 2000 629,484 747,534
-------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 861,120 1,068,525
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Bank indebtedness 22,952 --
Accounts payable and accrued liabilities 300,688 361,921
Demand instalment loan [note 4] 166,087 167,213
Shareholders' loans [note 5 (a)] 249,973 252,900
Loan payable [note 7] 290,000 --
Deferred revenue 808 1,206
-------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,030,508 783,240
Deferred tax liability 213,100 253,100
-------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,243,608 1,036,340
Commitments
STOCKHOLDERS' EQUITY (DEFICIT)
Share capital [note 6]
Common stock - $0.001 par value
Authorized shares: 50,000,000
Issued and outstanding: 23,008,098 at September 30, 2000 and June 30, 2000 14,497 14,497
Additional paid in capital 5,719,581 5,687,761
Other comprehensive income 19,625 19,625
Deficit (6,136,191) (5,689,698)
-------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (382,488) 32,185
-------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 861,120 1,068,525
===================================================================================================================
See accompanying notes
On behalf of the Board:
Director Director
3
36
XXXXXXXXXX.XXX CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
[See Nature of Operations and Basis of Presentation - Note 1]
Three months ended September 30 (Expressed in U.S. dollars)
2000 1999
$ $
------------------------------------------------------------------------------------------
REVENUE
Development fees 8,862 --
Hosting fees 11,989 2,296
Training fees 7,439 --
Banner Advertising fees 31,065 --
Premier Listings fees 8,667 --
Coupons fees 3,265 --
E-commerce fees 4,429 --
License fees -- 2,019
------------------------------------------------------------------------------------------
TOTAL REVENUES 75,716 4,315
Cost of sales 70,169 19
------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) 5,547 4,296
OPERATING EXPENSES
Sales and marketing 81,018 58,648
Product development and technology 103,991 221,994
Finance and administration 176,935 177,309
Amortization of eCommerce technology 118,050 118,050
------------------------------------------------------------------------------------------
479,994 576,001
------------------------------------------------------------------------------------------
Operating loss (474,447) (571,705)
OTHER INCOME (EXPENSE)
Interest expense (14,909) (1,806)
Interest and miscellaneous income 152 171
Foreign exchange gain 2,711 --
------------------------------------------------------------------------------------------
Total other expense (12,046) (1,635)
------------------------------------------------------------------------------------------
Loss before income taxes (486,493) (573,340)
Deferred income tax recovery 40,000 40,000
------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (446,493) (533,340)
==========================================================================================
COMPREHENSIVE LOSS
Net loss for the period (446,493) (533,340)
Foreign currency translation -- 754
------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS FOR THE PERIOD (446,493) (532,586)
==========================================================================================
NET LOSS PER COMMON SHARE [NOTE 6(D)]
Basic and diluted (0.02) (0.03)
==========================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES [NOTE 6(D)]
Basic 23,008,098 20,558,910
==========================================================================================
See accompanying notes
4
37
XXXXXXXXXX.XXX CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
[See Nature of Operations and Basis of Presentation - Note 1]
(Expressed in U.S. dollars)
COMMON COMMON COMMON ADDITIONAL
COMMON STOCK TO BE STOCK ISSUED STOCK TO BE PAID IN
STOCK ISSUED AND OUTSTANDING ISSUED CAPITAL
# # $ $ $
----------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of June 30, 1998 [note 1] 800 1,756,380 -- 276,903 5
Deemed common shares issued for cash received in the prior
year [note 6(a)] 160,000 (160,000) -- (17,033) 17,033
Deemed common shares issued for services rendered in the
prior year [note 6(a)] 160,000 (160,000) -- (30,521) 30,521
Deemed common shares issued for investment in the prior
year [note 6(a)] 40,000 (40,000) -- (3,406) 3,406
Deemed common shares issued for services rendered in the
prior year [note 6(a)] 4,499,200 -- -- -- 863,718
Deemed common shares issued for services rendered in the
current year [note 6(a)] 1,337,248 -- -- -- 253,936
Deemed common shares issued for cash [note 6(a)] 237,667 -- -- -- 40,337
Deemed common shares issued to charitable organizations
[note 6(a)] 80,000 -- -- -- 15,207
Prior year's subscription shares issued in the current
year, net of share issue costs of $10,187 [note 6(a)] 1,396,380 (1,396,380) -- (225,943) 225,943
Deemed common shares issued pursuant to private placement,
net of issue costs of $32,487 [note 6(a)] 598,705 -- -- -- 143,318
----------------------------------------------------------------------------------------------------------------------------------
DEEMED OUTSTANDING AS OF JANUARY 7, 1999 8,510,000 -- -- -- 1,593,424
==================================================================================================================================
Acquisition of XxxxXxxxxx.xxx by WelcomeTo 5,100,000 -- 5,100 -- 719,889
Acquisition of Xceedx [note 2] 6,250,000 -- 6,250 -- 868,750
Shares to be issued for services rendered [note 6(a)] -- 450,000 -- -- 225,000
Finders fees acquisition costs [note 2] -- -- -- -- (225,000)
Shares issued pursuant to private placement [note 6(a)] 33,333 -- 33 -- 99,966
Shares to be issued [note 6(a)] -- 177,860 -- 266,790 --
Net loss for the period -- -- -- -- --
Foreign currency translation -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 1999 19,893,333 627,860 11,383 266,790 3,282,029
==================================================================================================================================
Shares issued pursuant to share subscriptions [note 6(a)] 177,860 (177,860) 178 (266,790) 266,612
Shares issued for services [note 6(a)] 450,000 (450,000) 450 -- (450)
Shares issued pursuant to private placement, net of share
issue costs of $16,667 [note 6(a)] 2,234,438 -- 2,234 -- 1,007,268
Shares issued for services rendered or to be rendered
[note 6(a)] 252,467 -- 252 -- 290,518
Stock based compensation [notes 6(a)] -- -- -- -- 277,668
Beneficial conversion feature of warrants [note 6(a)] -- -- -- -- 564,116
Net loss for the period -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 2000 23,008,098 -- 14,497 -- 5,687,761
==================================================================================================================================
Stock based compensation [note 6(a)] -- -- -- -- 31,820
Net loss for the period -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF SEPTEMBER 30, 2000 23,008,098 -- 14,497 -- 5,719,581
==================================================================================================================================
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME DEFICIT EQUITY (DEFICIT)
$ $ $
--------------------------------------------------------------------------------------------------------
Deemed outstanding as of June 30, 1998 [note 1] 25,519 (1,096,067) (793,640)
Deemed common shares issued for cash received in the prior
year [note 6(a)] -- -- --
Deemed common shares issued for services rendered in the
prior year [note 6(a)] -- -- --
Deemed common shares issued for investment in the prior
year [note 6(a)] -- -- --
Deemed common shares issued for services rendered in the
prior year [note 6(a)] -- -- 863,718
Deemed common shares issued for services rendered in the
current year [note 6(a)] -- -- 253,936
Deemed common shares issued for cash [note 6(a)] -- -- 40,337
Deemed common shares issued to charitable organizations
[note 6(a)] -- -- 15,207
Prior year's subscription shares issued in the current
year, net of share issue costs of $10,187 [note 6(a)] -- -- --
Deemed common shares issued pursuant to private placement,
net of issue costs of $32,487 [note 6(a)] -- -- 143,318
--------------------------------------------------------------------------------------------------------
DEEMED OUTSTANDING AS OF JANUARY 7, 1999 25,519 (1,096,067) 522,876
========================================================================================================
Acquisition of XxxxXxxxxx.xxx by WelcomeTo -- -- 724,989
Acquisition of Xceedx [note 2] -- -- 875,000
Shares to be issued for services rendered [note 6(a)] -- -- 225,000
Finders fees acquisition costs [note 2] -- -- (225,000)
Shares issued pursuant to private placement [note 6(a)] -- -- 99,999
Shares to be issued [note 6(a)] -- -- 266,790
Net loss for the period -- (1,642,078) (1,642,078)
Foreign currency translation (5,894) -- (5,894)
--------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 1999 19,625 (2,738,145) 841,682
========================================================================================================
Shares issued pursuant to share subscriptions [note 6(a)] -- -- --
Shares issued for services [note 6(a)] -- -- --
Shares issued pursuant to private placement, net of share
issue costs of $16,667 [note 6(a)] -- -- 1,009,502
Shares issued for services rendered or to be rendered
[note 6(a)] -- -- 290,770
Stock based compensation [notes 6(a)] -- -- 277,668
Beneficial conversion feature of warrants [note 6(a)] -- (564,116) --
Net loss for the period -- (2,387,437) (2,387,437)
--------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 2000 19,625 (5,689,698) 32,185
========================================================================================================
Stock based compensation [note 6(a)] -- -- 31,820
Net loss for the period -- (446,493) (446,493)
--------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF SEPTEMBER 30, 2000 19,625 (6,136,191) (382,488)
========================================================================================================
See accompanying notes
5
38
XXXXXXXXXX.XXX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Nature of Operations and Basis of Presentation - Note 1]
Three months ended September 30 (Expressed in U.S. dollars)
2000 1999
$ $
---------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the period (446,493) (533,340)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 118,050 118,050
Depreciation 11,257 11,114
Deferred income tax recovery (40,000) (40,000)
Stock based compensation 31,820 --
Foreign exchange gain (2,711) --
Changes in operating assets and liabilities:
Accounts receivable (6,267) 941
Other receivables 18,176 9,538
Prepaid expenses and other 30,301 (127,596)
Accounts payable and accrued liabilities (58,772) (93,080)
Deferred revenue (389) (1,899)
---------------------------------------------------------------------------------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (345,028) (656,272)
---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (3,213) (10,965)
---------------------------------------------------------------------------------------------------
NET CASH (USED) IN INVESTING ACTIVITIES (3,213) (10,965)
---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Borrowings under bank indebtedness 22,952 (1,129)
Proceeds from loan payable 290,000 --
Repayments of demand loans (1,126) (1,521)
Repayments of shareholders' loans (44) --
Proceeds from stock issued and to be issued, net of share issue costs -- 450,790
---------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 311,782 448,140
---------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash (2,504) 7,774
NET (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE PERIOD (38,963) (211,323)
Cash and cash equivalents, beginning of period 38,963 234,214
---------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD -- 22,891
====================================================================================================
SUPPLEMENTAL DISCLOSURE
Interest paid 14,909 1,806
====================================================================================================
See accompanying notes
6
39
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
These consolidated financial statements are the continuing financial statements
of WelcomeTo Search Engine ("WelcomeTo"), a British Columbia corporation which
was incorporated on October 27, 1997. On January 7, 1999, WelcomeTo acquired
100% of the common shares of XxxxXxxxxx.xxx Corp. ("XxxxXxxxxx.xxx"); a United
States non-operating company traded on the NASDAQ OTC Bulletin Board. After the
acquisition on January 7, 1999, the accounting entity continued under the name
of XxxxXxxxxx.xxx.
XxxxXxxxxx.xxx Corp. ("Company") is a software developer and Internet publisher.
The Company's consolidated financial statements for the three months ended
September 30, 2000 have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company incurred a net loss of
$446,493 for the three months ended September 30, 2000 and has a working capital
deficiency of $858,501 and deficit in stockholder's equity of $6,136,191 at
September 30, 2000. The ability of the Company to continue as a going concern is
dependent upon its ability to achieve profitable operations and to obtain
additional capital. Management expects to raise additional capital through
private placements and other types of venture funding. The outcome of these
matters cannot be predicted at this time. No assurances can be given that the
Company will be successful in raising sufficient additional capital. Further,
there can be no assurance, assuming the Company successfully raises additional
funds, that the Company will achieve positive cash flow. If the Company is
unable to obtain adequate additional financing, management will be required to
curtail the Company's operating expenses. These consolidated financial
statements do not include any adjustments to the specific amounts and
classifications of assets and liabilities, which might be necessary should the
Company be unable to continue in business.
These financial statements have been prepared by management in accordance with
generally accepted accounting principles in the United States and in the opinion
of management reflect all adjustments, which consist only of normal and
recurring adjustments necessary to present fairly the financial position and
results of operations and cash flows.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended June 30, 2000.
40
2. ECOMMERCE TECHNOLOGY
eCommerce technology arose as part of the acquisition of Xceedx Technologies
Inc. and is being amortized on a straight-line basis over its useful life, which
is 36 months.
3. CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents and accounts
receivable. The Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses which, when realized, have been
within range of management's expectations.
For the three months ended September 30, 2000, approximately 99% of the
Company's total revenues were generated through sales to one customer [1999 -
nil]. At September 30, 2000, approximately 97% of the Company's accounts
receivable balance were due from this customer [1999 - nil].
4. DEMAND INSTALMENT LOAN
In January 2000, the Company restructured its credit facility with the bank. In
addition, the existing loan was refinanced into a demand instalment of $169,687
(Cdn $250,000). The loan bears interest at the bank prime rate plus 1% and is
repayable in equal monthly principal and interest instalments of $1,563 for the
period March 15, 2000 to February 15, 2015. At September 30, 2000 the balance
outstanding is $166,087.
41
5. RELATED PARTY TRANSACTIONS
[A] SHAREHOLDERS' LOANS
During the year ended June 30, 2000, the Company entered into unsecured
shareholder loan agreements with the Company's chief executive officer and chief
financial officer. The demand loans outstanding at September 30, all of which
are without stated terms of repayment unless otherwise stated, are summarized
below:
ANNUAL
INTEREST BALANCE OUTSTANDING
RATE AT AT SEPTEMBER 30,
SEPTEMBER 30, 2000 2000 1999
% $ $
--------------------------------------------------------------------------------------
Loans payable bearing interest at 10% and repayable
in equal monthly principal and interest instalments
of $1,510 10.00 166,633 --
Loan payable bearing interest at the CIBC Visa
monthly interest rate 19.50 16,668 --
Loan payable bearing interest at the Scotia XxXxxx
monthly interest rate 9.50 16,668 --
Loan payable bearing interest at 4.5% per annum 4.50 33,336 --
Loan payable bearing interest at Toronto Dominion Bank
monthly TD Select Line rate 10.25 16,668 --
--------------------------------------------------------------------------------------
249,973 --
======================================================================================
Interest incurred on the loans amounted to $6,475 for the three months ended
September 30, 2000.
[B] OTHER
On June 13, 2000, the Company granted 541,600 warrants to two of the Company's
officers, as consideration for their guarantee of the demand instalment loan
[note 4] and as consideration for the shareholder loans [note 5(a)]. Each
warrant is exercisable for one common share of the Company at a price of $.25
per share through June 13, 2002. The estimated fair value of these warrants at
the date of issuance of $48,744 was recorded as an expense in the consolidated
statement of operations for the year ended June 30, 2000. The Black Scholes
option-pricing model was used to value the warrants with the following
assumptions: no dividend yield; risk-free interest rate of 6.0%; expected
volatility of 1.09; and an expected life of 1.5 years.
42
6. SHARE CAPITAL
[A] COMMON STOCK
On June 10, 1998, the Company agreed to reacquire and cancel 110 common shares
of the Company from certain shareholders. In exchange for these shares, in
November 1998, the Company issued 360,000 common shares upon amendment of the
authorized capital of the Company. The cost to reacquire these shares and
commitment to issue new shares was recorded as a reduction in common stock and
corresponding increase in stock subscriptions. This transaction was recorded
using the carrying values of the common stock reacquired of $50,960.
In November 1998, Company issued 1,396,380 common shares at $0.17 (Cdn. $0.25)
per share for total cash proceeds of $236,130 less issue costs of $10,187.
In November 1998, the Company issued 4,499,200 common shares to certain
officers, directors and employees of the Company in exchange for services
provided in the period ended June 30, 1998. In addition, the Company issued
1,337,248 common shares to certain officers, directors and employees of the
Company in exchange for services provided in July and August 1998. These common
shares were issued at the fair value of the common stock of approximately $0.19
(Cdn. $0.28) per share, which was based on third party stock subscriptions. The
Company recorded compensation expense of $253,936 during the year ended June 30,
1999.
In November 1998, the Company issued 237,667 common shares at $0.17 (Cdn. $0.25)
per share for total cash proceeds of $40,337.
In November 1998, the Company issued 80,000 shares to two charitable
organizations for services rendered in July and August 1998. These shares were
recorded at the fair value of the common stock of approximately $0.19 per share
(Cdn $0.28), which was based on third party stock subscription agreements.
In November 1998, the Company issued 274,900 common shares at $0.17 (Cdn. $0.25)
per share, 210,471 common shares at $0.34 (Cdn. $0.50) per share, and 113,334
common shares at $0.51 (Cdn. $0.75) per share pursuant to third party stock
subscription agreements. The Company received total cash proceeds of $175,805
less issue costs of $32,487.
In January 1999, the Company incurred one-time finders fee costs of $225,000
related to the reverse acquisition of the Company. These costs were paid by the
issuance of 450,000 common shares at $0.50 (Cdn. $0.74) per share, after the
year ended June 30, 1999.
On March 15, 1999, the Company issued 33,333 common shares pursuant to stock
subscription agreements at a price of $3.00 per share for cash of $99,999.
43
6. SHARE CAPITAL (CONT'D.)
[A] COMMON STOCK (CONT'D.)
In August 1999, the Company issued 177,860 common shares at $1.50 per share, for
$266,790, net of financing commissions payable. The net cash proceeds were
received prior to June 30, 1999. Each common share issued has an attached
warrant which entitles the holder to acquire one common share for $1.50 each for
a one-year period and $2.00 each after one year. The warrants expire on June 10,
2001.
On August 15, 1999, the Company issued 100,000 units to a vendor for marketing
and advertising services. Each unit comprised one common share and one warrant
entitling the vendor to acquire one common share for $1.50 each for a one-year
period and $2.00 each after one year [note 12(c)]. On May 18, 2000, the Company
issued an additional 140,000 units to this vendor for marketing and advertising
services. Each unit comprised one common share and one warrant entitling the
vendor to acquire one common share for $.25 each for a one year period, and $.75
each after one year [note 12(c)]. The Company has recorded, in additional paid
in capital, the units issued at their fair value of $281,200. Of this amount,
approximately $142,500 has been recorded as an expense in the consolidated
statement of operations for the year ended June 30, 2000 and the remainder has
been recorded as a prepaid expense to be amortized over the period the services
are rendered. The Black Scholes option-pricing model was used to value the
warrants with the following assumptions: no dividend yield; risk free interest
rate of 6.0%; expected volatility of 1.09 and an expected life of 1.5 years.
In October and December 1999, the Company issued 99,521 common shares and
warrants to acquire 99,521 common shares for cash proceeds of $136,069. Each
common share has one attached warrant which entitles the holder to acquire one
common share for exercise prices of $1.25 to $1.50 during the first year and
$1.75 to $2.00 during the second year. The warrants expire September 30, 2001 to
October 13, 2001. Pursuant to the subscription agreements, if at any time until
March 31, 2000 the Company issued common shares at a share price of less than
the subscription price paid by the investors, then additional common shares and
warrants would be issued, such that the effective issue price of the common
shares issued is equal to the lower price paid. In January 2000, the Company
issued an additional 172,617 common shares for no additional consideration,
pursuant to this subscription agreement. In addition, the number of warrants
granted was increased by 172,617 to 272,138 and the exercise price decreased to
$.50 during the first year and $.75 during the second year.
In March 2000, the Company issued 12,467 common shares at $.77 per share to a
vendor for marketing services with a fair market value of $9,570.
During the year ended June 30, 2000, the Company issued 1,962,300 units for cash
proceeds of $890,100 before share issue costs of $16,667. Each unit comprised
one common share and one warrant entitling the holder to acquire one common
share.
The total proceeds of $1,026,169 representing 2,234,438 common shares have been
allocated to the common shares and the warrants based on their relative fair
values. The beneficial conversion feature of the warrants has been determined to
be $564,116 and has been charged to the deficit.
44
6. SHARE CAPITAL (CONT'D.)
[B] STOCK OPTIONS
On August 25, 1999, the Board of Directors approved the creation of the
Corporate Stock Option Plan ("Plan") pursuant to which the Company has reserved
2,000,000 shares of common stock. The terms and vesting period of options are
determined by the directors at the date of grant. The majority of the options
granted to date are exercisable over a four-year period and vest on a cumulative
basis at 1/3 per year.
In August 1999, the Company granted 675,000 stock options to employees below the
fair market value of the underlying common shares on the date of grant.
Compensation expense of $31,820, calculated based on the intrinsic value method,
has been recorded in the consolidated statement of operations for the quarter
ended September 30, 2000.
Stock option transactions for the quarter ended September 30, 2000 are
summarized below:
OUTSTANDING OPTIONS
SHARES -----------------------------
AVAILABLE WEIGHTED AVERAGE
UNDER OPTION SHARES EXERCISE PRICE
# # $
----------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 -- -- --
Reserve shares 2,000,000 -- --
Granted, July 13, 1999 (675,000) 675,000 1.50
May 15, 2000 (872,500) 872,500 0.25
June 27, 2000 (200,000) 200,000 0.25
Forfeited -- (185,000) 1.50
-- (47,500) 0.25
----------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 252,500 1,515,000 0.65
==================================================================================
The following table summarizes information about stock options that are
outstanding at September 30, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------
RANGE OF NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
EXERCISE OUTSTANDING AT AVERAGE AVERAGE OUTSTANDING AT AVERAGE
PRICES SEPTEMBER 30, REMAINING EXERCISE PRICE SEPTEMBER 30, EXERCISE PRICE
2000 CONTRACTUAL LIFE 2000
$ # $ # $
---------------------------------------------------------------------------------------------
0.25 1,025,000 3.64 yrs 0.25 200,000 0.25
1.50 490,000 2.78 yrs 1.50 163,333 1.50
---------------------------------------------------------------------------------------------
1,515,000 363,333
=============================================================================================
45
6. SHARE CAPITAL (CONT'D.)
[B] STOCK OPTIONS (CONT'D.)
The weighted average fair value of options granted during the quarter ended
September 30, 2000 was as follows:
WEIGHTED
AVERAGE
OPTIONS FAIR VALUE
# $
----------------------------------------------------------------
Exercise price:
Equal to fair market value 1,072,500 0.19
Greater than fair market value -- --
Less than fair market value 675,000 2.21
----------------------------------------------------------------
1,747,500 0.97
================================================================
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standard ("SFAS") No. 123, which also requires
that the information be determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value of each option granted during the year was estimated at the date of grant
using a Black-Scholes pricing model with the following weighted average
assumptions: risk free interest rates of 6%; dividend yield of nil; volatility
factors of the expected market price of the Company's common stock of 1.09 and a
weighted average expected life of the option of 3.8 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period. The Company's pro forma
information for the quarter ended September 30, 2000 is as follows:
$
------------------------------------------------------------------------------
Net loss As reported (446,493)
Beneficial conversion feature of warrants [note 6(a)] As reported --
APB 25 compensation expense As recorded --
SFAS 123 compensation expense Pro forma --
------------------------------------------------------------------------------
Pro forma net loss Pro forma (446,493)
------------------------------------------------------------------------------
Pro forma net loss per common share:
Basic and diluted Pro forma (0.02)
==============================================================================
46
6. SHARE CAPITAL (CONT'D.)
[C] WARRANTS
The following represents a summary of warrants outstanding September 30, 2000:
OUTSTANDING WARRANTS
---------------------------------------------
EXERCISE PRICE
SHARES YEAR 1 YEAR 2
GRANT DATE # $ $ EXPIRY DATE
--------------------------------------------------------------------------------
June 10, 1999 177,860 1.50 2.00 June 10, 2001
July 14, 1999 45,260 1.50 2.00 July 14, 2001
August 15, 1999 100,000 1.50 2.00 August 15, 2001
September 30, 1999 465,800 0.50 0.75 September 30, 2001
October 13, 1999 132,138 0.50 0.75 October 13, 2001
December 10, 1999 408,000 0.50 0.75 December 10, 2001
January 18, 2000 138,000 0.50 0.75 January 18, 2002
January 31, 2000 500,000 0.50 0.75 January 31, 2002
May 1, 2000 405,240 0.25 0.75 May 1, 2002
May 18, 2000 280,000 0.25 0.75 May 18, 2002
June 13, 2000 541,600 0.25 0.25 June 13, 2002
---------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 3,193,898
=================================================================================
[D] LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted loss per
share:
2000 1999
$ $
---------------------------------------------------------------------------------------
NUMERATOR
Net loss for the year (446,493) (533,340)
---------------------------------------------------------------------------------------
Net loss attributable to common shareholders (446,493) (533,340)
DENOMINATOR
Weighted average number of common shares outstanding 23,008,098 20,558,910
Basic loss per common share (0.02) (0.03)
=======================================================================================
For the quarters ended September 30, 2000 and 1999, all of the Company's common
shares issuable upon the exercise of stock options and warrants were excluded
from the determination of diluted loss per share, as their effect would be
anti-dilutive.
47
7. LOAN PAYABLE
On August 16, 2000, the Company entered into a Loan and Security Agreement with
Xxx Enterprises Incorporated (Xxx). Under this agreement, the Company received
$290,000 in funding in the form of promissory notes that bear interest at the
Wall Street Journal rate, as detailed below:
Current
DATE AMOUNT MATURITY DATE INTEREST RATE
-------------------------------------------------------------------
$ %
-------------------------------------------------------------------
AUGUST 17, 2000 125,000 NOVEMBER 17, 2000 9.5
-------------------------------------------------------------------
AUGUST 28, 2000 125,000 NOVEMBER 28, 2000 9.5
SEPTEMBER 19, 2000 40,000 DECEMBER 19, 2000 9.5
-------------------------------------------------------------------
290,000
-------------------------------------------------------------------
In conjunction with these agreements, the Company entered into a Collateral
License Agreement covering the licensing of the Company's software to Xxx in the
event of a default pursuant to the loan and security agreement. As part of the
loan and security agreement, the Company agreed to grant the note holder an
option to acquire 2,223,285 common shares of the Company. The terms and exercise
price had not been negotiated. Subsequent to the period end the Loan and
Security Agreement was amended as described in note 8 and the Company is no long
required to grant the option. Interest to September 30, 2000 on this loan
amounted to $2,695.
8. SUBSEQUENT EVENT
As of November 1, 2000, the Company entered into an Investment Agreement with
Xxx Enterprises Incorporated (Xxx) whereby Xxx would provide funding up to
$1,500,000 in the form of a floating rate subordinated convertible debenture.
The $1,500,000 subordinated convertible debenture would consist of a series of
six debentures of $250,000 that would be funded during the period from November
2000 to May 2001. The Company received $250,000 in funding under the debenture
in October 2000. The Investment Agreement provides Xxx the right to convert the
floating rate subordinated convertible debenture into 6,902,429 common shares of
the Company at conversion price of $0.2173 per common share until October 31,
2003. The Investment Agreement also contains certain affirmative and negative
covenants that restrict the Company's activities. Each series of $250,000
subordinated convertible debenture bears interest at the Wall Street Journal
rate less 1%. Interest due on the convertible debenture will be converted to
CityXpress shares at fair market value on the date of conversion. As part of the
Investment Agreement, the Loan and Security Agreement dated August 16, 2000 was
amended by changing the repayment terms and maturity dates of the promissory
notes, as per note 7, to October 31, 2002. The amended agreement also cancelled
Xxx right under the Loan Security Agreement to acquire 2,223,285 common shares.
Under the Investment Agreement, the Company has entered into a Registration
Rights Agreement providing Xxx the ability to register their shares under the
Investment Agreement based on certain conditions.
48
SCHEDULE 5.5.1
DRAFT FINANCIAL STATEMENTS AS OF JUNE 30, 2001
49
Draft Consolidated Financial Statements
XXXXXXXXXX.XXX CORP.
June 30, 2001
50
REPORT OF INDEPENDENT AUDITOR
To the Shareholders of
XXXXXXXXXX.XXX CORP.
We have audited the accompanying consolidated balance sheets of XXXXXXXXXX.XXX
CORP. (the "Company") as of June 30, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of XxxxXxxxxx.xxx Corp.
at June 30, 2001 and 2000 and the results of its operations and its cash flows
for the years then ended in conformity with United States generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a limited source of revenue and is
dependent on its ability to raise capital from shareholders or other sources to
sustain operations. These factors, along with other matters as set forth in Note
1, raise substantial doubt that the Company will be able to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Vancouver, Canada,
September ___, 2001. Chartered Accountants
51
XXXXXXXXXX.XXX CORP.
CONSOLIDATED BALANCE SHEETS
[See Nature of Operations and Basis of Presentation - Note 1]
As at June 30 (Expressed in U.S. dollars)
2001 2000
$ $
--------------------------------------------------------------------------------------------
ASSETS [note 9]
CURRENT
Cash and cash equivalents 32,274 38,963
Accounts receivable, net of allowance for doubtful accounts
of nil in 2001 and 2000 19,087 28,903
Other receivables 7,192 26,220
Prepaid expenses and other 23,647 159,557
--------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 82,200 253,643
Property and equipment, net [note 5] 117,243 67,348
eCommerce technology, net of amortization of $ 1,141,150 at
June 30, 2001 and $668,950 at June 30, 2000 275,334 747,534
--------------------------------------------------------------------------------------------
TOTAL ASSETS 474,777 1,068,525
============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities [note 6] 320,906 361,921
Demand instalment loan [note 9] 161,830 167,213
Shareholders' loans [note 10] 284,246 252,900
Deferred revenue 514 1,206
Current portion of obligations under capital leases 17,209 --
--------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 784,705 783,240
Obligations under capital leases, net of current portion 40,960 --
Loan payable [note 7] 290,000 --
Loan debenture [note 8] 1,500,000 --
Deferred tax liability [note 13] 93,100 253,100
--------------------------------------------------------------------------------------------
TOTAL LIABLITIES 2,708,765 1,036,340
--------------------------------------------------------------------------------------------
Commitments [note 11]
STOCKHOLDERS' EQUITY (DEFICIT)
Share capital [note 12]
Common stock - $0.001 par value
Authorized shares: 50,000,000
Issued and outstanding: 23,043,898 at June 30, 2001 and
23,008,098 at June 30, 2000 14,533 14,497
Additional paid in capital 5,764,012 5,687,761
Accumulated other comprehensive income 19,625 19,625
Deficit (8,032,158) (5,689,698)
--------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (2,233,988) 32,185
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 474,777 1,068,525
============================================================================================
See accompanying notes
On behalf of the Board:
Director Director
52
XXXXXXXXXX.XXX CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
[See Nature of Operations and Basis of Presentation - Note 1]
Years ended June 30 (Expressed in U.S. dollars)
2001 2000
$ $
----------------------------------------------------------------------------------------
REVENUE
Development fees 10,035 --
Coupon fees 8,262 --
E-commerce fees 15,779 --
Hosting fees 14,551 52,196
License fees -- 5,961
Banner advertising fees 71,113 --
Initial set-up fees -- 10,060
Training fees 43,670 64,903
Premier listing fees 27,086 --
Editorial Content Fees 4,957 --
----------------------------------------------------------------------------------------
TOTAL REVENUES 195,453 133,120
Cost of sales 389,647 211,204
----------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) (194,194) (78,084)
OPERATING EXPENSES
Sales and marketing 505,969 321,660
Product development and technology 430,700 684,093
Finance and administration 776,116 990,895
Amortization of eCommerce technology 472,200 472,200
----------------------------------------------------------------------------------------
2,184,985 2,468,848
----------------------------------------------------------------------------------------
Operating loss (2,379,179) (2,546,932)
OTHER INCOME (EXPENSE)
Loss on disposal of capital asset (423) --
Interest expense (118,554) (17,117)
Interest and miscellaneous income 196 668
Foreign exchange gain (loss) (4,500) 15,944
----------------------------------------------------------------------------------------
Total other expense (123,281) (505)
----------------------------------------------------------------------------------------
Loss before income taxes (2,502,460) (2,547,437)
Deferred income tax recovery [note 13] 160,000 160,000
----------------------------------------------------------------------------------------
NET LOSS AND COMPREHENSIVE LOSS FOR THE YEAR (2,342,460) (2,387,437)
========================================================================================
NET LOSS PER COMMON SHARE [note 12(d)]
Basic and diluted (0.10) (0.12)
========================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES [note 12(d)]
Basic and diluted 23,008,098 13,588,90
========================================================================================
See accompanying notes
53
XXXXXXXXXX.XXX CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
[See Nature of Operations and Basis of Presentation - Note 1]
(Expressed in U.S. dollars)
COMMON COMMON COMMON ADDITIONAL
COMMON STOCK TO BE STOCK ISSUED STOCK TO BE PAID IN
STOCK ISSUED AND OUTSTANDING ISSUED CAPITAL
# # $ $ $
------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 1999 19,893,333 627,860 11,383 266,790 3,282,029
Shares issued pursuant to share subscriptions
[note 12(a)] 177,860 (177,860) 178 (266,790) 266,612
Shares issued for services [note 12(a)] 450,000 (450,000) 450 -- (450)
Shares issued pursuant to private placement,
net of share issue costs of $16,667 [note 12(a)] 2,234,438 -- 2,234 -- 1,007,268
Shares issued for services rendered or to be
rendered [note 12(a)] 252,467 -- 252 -- 290,518
Stock based compensation [notes 10(b) and 12(b)] -- -- -- -- 277,668
Beneficial conversion feature of warrants [note 12(a)] -- -- -- -- 564,116
Net loss for the year -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 2000 23,008,098 -- 14,497 -- 5,687,761
==============================================================================================================================
Warrants issued for services -- -- -- -- 17,200
Shares issued for services 35,800 -- 36 -- 8,914
Stock based compensation -- -- -- -- 50,137
Net loss for the year -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JUNE 30, 2001 23,043,898 -- 14,533 -- 5,764,012
==============================================================================================================================
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME DEFICIT EQUITY (DEFICIT)
$ $ $
---------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 1999 19,625 (2,738,145) 841,682
Shares issued pursuant to share subscriptions
[note 12(a)] -- -- --
Shares issued for services [note 12(a)] -- -- --
Shares issued pursuant to private placement,
net of share issue costs of $16,667 [note 12(a)] -- -- 1,009,502
Shares issued for services rendered or to be
rendered [note 12(a)] -- -- 290,770
Stock based compensation [notes 10(b) and 12(b)] -- -- 277,668
Beneficial conversion feature of warrants [note 12(a)] -- (564,116) --
Net loss for the year -- (2,387,437) (2,387,437)
---------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 2000 19,625 (5,689,698) 32,185
===================================================================================================
Warrants issued for services -- -- 17,200
Shares issued for services -- -- 8,950
Stock based compensation -- -- 50,137
Net loss for the year -- (2,342,460) (2,342,460)
---------------------------------------------------------------------------------------------------
OUTSTANDING AT JUNE 30, 2001 19,625 (8,032,158) (2,233,988)
===================================================================================================
See accompanying notes
54
XXXXXXXXXX.XXX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Nature of Operations and Basis of Presentation - Note 1]
Years ended June 30 (Expressed in U.S. dollars)
2001 2000
$ $
------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the year (2,342,460) (2,387,437)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 472,200 472,200
Depreciation 58,627 44,741
Loss on disposal of property and equipment 423 --
Shares issued for services rendered 8,950 152,055
Warrants issued for services rendered 17,200 --
Deferred income tax recovery (160,000) (160,000)
Stock based compensation 50,137 277,668
Foreign exchange gain 4,500 (15,944)
Changes in operating assets and liabilities:
Accounts receivable 9,816 (26,986)
Other receivables 19,028 1,213
Prepaid expenses and other 135,910 17,920
Accounts payable and accrued liabilities (41,825) 70,825
Deferred revenue (692) (4,984)
------------------------------------------------------------------------------------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (1,767,376) (1,558,729)
------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 910 --
Purchase of property and equipment (109,855) (1,378)
------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (108,945) (1,378)
------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from loan payable 290,000 --
Proceeds from loan debenture 1,500,000 --
Borrowings under bank indebtedness -- (7,999)
Proceeds from demand instalment loan -- 169,057
Repayments of demand loans (5,383) (74,548)
Obligations under capital leases 65,870 --
Repayments under capital leases (7,701) --
Proceeds from shareholders' loans 66,028 252,900
Repayment of shareholders' loans (34,682) --
Proceeds from stock issued and to be issued, net of share issue costs -- 1,009,502
------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,874,132 1,348,912
------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash (4,500) 15,944
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE YEAR (6,689) (195,251)
Cash and cash equivalents, beginning of year 38,963 234,214
------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 32,274 38,963
======================================================================================================
SUPPLEMENTAL DISCLOSURE
Interest paid 46,207 17,117
======================================================================================================
See accompanying notes
55
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
These consolidated financial statements are the continuing financial statements
of WelcomeTo Search Engine ("WelcomeTo"), a British Columbia corporation which
was incorporated on October 27, 1997. On January 7, 1999, WelcomeTo acquired
100% of the common shares of XxxxXxxxxx.xxx Corp. ("XxxxXxxxxx.xxx"), a United
States non-operating company traded on the NASDAQ OTC Bulletin Board. After the
acquisition on January 7, 1999, the accounting entity continued under the name
of XxxxXxxxxx.xxx.
XxxxXxxxxx.xxx Corp. ("Company") is a software developer and Internet publisher,
that allows internet consumers to locate and purchase products and services from
online companies in their regional markets. The Company intends to build
alliances with media companies who own newspaper and television stations and
provide them with a suite of Internet products that can be profitably sold to
businesses looking for cost-effective means of establishing and promoting an
eCommerce presence in both their regional markets. The Company currently
operates in only one industry segment and its marketing efforts are currently
targeted to the North American market.
The Company's consolidated financial statements for the year ended June 30, 2001
have been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company incurred a net loss of $2,342,460 for the year ended
June 30, 2001 and has a working capital deficiency of $702,505 and deficit of
$8,032,158 at June 30, 2001. The ability of the Company to continue as a going
concern is dependent upon its ability to achieve profitable operations and to
obtain additional capital. Management expects to raise additional capital
through private placements and other types of venture fundings. The outcome of
these matters cannot be predicted at this time. No assurances can be given that
the Company will be successful in raising sufficient additional capital.
Further, there can be no assurance, assuming the Company successfully raises
additional funds, that the Company will achieve positive cash flow. If the
Company is unable to obtain adequate additional financing, management will be
required to curtail the Company's operating expenses. These consolidated
financial statements do not include any adjustments to the specific amounts and
classifications of assets and liabilities which might be necessary should the
Company be unable to continue in business.
56
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared by management in
accordance with United States generally accepted accounting principles. The
Company's significant accounting policies are summarized below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of XxxxXxxxxx.xxx
Corp. and its wholly-owned subsidiaries: WelcomeTo Search Engine Inc. (British
Columbia, Canada) and Xceedx Technologies Inc. (British Columbia, Canada). All
significant intercompany balances and transactions have been eliminated on
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates market value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful life of the assets as follows:
Computer equipment and software 3 years
Office furniture and equipment 5 years
Leasehold improvements Lease term
57
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
ECOMMERCE TECHNOLOGY
eCommerce technology arose as part of the acquisition of Xceedx Technologies
Inc. and is being amortized on a straight-line basis over its useful life, which
is 36 months.
WEB-SITE DEVELOPMENT COSTS
IMPAIRMENT OF LONG-LIVED ASSETS
The Company monitors the recoverability of long-lived assets, including capital
and intangible assets, based upon estimates using factors such as future asset
utilization, business climate and future non-discounted cash flows expected to
result from the use of the related assets or to be realized on sale. The
Company's policy is to write down assets to their fair value in the period when
it is likely that the carrying amount of the asset will not be recovered.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation to employees based on
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations, whereby the intrinsic value of options
granted is recorded at the measurement date. Compensation expense is calculated
based on the difference, on the date of grant, between the fair value of the
Company's stock and the exercise price and is recorded over the vesting period
of the options. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" for stock options granted to employees.
Stock options granted to non-employees are accounted for under SFAS No. 123
using the fair value method. Compensation expense is calculated using the Black
Scholes pricing model and recorded over the period the services are rendered.
58
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
FOREIGN CURRENCY TRANSLATION
Through March 31, 2000, the functional currency of the Company was the Canadian
dollar, while the reporting currency in the consolidated financial statements
was the U.S. dollar. Asset and liability accounts were translated into U.S.
dollars at the exchange rate in effect at the balance sheet date. Revenue and
expense amounts were translated at the average exchange rate for the year. Gains
or losses resulting from this process were recorded in stockholders' equity as
an adjustment to other comprehensive loss.
Effective April 1, 2000, the functional currency of the Company changed to the
U.S. dollar. Accordingly, for the Canadian subsidiaries, monetary assets and
liabilities are translated into U.S. dollars at exchange rates prevailing at the
balance sheet date and non-monetary items are translated at exchange rates
prevailing at the historic rate. Revenue and expenses are translated at the
average exchange rate for the year. Gains or losses arising on this foreign
currency translation are recorded in income.
REVENUE RECOGNITION
The Company enters into sales contracts that may encompass multiple elements,
including hosting fees and initial set-up fees. The total fee for a multiple
element arrangement is allocated to each element based upon objective evidence
of the fair value of each element. Fair value is established through the
Company's policy to charge customers the same price as when the element is sold
separately. Hosting fees are recognized monthly as the services are performed.
An initial set-up fee is recognized when the client's web site is activated for
the world wide web, at which time the Company retains no material conditions or
obligations to the customer.
In addition, the Company recognizes revenues from license fees and training
fees. License fees are recognized monthly as the services are performed.
Training fees are recognized in the period services are performed.
Cash received in advance of services rendered are treated as deferred revenue.
59
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
PRODUCT DEVELOPMENT COSTS
Product development costs incurred after technological feasibility of a product
is established are capitalized. Technological feasibility is generally not
established until substantially all related product development is complete and
the product is released. In accordance with this policy, all product development
costs incurred to date have been expensed as incurred.
ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to $80,384 in the year
ended June 30, 2001 [2000 - $192,042].
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. Recognition of deferred tax assets
is limited to amounts considered by management to be more likely than not of
realization in future periods.
LOSS PER COMMON SHARE
The basic loss per common share is computed by dividing income (loss) available
to common stockholders by the weighted average number of common shares
outstanding for the year. Diluted loss per common share is computed giving
effect to all potential dilutive options and warrants that were outstanding
during the period. For the years ended June 30, 2001 and 2000, all outstanding
options and warrants were anti-dilutive.
COMPREHENSIVE LOSS
Comprehensive loss includes all changes in stockholders' equity (deficit) during
the year except those resulting from capital transactions. Other comprehensive
income represents foreign currency translation adjustments for all years
presented.
60
3. FINANCIAL INSTRUMENTS
Amounts reported for cash equivalents, accounts receivable, other receivables
and accounts payable and accrued liabilities approximate their fair values due
to the relatively short periods to maturity of the instruments. The carrying
value of the demand instalment loan and shareholders' loans approximates fair
value due to variable market interest rates being charged on outstanding
balances.
4. CREDIT RISK AND OTHER
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents and accounts
receivable. The Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses which, when realized, have been
within range of management's expectations.
For the year ended June 30, 2001, approximately 89% of the Company's total
revenues were generated through sales to one customer [2000 - 89%]. At June 30,
2001, approximately 73% of the Company's accounts receivable balance was due
from this customer [2000 - 87%]. In addition, the Company utilizes a business
directory listing provided to the Company by a supplier pursuant to an annual
license agreement.
5. PROPERTY AND EQUIPMENT
2001 2000
----------------------- -----------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
$ $ $ $
--------------------------------------------------------------------------------------
Computer equipment and software 223,650 123,955 127,510 69,207
Office furniture and equipment 18,458 4,105 6,078 1,961
Leasehold improvements 7,692 4,497 7,692 2,764
--------------------------------------------------------------------------------------
249,800 132,557 141,280 73,932
--------------------------------------------------------------------------------------
NET BOOK VALUE 117,243 67,348
======================================================================================
61
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2001 2000
$ $
------------------------------------------------
Trade accounts payable 257,295 314,311
Accrued liabilities 63,611 47,610
------------------------------------------------
320,906 361,921
================================================
7. LOAN PAYABLE
On August 16, 2000, the Company entered into a Loan and Security Agreement with
Xxx Enterprises Incorporated (Xxx). Under this agreement, the Company received
$290,000 in funding in the form of promissory notes that bear interest at the
monthly Wall Street Journal rate, as detailed below:
WEIGHTED AVERAGE
LOAN DATE AMOUNT $ MATURITY DATE EFFECTIVE
INTEREST RATE (%)
--------------------------------------------------------------------------
August 17, 2000 125,000 October 31, 2002 9.00
August 28, 2000 125,000 October 31, 2002 9.00
September 19, 2000 40,000 October 31, 2002 9.00
--------------------------------------------------------------------------
290,000
==========================================================================
Pursuant to the Investment Agreement, the maturity dates were changed from
November 17, 2000, November 28, 2000 and December 19, 2000 respectively, to
October 31, 2002.
In conjunction with these agreements, the Company entered into a Collateral
License Agreement covering the licensing of the Company's software to Xxx in the
event of a default pursuant to the loan and security agreement. Interest for the
year ended June 30, 2001 on this loan amounted to $20,838 [2000 - $0].
62
8. LOAN DEBENTURE
On November 1, 2000, the Company entered into an Investment Agreement with Xxx
Enterprises Incorporated (Xxx) whereby Xxx would provide funding of up to
$1,500,000 in the form of a floating rate subordinated convertible debenture.
The $1,500,000 subordinated convertible debenture would consist of a series of
six debentures of $250,000 that would be funded during the period from November
2000 to May 2001. The Company received $1,500,000 in funding under the debenture
from October 2000 to June 2001. The Investment Agreement provides Xxx the right
to convert the floating rate subordinated convertible debenture into 6,902,429
common shares of the Company at a conversion price of $0.2173 per common share.
If Xxx does not convert the debenture to common shares the Company will have to
repay the $1,500,000 loan on October 31, 2003. The Investment Agreement also
contains certain affirmative and negative covenants that restrict the Company's
activities. As of June 30, 2001, the Company is in compliance with all the
covenants in the Investment Agreement. Each series of $250,000 subordinated
convertible debenture bears interest at the Wall Street Journal rate less 1%.
The weighted average effective rate for the year ended June 30, 2001 is 8%.
Interest due on the convertible debenture can be repaid or converted to
CityXpress shares at fair market value on the date of conversion. The investment
Agreement includes a Registration Rights Agreement providing Xxx the ability to
require the company to register the shares issuable under the Investment
Agreement based on certain conditions.
63
9. DEMAND INSTALMENT LOAN
In January 2000, the Company refinanced its demand term loan, whereby it
increased the loan amount to $169,687 (Cdn $250,000). The loan bears interest at
the bank prime rate plus 1% and is repayable in equal monthly principal and
interest instalments of $1,619 through February 2015, unless the loan is called
on demand by the bank.
Annual principal repayments for this loan for the years succeeding June 30, 2001
are:
$
-------------------------
2002 7,312
2003 8,529
2004 9,167
2005 9,854
2006 10,594
Thereafter 115,753
-------------------------
161,209
=========================
The loan is collateralized by a general security agreement on substantially all
of the Company's assets, the maintenance of a compensating balance of $16,860
(Cdn. $25,000) that was provided by one of the Company's officers, a collateral
mortgage security for $168,600 (Cdn. $250,000) providing the bank a first
security interest in the personal property of two of the Company's officers,
personal guarantees from two of the Company's officers [note 12] and the
assignment of a life insurance policy on the Company's president.
At June 30, 2001 the bank prime rate was 6.25% [2000 - 7.5%].
64
10. RELATED PARTY TRANSACTIONS
[A] SHAREHOLDERS' LOANS
During the year ended June 30, 2001, the Company entered into an additional
unsecured shareholder loan agreement with the Company's chief executive officer
and chief financial officer. The total amount of the additional loan amounted to
$66,028 ($100,000 Cdn). The demand loans outstanding at June 30, all of which
are without stated terms of repayment unless otherwise stated, are summarized
below:
ANNUAL
INTEREST BALANCE OUTSTANDING
RATE AT AT JUNE 30,
JUNE 30, 2001 2001 2000
% $ $
--------------------------------------------------------------------------------------------------
Loans payable bearing interest at 10% and repayable
in equal monthly principal and interest instalments of
$2,020 9.70 231,537 168,600
Loan payable bearing interest at the CIBC Visa
monthly interest rate 19.50 2,669 16,860
Loan payable bearing interest at the Scotia XxXxxx
monthly interest rate 9.50 16,680 16,860
Loan payable bearing interest at 4.5% per annum 4.50 16,680 33,720
Loan payable bearing interest at Toronto Dominion
Bank monthly TD Select Line rate 9.75 16,680 16,860
--------------------------------------------------------------------------------------------------
284,246 252,900
==================================================================================================
Interest incurred on the loans amounted to $22,270 for the year ended June 30,
2001 [2000 - $2,874].
65
10. RELATED PARTY TRANSACTIONS (CONT'D.)
[B] OTHER
On June 13, 2000, the Company granted 541,600 warrants to two of the Company's
officers, as consideration for their guarantee of the demand instalment loan
[note 9] and as consideration for the shareholder loans [note 10(a)]. Each
warrant is exercisable for one common share of the Company at a price of $.25
per share through June 13, 2002. The estimated fair value of these warrants at
the date of issuance of $48,744 was recorded as an expense in the consolidated
statement of operations for the year ended June 30, 2000. The Black Scholes
option pricing model was used to value the warrants with the following
assumptions: no dividend yield; risk-free interest rate of 6.0%; expected
volatility of 1.09; and an expected life of 1.5 years.
11. COMMITMENTS
The Company leases its building premises and certain office equipment under
operating leases expiring through fiscal year 2003. The Company also leases
certain equipment under capital leases. Future minimum lease commitments under
these leases through fiscal year 2006 are as follows:
Operating Capital
Leases Leases
$ $
--------------------------------------------------------------------------------
2002 137,156 27,739
2003 101,482 27,739
2004 14,795 21,310
--------------------------------------------------------------------------------
2005 4,696 628
2006 848 --
--------------------------------------------------------------------------------
258,978 77,416
============================================================
Less interest (19,247)
Total principle obligations 58,169
Less current portion (17,209)
--------------------------------------------------------------------------------
Non-current portion of principle obligations 40,960
================================================================================
Rent expense for the year ended June 30, 2001 amounted to approximately $106,841
[2000 - $86,402].
12. SHARE CAPITAL
[A] COMMON STOCK
In August 1999, the Company issued 177,860 common shares at $1.50 per share, for
$266,790, net of financing commissions payable. The net cash proceeds were
received prior to June 30, 1999. Each common share issued has an attached
warrant which entitles the holder to acquire one common share for $1.50 each for
a one year period, and $2.00 each after one year. The warrants expire on June
10, 2001.
On August 15, 1999, the Company issued 100,000 units to a vendor for marketing
and advertising services. Each unit comprised one common share and one warrant
entitling the vendor to acquire
66
one common share for $1.50 each for a one year period, and $2.00 each after one
year [note 12(c)]. On May 18, 2000, the Company issued an additional 140,000
units to this vendor for marketing and advertising services. Each unit comprised
one common share and one warrant entitling the vendor to acquire one common
share for $.25 each for a one year period, and $.75 each after one year [note
12(c)]. The Company has recorded, in additional paid in capital, the units
issued at their fair value of $281,200. Of this amount, approximately $142,500
has been recorded as an expense in the consolidated statement of operations for
the year ended June 30, 2000 and the remainder has been recorded as a prepaid
expense to be amortized over the period the services are rendered. The Black
Scholes option pricing model was used to value the warrants with the following
assumptions: no dividend yield; risk free interest rate of 6.0%; expected
volatility of 1.09 and an expected life of 1.5 years.
In October and December 1999, the Company issued 99,521 common shares and
warrants to acquire 99,521 common shares for cash proceeds of $136,069. Each
common share has one attached warrant which entitles the holder to acquire one
common share for exercise prices of $1.25 to $1.50 during the first year and
$1.75 to $2.00 during the second year. The warrants expire September 30, 2001 to
October 13, 2001. Pursuant to the subscription agreements, if at any time until
March 31, 2000 the Company issued common shares at a share price of less than
the subscription price paid by the investors, then additional common shares and
warrants would be issued, such that the effective issue price of the common
shares issued is equal to the lower price paid. In January 2000, the Company
issued an additional 172,617 common shares for no additional consideration,
pursuant to this subscription agreement. In addition, the number of warrants
granted was increased by 172,617 to 272,138 and the exercise price decreased to
$.50 during the first year and $.75 during the second year.
67
12. SHARE CAPITAL (CONT'D.)
[A] COMMON STOCK (CONT'D.)
In March 2000, the Company issued 12,467 common shares at $.77 per share to a
vendor for marketing services with a fair market value of $9,570.
During the year ended June 30, 2000, the Company issued 1,962,300 units for cash
proceeds of $890,100 before share issue costs of $16,667. Each unit comprised
one common share and one warrant entitling the holder to acquire one common
share [note 12(c)]. The proceeds of $1,026,169 have been allocated to the common
shares and the warrants based on their relative fair values. The beneficial
conversion feature of the warrants has been determined to be $564,116 and has
been charged to the deficit.
[B] STOCK OPTIONS
On August 25, 1999, and amended on November 29, 2000 the Board of Directors
approved the creation of the Corporate Stock Option Plan ("Plan") pursuant to
which the Company has reserved 3,000,000 [2000 - 2,000,000] shares of common
stock. The terms and vesting period of options are determined by the directors
at the date of grant. The majority of the options granted to date are
exercisable over a four year period and vest on a cumulative basis at 1/3 per
year.
In August 1999, the Company granted 675,000 stock options to employees below the
fair market value of the underlying common shares on the date of grant.
Compensation expense of $226,898, calculated based on the intrinsic value
method, has been recorded in the consolidated statement of operations for the
year ended June 30, 2000. On December 8, 2000, the Company cancelled these stock
options.
68
12. SHARE CAPITAL (CONT'D.)
[B] STOCK OPTIONS (CONT'D.)
Stock option transactions for the year ended June 30, 2001 are summarized below:
OUTSTANDING OPTIONS
SHARES -----------------------------
AVAILABLE WEIGHTED AVERAGE
UNDER OPTION SHARES EXERCISE PRICE
# # $
----------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 -- -- --
Reserve shares 2,000,000 -- --
Granted, July 13, 1999 (675,000) 675,000 1.50
May 15, 2000 (872,500) 872,500 0.25
June 27, 2000 (200,000) 200,000 0.25
Forfeited 110,000 (110,000) 1.50
----------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 362,500 1,637,500 0.68
==================================================================================
Reserve shares 1,000,000 -- --
Granted, November 10, 2000 (65,000) 65,000 1.50
November 29, 2000 (85,000) 85,000 0.25
March 29, 2001 (90,000) 90,000 0.25
May 29, 2001 (60,000) 60,000 0.25
June 14, 2001 (600,000) 600,000 0.25
Forfeited 147,500 (147,500) 0.89
Cancelled 490,000 (490,000) 1.50
----------------------------------------------------------------------------------
BALANCE, JUNE 30, 2001 1,100,000 1,900,000 0.25
==================================================================================
The following table summarizes information about stock options that are
outstanding at June 30, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------
RANGE OF NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
EXERCISE OUTSTANDING AT AVERAGE AVERAGE OUTSTANDING AT AVERAGE
PRICES JUNE 30, 2001 REMAINING EXERCISE PRICE JUNE 30, 2001 EXERCISE PRICE
$ # CONTRACTUAL LIFE $ # $
---------------------------------------------------------------------------------------------
0.25 1,900,000 3.03 0.25 751,667 0.25
=============================================================================================
12. SHARE CAPITAL (CONT'D.)
[B] STOCK OPTIONS (CONT'D.)
The weighted average fair value of options granted during the year ended June
30, 2001 was as follows:
69
WEIGHTED
AVERAGE
OPTIONS FAIR VALUE
# $
---------------------------------------------------------------
Exercise price:
Equal to fair market value -- --
Greater than fair market value 900,000 0.07
Less than fair market value -- --
---------------------------------------------------------------
900,000 0.07
===============================================================
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standard ("SFAS") No. 123, which also requires
that the information be determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value of each option granted during the year was estimated at the date of grant
using a Black-Scholes pricing model with the following weighted average
assumptions: risk free interest rates of 5% [2000 - 6%]; dividend yields of nil;
volatility factors of the expected market price of the Company's common stock of
1.39 [2000 - 1.09] and a weighted average expected life of the option of 3.03
years [2000 - 3.8 years].
70
12. SHARE CAPITAL (CONT'D.)
[B] STOCK OPTIONS (CONT'D.)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period. The Company's pro forma
information for the year ended June 30, is as follows:
2001 2000
$ $
---------------------------------------------------------------------------------------------------
Net loss As reported (2,342,460) (2,387,437)
Beneficial conversion feature of warrants [note 12(a)] As reported -- (564,116)
APB 25 compensation expense As recorded 50,137 228,924
SFAS 123 compensation expense Pro forma (37,600) (788,645)
---------------------------------------------------------------------------------------------------
Pro forma net loss Pro forma (2,329,923) (3,511,274)
---------------------------------------------------------------------------------------------------
Pro forma net loss per common share:
Basic and diluted Pro forma (0.10) (0.17)
---------------------------------------------------------------------------------------------------
[C] WARRANTS
The following represents a summary of warrants outstanding June 30, 2001:
OUTSTANDING WARRANTS
-----------------------------------------------------
EXERCISE PRICE
SHARES YEAR 1 YEAR 2
GRANT DATE # $ $ EXPIRY DATE
--------------------------------------------------------------------------------
July 14, 1999 45,260 1.50 0.25 July 14, 2001
August 15, 1999 100,000 1.50 0.25 August 15, 2001
September 30, 1999 465,800 0.50 0.25 September 30, 2001
October 13, 1999 132,138 0.50 0.25 October 13, 2001
December 10, 1999 408,000 0.50 0.25 December 10, 2001
January 18, 2000 138,000 0.50 0.25 January 18, 2002
January 31, 2000 500,000 0.50 0.25 January 31, 2002
May 1, 2000 405,240 0.25 0.25 May 1, 2002
May 18, 2000 280,000 0.25 0.25 May 18, 2002
June 13, 2000 541,600 0.25 0.25 June 13, 2002
November 10, 2000 200,000 0.25 0.25 November 10, 2002
June 26, 2001 160,000 0.25 0.25 June 26, 2003
--------------------------------------------------------------------------------
BALANCE, JUNE 30, 2001 3,376,038
================================================================================
71
12. SHARE CAPITAL (CONT'D.)
[C] STOCK OPTIONS (CONT'D.)
On March 29, 2001, the Company re-priced outstanding warrants issued in
connection with private placements between June 10, 1999 and May 18, 2000. A
total of 2,652,298 warrants with a second year warrant price ranging from $0.75
to $2.00 have been re-priced to $0.25.
[D] LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted
loss per share:
2001 2000
$ $
-------------------------------------------------------------------------------------
NUMERATOR
Net loss for the year (2,342,460) (2,387,437)
Beneficial conversion feature of warrants [note 12(a)] -- (564,116)
-------------------------------------------------------------------------------------
Net loss attributable to common shareholders (2,342,460) (2,951,553)
DENOMINATOR
Weighted average number of common shares outstanding 23,008,098 21,091,604
Basic and diluted loss per common share (0.10) (0.14)
=====================================================================================
For the years ended June 30, 2001 and 2000, all of the Company's common
shares issuable upon the exercise of stock options and warrants were
excluded from the determination of diluted loss per share as their
effect would be anti-dilutive.
72
13. INCOME TAXES
The Company is subject to United States Federal Taxes at an approximate rate of
35%. It is also subject to Canadian Federal and British Columbia provincial
taxes of approximately 45%. No current provision or benefit for income taxes has
been recorded for the years ended June 30, 2001 or 2000 as the Company has
incurred operating losses and has no carryback potential.
The Company's deferred income tax recovery at June 30 comprises:
2001 2000
$ $
------------------------------------------------------
United States (160,000) (160,000)
Canada --
------------------------------------------------------
(160,000) (160,000)
======================================================
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to income tax expense for the years
ended June 30 is:
2001 2000
$ $
------------------------------------------------------------------------------
Tax at U.S. statutory rates (812,000)
Lower (higher) effective income taxes of other country (210,000)
Deferred tax assets not recognized for accounting purposes 467,000
Net operating losses not recognized for accounting purposes 286,000
Non-deductible expenses 139,000
Other (30,000)
------------------------------------------------------------------------------
Income tax recovery (160,000)
==============================================================================
73
13. INCOME TAXES (CONT'D.)
Net deferred tax assets (liabilities) consist of the following at June 30:
2001 2000
$ $
-----------------------------------------------------------------------------------------
DEFERRED TAX ASSETS
Loss carryforwards 1,059,000
Tax value in excess of book value 613,000
Valuation allowance for future tax assets (1,672,000)
-----------------------------------------------------------------------------------------
Net deferred tax assets --
-----------------------------------------------------------------------------------------
DEFERRED TAX LIABILITY
Excess book versus tax difference on eCommerce technology (253,100)
=========================================================================================
The tax losses expire as follows:
$
-----------------------------------------------------------------------------------------
CANADIAN
2003 55,000
2004 4,000
2005 184,000
2006 1,184,000
2007 1,618,000
2008 1,874,000
-----------------------------------------------------------------------------------------
4,919,000
=========================================================================================
14. SEGMENT INFORMATION
Predominantly all of the Company's assets and employees are located in Canada
for the years presented. The following table represents total revenues based on
the location of the customer.
2001 2000
$ $
--------------------------------------------
U.S.A. 185,466 121,992
Canada 10,038 11,128
--------------------------------------------
Total revenues 195,504 133,120
============================================
74
15. PRODUCT DEVELOPMENT AND TECHNOLOGY
Government grants of $32,412 for the year ended June 30, 2001 [2000 - $23,776]
have been applied to reduce product development and technology expenditures in
the consolidated statements of loss.
75
SCHEDULE 5.15
EXISTING INDEBTEDNESS
The following schedule details the status of existing indebtedness for
XxxxXxxxxx.xxx Corp. and its wholly owned subsidiaries WelcomeTo Search Engine
Inc. and Xceedx Technologies Inc.
XXXXXXXXXX.XXX CORP.: The following list details all of the outstanding Existing
Indebtedness as of June 30, 2001 year-end and as of August 9, 2001:
- Canadian Imperial Bank of Commerce (CIBC) Demand Installment
Loan(the "Senior Existing Indebtedness"). The loan bears
interest at the bank prime rate plus 1% and is repayable in
equal monthly principal and interest installments of $2,468
(Cdn.) from February 2000 through February 2015, unless the
loan is called on demand by the bank. The loan is
collateralized by a general security agreement on
substantially all of the Company's assets, a collateral
mortgage security for $166,238 (Cdn. $250,000) providing the
bank first security interest in the personal property of two
of the Company's officers, the assignment of a life insurance
policy on the Company's president and the personal guarantees
of two of the Company's officers. At of year-end on June 30,
2001, the balance outstanding was $161,830 and as of August 9,
2001 the balance was approximately $161,195.
- Unsecured shareholder loan with the President & CEO and the
Chief Operating Officer & CFO of $350,000 (Cdn.) The loan
bears interest at 9.7% and is repayable in equal monthly
principal and interest installments of $3,060.27 (Cdn.)
commencing on July 19, 2001. At year-end on June30, 2001, the
balance outstanding was $231,537 and as of August 9, 2001 the
balance was approximately $231,257.
- Unsecured shareholder loans with the President & CEO. The
demand loans bear interest at 19.5% for $4,000 (Cdn.) and 9.5%
for $25,000 (Cdn.). At year-end on June30, 2001, the balance
outstanding for both loans was $19,349 and as of August 9,
2001 the balance for both loans was approximately $19,349.
- Unsecured shareholder loans with the Chief Operating officer &
CFO. The demand loans bear interest at 9.0% for $25,000 (Cdn.)
and 4.5% for $25,000 (Cdn.). At year-end on June30, 2001, the
balance outstanding for both loans was $33,360 and as of
August 9, 2001 the balance outstanding for both loans was
approximately $33,360.
76
- Xxx Enterprises Promissory Notes that total $290,000
outstanding at year-end on June 30, 2001 and August 9, 2001.
The Promissory Notes bear interest at the prime rate of
interest as announced by The Wall Street Journal.
- Xxx Enterprises Floating Rate Convertible Debentures Series A
to F that total $1,500,000 outstanding at year-end on June 30,
2001 and August 9, 2001. The Convertible Debentures bear
interest at the prime rate of interest less 1% as announced by
The Wall Street Journal.
WELCOMETO SEARCH ENGINE INC. None
XCEEDX TECHNOLOGIES INC. None
77
SCHEDULE 5.21
AUTHORIZED CAPITAL STOCK
The authorized share capital of XxxxXxxxxx.xxx Corp. as of June 30, 2001
year-end and August 9, 2001 is 50,000,000 common stock at a par value of $0.0001
per common share.
COMMON STOCK ISSUED AND OUTSTANDING:
As of June 30, 2001 year-end XxxxXxxxxx.xxx Corp. had issued and outstanding
common shares of 23,043,898.
As of August 9, 2001 XxxxXxxxxx.xxx Corp. had issued and outstanding common
shares of 23,143,898 reflecting the exercise of 100,000 warrants in July 2001.
Common stock issued and outstanding per Schedule 5.21 of the Loan Agreement dated
October 26, 2000 23,008,098
Common stock issued for services to Xxx Xxxxxx, issue price of
$0.25 US per share 35,800
----------
Total common stock outstanding and issued as of June 30, 2001 3,043,898
----------
Common stock issued on exercise of warrants in July 2001 100,000
----------
Total common stock outstanding and issued as of August 9, 2001 23,143,898
----------
OPTIONS OUTSTANDING:
As of August 25, 1999, the shareholders approved the creation of the
XxxxXxxxxx.xxx Corp. Corporate Stock Option Plan, which reserved 2,000,000
shares of common stock. At the November 29, 2000 Annual General Meeting of
XxxxXxxxxx.xxx Corp. the shareholders approved the amendment to the Corporate
Stock Option Plan increasing the reserve from 2,000,000 to 3,000,000 shares of
common stock. The option grant dates are from May 15, 2000 to June 14, 2001 at
an exercise price of $0.25.
As of June 30, 2001 year-end and August 9,2001 1,900,000 options have been
granted to employees and directors, leaving a balance in the reserve of
1,100,000. The majority of the options granted to-date are excisable over a
four-year period and vest on a cumulative basis at 1/3 per year after the first
year. The option exercise price for the four years is $0.25.
Options outstanding per Schedule 5.21 of the Loan Agreement dated
October 26, 2000 1,515,000
Options granted to employees 25,000
Options granted to directors 85,000
Options forfeited (25,000)
---------
Options Outstanding at June 30, 2001 and August 9, 2001 1,900,000
---------
78
WARRANTS OUTSTANDING:
As of June 30, 2001 year-end XxxxXxxxxx.xxx Corp. had outstanding warrants of
3,376,038 at exercisable prices between $0.25 and $1.50 and expiry dates between
July 14, 2001 and June 26, 26, 2003.
As of August 9, 0000XxxxXxxxxx.xxx Corp. had outstanding warrants of 3,230,778
at exercisable prices between $0.25 and $1.50 and expiry dates between August
15, 2001 and June 26, 26, 2003. In July 2001 100,000 warrants were excised and
45,260 expired.
Warrants outstanding per Schedule 5.21 of the Loan Agreement dated
October 26, 2000 3,193,898
Warrants granted for shareholder loans 360,000
Warrants that expired on June 10, 2001 (177,860)
---------
Warrants outstanding as of June 30, 2001 year end 3,376,038
---------
Warrants exercised in July 2001 (100,000)
Warrants that expired on July 14, 2001 (45,260)
---------
Warrants outstanding as of August 9, 2001 3,230,778
---------
79
EXHIBIT 1
XXXXXXXXXX.XXX CORP.
SERIES A FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $250,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: NOVEMBER 1, 2000
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $250,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx, Xxxx 00000 or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
80
States of America. This Debenture is one of a Series of a Floating Rate
Subordinated Convertible Debentures, Authorized Aggregate Issue $1,500,000
(herein called the "Debentures"), issued pursuant to a Investment Agreement,
dated as of November 1, 2000 (as from time to time amended, the "Investment
Agreement"), between the Company and the Debenture Holder named therein and is
entitled to the benefits thereof. Capitalized terms used herein and not
otherwise defined herein have the meanings specified in the Investment
Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in paragraph 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
paragraph 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this paragraph 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this paragraph 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this paragraph 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date to the Debenture Holder at its registered
address in accordance with the notice provisions of the Investment Agreement.
81
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated October 20, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in paragraph 6, on the basis of the aggregate of (a) one (1) share of Common
Stock of the Company for each $0.2173 of principal debt balance due on the
Debenture (the "Conversion Price") and (b) one (1) share of Common Stock of the
Company times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in paragraph 2
hereof (the "Interest Conversion Rate"). No fraction of a share of Common Stock
shall be deliverable in payment of principal or accrued interest on the
Debenture, but any fraction of a share shall be rounded upwards to the nearest
whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time; distributions to such
holders of assets or debt securities of the Company or certain
rights to purchase securities of the Company (excluding cash
dividends or distributions from current or retained earnings).
The Company shall not issue Common Stock and rights, warrants
or securities convertible into Common Stock at a purchase or
conversion price less than $0.2173 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under paragraph 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common Stock to which it shall be entitled upon conversion of this
Debenture and the amount of cash payable in respect of accrued interest on this
Debenture to said conversion date.
82
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the President of the Company, whose signature shall be
guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxxx Xxxxxx
---------------------------------
Xxxx X. Xxxxxx
President &
Chief Executive Officer
Signature Guaranteed:
/s/ Xxx Xxxxxxx
------------------------------------
83
EXHIBIT 2
XXXXXXXXXX.XXX CORP.
SERIES B FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $250,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: NOVEMBER 1, 2000
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $250,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
00
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $1,500,000 (herein called the
"Debentures"), issued pursuant to a Investment Agreement, dated as of November
1, 2000 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in paragraph 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
paragraph 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this paragraph 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this paragraph 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this paragraph 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
85
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated October 20, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in paragraph 6, on the basis of the aggregate of (a) one (1) share of Common
Stock of the Company for each $0.2173 of principal debt balance due on the
Debenture (the "Conversion Price") and (b) one (1) share of Common Stock of the
Company times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in paragraph 2
hereof (the "Interest Conversion Rate"). No fraction of a share of Common Stock
shall be deliverable in payment of principal or accrued interest on the
Debenture, but any fraction of a share shall be rounded upwards to the nearest
whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time; distributions to such
holders of assets or debt securities of the Company or certain
rights to purchase securities of the Company (excluding cash
dividends or distributions from current or retained earnings).
The Company shall not issue Common Stock and rights, warrants
or securities convertible into Common Stock at a purchase or
conversion price less than $0.2173 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under paragraph 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten
86
days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common Stock to which it shall be entitled upon conversion of this
Debenture and the amount of cash payable in respect of accrued interest on this
Debenture to said conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the President of the Company, whose signature shall be
guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxxx Xxxxxx
-----------------------------------
Xxxx X. Xxxxxx
President &
Chief Executive Officer
Signature Guaranteed:
/s/ Xxx Xxxxxxx
--------------------------------------
87
EXHIBIT 3
XXXXXXXXXX.XXX CORP.
SERIES C FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $250,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: DECEMBER 1, 2000
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $250,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
00
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $1,500,000 (herein called the
"Debentures"), issued pursuant to a Investment Agreement, dated as of November
1, 2000 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in paragraph 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
paragraph 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this paragraph 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this paragraph 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this paragraph 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
89
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated October 20, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in paragraph 6, on the basis of the aggregate of (a) one (1) share of Common
Stock of the Company for each $0.2173 of principal debt balance due on the
Debenture (the "Conversion Price") and (b) one (1) share of Common Stock of the
Company times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in paragraph 2
hereof (the "Interest Conversion Rate"). No fraction of a share of Common Stock
shall be deliverable in payment of principal or accrued interest on the
Debenture, but any fraction of a share shall be rounded upwards to the nearest
whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time; distributions to such
holders of assets or debt securities of the Company or certain
rights to purchase securities of the Company (excluding cash
dividends or distributions from current or retained earnings).
The Company shall not issue Common Stock and rights, warrants
or securities convertible into Common Stock at a purchase or
conversion price less than $0.2173 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under paragraph 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten
90
days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common Stock to which it shall be entitled upon conversion of this
Debenture and the amount of cash payable in respect of accrued interest on this
Debenture to said conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the President of the Company, whose signature shall be
guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxxx Xxxxxx
--------------------------------
Xxxx X. Xxxxxx
President &
Chief Executive Officer
Signature Guaranteed:
/s/ Xxx Xxxxxxx
-----------------------------------
91
EXHIBIT 4
XXXXXXXXXX.XXX CORP.
SERIES D FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $250,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: JANUARY 1, 2001
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $250,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
00
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $1,500,000 (herein called the
"Debentures"), issued pursuant to a Investment Agreement, dated as of November
1, 2000 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in paragraph 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
paragraph 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this paragraph 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this paragraph 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this paragraph 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
93
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated October 20, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in paragraph 6, on the basis of the aggregate of (a) one (1) share of Common
Stock of the Company for each $0.2173 of principal debt balance due on the
Debenture (the "Conversion Price") and (b) one (1) share of Common Stock of the
Company times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in paragraph 2
hereof (the "Interest Conversion Rate"). No fraction of a share of Common Stock
shall be deliverable in payment of principal or accrued interest on the
Debenture, but any fraction of a share shall be rounded upwards to the nearest
whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time; distributions to such
holders of assets or debt securities of the Company or certain
rights to purchase securities of the Company (excluding cash
dividends or distributions from current or retained earnings).
The Company shall not issue Common Stock and rights, warrants
or securities convertible into Common Stock at a purchase or
conversion price less than $0.2173 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under paragraph 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten
94
days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common Stock to which it shall be entitled upon conversion of this
Debenture and the amount of cash payable in respect of accrued interest on this
Debenture to said conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the President of the Company, whose signature shall be
guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxxx Xxxxxx
---------------------------------
Xxxx X. Xxxxxx
President &
Chief Executive Officer
Signature Guaranteed:
/s/ Xxx Xxxxxxx
------------------------------------
95
EXHIBIT 5
XXXXXXXXXX.XXX CORP.
SERIES E FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $250,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: MARCH 1, 2001
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $250,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
00
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $1,500,000 (herein called the
"Debentures"), issued pursuant to a Investment Agreement, dated as of November
1, 2000 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in paragraph 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
paragraph 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this paragraph 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this paragraph 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this paragraph 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
97
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated October 20, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in paragraph 6, on the basis of the aggregate of (a) one (1) share of Common
Stock of the Company for each $0.2173 of principal debt balance due on the
Debenture (the "Conversion Price") and (b) one (1) share of Common Stock of the
Company times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in paragraph 2
hereof (the "Interest Conversion Rate"). No fraction of a share of Common Stock
shall be deliverable in payment of principal or accrued interest on the
Debenture, but any fraction of a share shall be rounded upwards to the nearest
whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time; distributions to such
holders of assets or debt securities of the Company or certain
rights to purchase securities of the Company (excluding cash
dividends or distributions from current or retained earnings).
The Company shall not issue Common Stock and rights, warrants
or securities convertible into Common Stock at a purchase or
conversion price less than $0.2173 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under paragraph 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten
98
days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common Stock to which it shall be entitled upon conversion of this
Debenture and the amount of cash payable in respect of accrued interest on this
Debenture to said conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the President of the Company, whose signature shall be
guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxxx Xxxxxx
---------------------------------
Xxxx X. Xxxxxx
President &
Chief Executive Officer
Signature Guaranteed:
/s/ Xxx Xxxxxxx
------------------------------------
99
EXHIBIT 6
XXXXXXXXXX.XXX CORP.
SERIES F FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $250,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: MAY 1, 2001
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $250,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
100
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx, Xxxx 00000 or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America. This Debenture is one of a Series of a Floating Rate
Subordinated Convertible Debentures, Authorized Aggregate Issue $1,500,000
(herein called the "Debentures"), issued pursuant to a Investment Agreement,
dated as of November 1, 2000 (as from time to time amended, the "Investment
Agreement"), between the Company and the Debenture Holder named therein and is
entitled to the benefits thereof. Capitalized terms used herein and not
otherwise defined herein have the meanings specified in the Investment
Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in paragraph 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
paragraph 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this paragraph 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this paragraph 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this paragraph 3.
101
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date to the Debenture Holder at its registered
address in accordance with the notice provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated October 20, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in paragraph 6, on the basis of the aggregate of (a) one (1) share of Common
Stock of the Company for each $0.2173 of principal debt balance due on the
Debenture (the "Conversion Price") and (b) one (1) share of Common Stock of the
Company times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in paragraph 2
hereof (the "Interest Conversion Rate"). No fraction of a share of Common Stock
shall be deliverable in payment of principal or accrued interest on the
Debenture, but any fraction of a share shall be rounded upwards to the nearest
whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time; distributions to such
holders of assets or debt securities of the Company or certain
rights to purchase securities of the Company (excluding cash
dividends or distributions from current or retained earnings).
The Company shall not issue Common Stock and rights, warrants
or securities convertible into Common Stock at a purchase or
conversion price less than $0.2173 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under paragraph 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
102
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common Stock to which it shall be entitled upon conversion of this
Debenture and the amount of cash payable in respect of accrued interest on this
Debenture to said conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the President of the Company, whose signature shall be
guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxxx Xxxxxx
------------------------------------
Xxxx X. Xxxxxx
President &
Chief Executive Officer
Signature Guaranteed:
/s/ Xxx Xxxxxxx
---------------------------------------
103
EXHIBIT 7
XXXXXXXXXX.XXX CORP.
SERIES G FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $310,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: AUGUST 10, 2001
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $310,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due
on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day. "Business Day" means
any day other than a Saturday, a Sunday or a day on which commercial banks in
New York City are required or authorized to be closed.
104
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx, Xxxx 00000 or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America. This Debenture is one of a Series of a Floating Rate
Subordinated Convertible Debentures, Authorized Aggregate Issue $3,000,000
(herein called the "Debentures"), issued pursuant to the Investment Agreement,
dated as of November 1, 2000, which was amended by the First Amendment thereto
dated as of July 30, 2001 (as from time to time amended, the "Investment
Agreement"), between the Company and the Debenture Holder named therein and is
entitled to the benefits thereof. Capitalized terms used herein and not
otherwise defined herein have the meanings specified in the Investment
Agreement.
3. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
4. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
105
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date to the Debenture Holder at its registered
address in accordance with the notice provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the
106
conversion notice, Debenture Holder shall receive the shares of Common Stock to
which it shall be entitled upon conversion of this Debenture and the amount of
cash payable in respect of accrued interest on this Debenture to said conversion
date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
---------------------------------------
107
EXHIBIT 8
XXXXXXXXXX.XXX CORP.
SERIES H FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $200,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: SEPTEMBER 1, 2001
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $200,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
000
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $3,000,000 (herein called the
"Debentures"), issued pursuant to the Investment Agreement, dated as of November
1, 2000, which was amended by the First Amendment thereto dated as of July 30,
2001 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
109
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common
110
Stock to which it shall be entitled upon conversion of this Debenture and the
amount of cash payable in respect of accrued interest on this Debenture to said
conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
---------------------------------------
111
EXHIBIT 9
XXXXXXXXXX.XXX CORP.
SERIES I FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $200,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: OCTOBER 1, 2001
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $200,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due
on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day. "Business Day" means
any day other than a Saturday, a Sunday or a day on which commercial banks in
New York City are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
000
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $3,000,000 (herein called the
"Debentures"), issued pursuant to the Investment Agreement, dated as of November
1, 2000, which was amended by the First Amendment thereto dated as of July 30,
2001 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
113
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common
114
Stock to which it shall be entitled upon conversion of this Debenture and the
amount of cash payable in respect of accrued interest on this Debenture to said
conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
-------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
---------------------------------------
115
EXHIBIT 10
XXXXXXXXXX.XXX CORP.
SERIES J FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $50,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: NOVEMBER 1, 2001
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $50,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
000
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $3,000,000 (herein called the
"Debentures"), issued pursuant to the Investment Agreement, dated as of November
1, 2000, which was amended by the First Amendment thereto dated as of July 30,
2001 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
117
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common
118
Stock to which it shall be entitled upon conversion of this Debenture and the
amount of cash payable in respect of accrued interest on this Debenture to said
conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
---------------------------------------
119
EXHIBIT 11
XXXXXXXXXX.XXX CORP.
SERIES K FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $50,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: DECEMBER 1, 2001
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $50,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
000
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $3,000,000 (herein called the
"Debentures"), issued pursuant to the Investment Agreement, dated as of November
1, 2000, which was amended by the First Amendment thereto dated as of July 30,
2001 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
121
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common
122
Stock to which it shall be entitled upon conversion of this Debenture and the
amount of cash payable in respect of accrued interest on this Debenture to said
conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
---------------------------------------
123
EXHIBIT 12
XXXXXXXXXX.XXX CORP.
SERIES L FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $100,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: JANUARY 2, 2002
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $100,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both
of which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due
on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day. "Business Day" means
any day other than a Saturday, a Sunday or a day on which commercial banks in
New York City are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
000
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $3,000,000 (herein called the
"Debentures"), issued pursuant to the Investment Agreement, dated as of November
1, 2000, which was amended by the First Amendment thereto dated as of July 30,
2001 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
125
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common
126
Stock to which it shall be entitled upon conversion of this Debenture and the
amount of cash payable in respect of accrued interest on this Debenture to said
conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
---------------------------------------
127
EXHIBIT 13
XXXXXXXXXX.XXX CORP.
SERIES M FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $100,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: FEBRUARY 1, 2002
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $100,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
000
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $3,000,000 (herein called the
"Debentures"), issued pursuant to the Investment Agreement, dated as of November
1, 2000, which was amended by the First Amendment thereto dated as of July 30,
2001 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
129
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common
130
Stock to which it shall be entitled upon conversion of this Debenture and the
amount of cash payable in respect of accrued interest on this Debenture to said
conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
---------------------------------------
131
EXHIBIT 14
XXXXXXXXXX.XXX CORP.
SERIES N FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $100,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: MARCH 1, 2002
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $100,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
000
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $3,000,000 (herein called the
"Debentures"), issued pursuant to the Investment Agreement, dated as of November
1, 2000, which was amended by the First Amendment thereto dated as of July 30,
2001 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
133
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common
134
Stock to which it shall be entitled upon conversion of this Debenture and the
amount of cash payable in respect of accrued interest on this Debenture to said
conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
---------------------------------------
135
EXHIBIT 15
XXXXXXXXXX.XXX CORP.
SERIES O FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $100,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: APRIL 1, 2002
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $100,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
000
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $3,000,000 (herein called the
"Debentures"), issued pursuant to the Investment Agreement, dated as of November
1, 2000, which was amended by the First Amendment thereto dated as of July 30,
2001 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
137
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common Stock to which it shall be entitled upon conversion of this
Debenture and the amount of cash payable in respect of accrued interest on this
Debenture to said conversion date.
138
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
---------------------------------------
139
EXHIBIT 16
XXXXXXXXXX.XXX CORP.
SERIES P FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $100,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: MAY 1, 2002
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $100,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
000
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $3,000,000 (herein called the
"Debentures"), issued pursuant to the Investment Agreement, dated as of November
1, 2000, which was amended by the First Amendment thereto dated as of July 30,
2001 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
141
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with
thenotice provisions of the Investment Agreement at least fifteen days but not
more than thirty days prior to the conversion date, which notice shall specify
said conversion date, the number of shares of Common Stock to be issued upon
such conversion and the amount of accrued interest to said conversion date.
Within ten days of receipt of the conversion notice, Debenture Holder shall
receive the shares of Common Stock to which it shall be entitled upon conversion
of this Debenture and the amount of cash payable in respect of accrued interest
on this Debenture to said conversion date.
142
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
---------------------------------------
143
EXHIBIT 17
XXXXXXXXXX.XXX CORP.
SERIES Q FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $100,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: JUNE 1, 2002
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $100,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx,
000
Xxxx 00000 or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America. This
Debenture is one of a Series of a Floating Rate Subordinated Convertible
Debentures, Authorized Aggregate Issue $3,000,000 (herein called the
"Debentures"), issued pursuant to the Investment Agreement, dated as of November
1, 2000, which was amended by the First Amendment thereto dated as of July 30,
2001 (as from time to time amended, the "Investment Agreement"), between the
Company and the Debenture Holder named therein and is entitled to the benefits
thereof. Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Investment Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date
145
to the Debenture Holder at its registered address in accordance with the notice
provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common Stock to which it shall be entitled upon conversion of this
Debenture and the amount of cash payable in respect of accrued interest on this
Debenture to said conversion date.
146
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
---------------------------------------
147
EXHIBIT 18
XXXXXXXXXX.XXX CORP.
SERIES R FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURE
AUTHORIZED ISSUE: $90,000
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
DATE OF ISSUANCE: JULY 1, 2002
MATURITY: OCTOBER 31, 2003
FOR VALUE RECEIVED, XXXXXXXXXX.XXX CORP., a Florida
corporation (the "Company"), hereby promises to pay to XXX ENTERPRISES,
INCORPORATED (the "Debenture Holder"), a Delaware corporation, or its registered
successors or assigns, upon presentation and surrender of this Debenture, the
principal sum of $90,000 on October 31, 2003, with interest on such sum or the
unpaid balance thereof at a rate per annum equal to one (1%) percent less than
the Reference Rate, hereinafter defined, from time to time in effect, and
changing in an amount equal to each increase or decrease in the Reference Rate.
Interest after maturity or interest on any overdue installment of interest shall
be payable on demand.
"Reference Rate" shall mean at any time the national prime
rate of interest on the Business Day (as defined below) preceding the end of
each calendar quarter as published in the Wall Street Journal. Each change in
the Reference Rate hereon shall take effect on the effective date of the change.
Interest shall be computed on the basis of a year consisting of 360 days and
paid for actual days elapsed.
Upon an Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Debenture immediately due and payable, without demand or presentment, both of
which are hereby waived.
Interest will accrue on the then unpaid principal amount
hereof from the most recent date to which interest has been paid or, if no
interest has been paid, from the date hereof until the principal hereof shall
have become due and payable.
Any payment of principal of or on this Debenture that is due on a date
other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day. "Business Day" means any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed.
148
Payments of both principal and interest are to be made at the
Debenture Holder's principal office, which address is: 400 Xxxxxx Building, 000
Xxxxx Xxxx Xxxxxx, Xxxxxxxxx, Xxxx 00000 or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America. This Debenture is one of a Series of a Floating Rate
Subordinated Convertible Debentures, Authorized Aggregate Issue $3,000,000
(herein called the "Debentures"), issued pursuant to the Investment Agreement,
dated as of November 1, 2000, which was amended by the First Amendment thereto
dated as of July 30, 2001 (as from time to time amended, the "Investment
Agreement"), between the Company and the Debenture Holder named therein and is
entitled to the benefits thereof. Capitalized terms used herein and not
otherwise defined herein have the meanings specified in the Investment
Agreement.
1. Registered Debenture and Owner. This Debenture is a
registered Debenture and, as provided in the Investment Agreement, upon
surrender of this Debenture for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new
Debenture for a like principal amount and in the same issue will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Debenture is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any notice
to the contrary.
2. Optional Redemption. The Debenture will not be
redeemable prior to October 31, 2003, unless (x) the quoted price on any
securities exchange registered under the Securities Exchange Act of 1934 or
through NASDAQ of the Common Stock (the "Quoted Price") shall have equaled or
exceeded 130% of the Conversion Price (as defined in Section 5) for at least
thirty consecutive days ended with five trading days prior to the date notice of
such optional redemption is given or (y) the Company delivers notice to the
Purchaser that the Company in good faith intends to file a registration
statement for a United States public offering within twenty days of such notice.
The notice shall provide for a redemption date (the "Optional Redemption Date")
not less than fifteen days from the date thereof. The Company will redeem the
principal amount of the Debenture at a redemption price of 100% of principal
amount, plus accrued interest to the Optional Redemption Date. The Company may
redeem the principal amount of the Debenture to be redeemed pursuant to this
Section 2 by subtracting 100 percent of the principal amount of the Debenture
that Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of this Debenture only once pursuant to this Section 2.
3. Mandatory Redemption. The Company will redeem the
principal amount of the Debenture on October 31, 2003 (the "Mandatory Redemption
Date"), at a redemption price of 100% of principal amount, plus accrued interest
to the Mandatory Redemption Date. The Company may redeem the principal amount of
the Debenture to be redeemed pursuant to this Section 3 by subtracting 100
percent of the principal amount of this Debenture that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of this Debenture
only once pursuant to this Section 3.
149
4. Notice of Redemption. Notice of the mandatory
redemption date will be mailed at least thirty days but not more than sixty days
before the Mandatory Redemption Date to the Debenture Holder at its registered
address in accordance with the notice provisions of the Investment Agreement.
5. Conversion. A Debenture Holder may convert any
Debenture, in whole or in part, into fully paid and non-assessable Common Stock
(as defined below) of the Company at any time before the close of business on
the earlier to occur of the Optional Redemption Date or Mandatory Redemption
Date, as the case may be, subject to the benefits of the Registration Rights
Agreement by and between the Company and the Purchaser dated November 1, 2000.
"Common Stock" means the shares of capital stock, par value $0.001 per share, of
the Company. The Debenture shall be converted, subject to adjustment as provided
in Section 6, on the basis of the aggregate of (a) one (1) share of Common Stock
of the Company for each $0.1760 of principal debt balance due on the Debenture
(the "Conversion Price") and (b) one (1) share of Common Stock of the Company
times the quotient of (i) the accrued interest on the Debenture to the
Conversion Date divided by (ii) the Quoted Price as defined in Section 2 hereof
(the "Interest Conversion Rate"). No fraction of a share of Common Stock shall
be deliverable in payment of principal or accrued interest on the Debenture, but
any fraction of a share shall be rounded upwards to the nearest whole share.
6. Anti-Dilution Rights. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock
dividend on its outstanding Common Stock, the Conversion Price
in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(b) The Conversion Price shall be adjusted for dividends or
distributions on Common Stock payable in the Company's stock;
subdivisions, combinations or certain reclassifications of
Common Stock; distributions to all holders of Common Stock of
certain rights to purchase Common Stock at less than the
current market price at the time. Except for the Series A-F
Debentures issued under the Investment Agreement, the Company
shall not issue Common Stock and rights, warrants or
securities convertible into Common Stock at a purchase or
conversion price less than $0.1760 during the term of the
Investment Agreement.
The Debenture Holder shall give notice to the Company of its
election to cause conversion under Section 5 hereof, in accordance with the
notice provisions of the Investment Agreement at least fifteen days but not more
than thirty days prior to the conversion date, which notice shall specify said
conversion date, the number of shares of Common Stock to be issued upon such
conversion and the amount of accrued interest to said conversion date. Within
ten days of receipt of the conversion notice, Debenture Holder shall receive the
shares of Common Stock to which it shall be
150
entitled upon conversion of this Debenture and the amount of cash payable in
respect of accrued interest on this Debenture to said conversion date.
7. Subordination. The Debentures are subordinated only
to the Senior Existing Indebtedness, as defined in the Investment Agreement. The
Senior Existing Indebtedness must be paid before the Debentures may be paid. The
Company agrees, and the Debenture Holder by accepting this Debenture agrees, to
the Senior Existing Indebtedness subordination.
8. Defaults and Remedies. If an Event of Default, as
defined in the Investment Agreement, occurs and is continuing, the principal of
this Debenture may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Investment Agreement.
9. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Debenture for any claim based on,
in respect of, or by reason of such obligations or their creation. Debenture
Holder by accepting this Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Debenture.
10. Authentication. This Debenture shall not be valid
until executed by the Chief Operating Officer of the Company, whose signature
shall be guaranteed.
THIS DEBENTURE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE
OF IOWA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
XXXXXXXXXX.XXX CORP.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
Chief Operating Officer
and Chief Financial Officer
Signature Guaranteed:
/s/ Xxxxx Kong
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