Exhibit 10.21
DATED: JUNE 30, 2006
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS.
No. CCP-1 $400,000
CITY NETWORK, INC.
SECURED CONVERTIBLE DEBENTURE
DUE JUNE 30, 2008
This Secured Convertible Debenture (the "DEBENTURE") is issued by CITY
NETWORK, INC., a Nevada corporation (the "COMPANY"), to CORNELL CAPITAL
PARTNERS, LP (the "HOLDER"), pursuant to that certain Securities Purchase
Agreement (the "SECURITIES PURCHASE AGREEMENT") dated March 16, 2006 among the
Company and the Holder.
FOR VALUE RECEIVED, the Company hereby promises to pay to the Holder or its
successors and assigns the principal sum of Four Hundred Thousand Dollars
($400,000) together with accrued but unpaid interest on or before June 30, 2008
(the "MATURITY DATE") in accordance with the following terms:
INTEREST. Interest shall accrue on the outstanding principal balance hereof
at an annual rate equal to seven percent (7%). Interest shall be calculated on
the basis of a 365-day year and the actual number of days elapsed, to the extent
permitted by applicable law. Interest hereunder will be paid to the Holder or
its assignee in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of Debentures (the "DEBENTURE
REGISTER").
RIGHT OF REDEMPTION. The Company at its option shall have the right, with
three (3) business days advance written notice (the "REDEMPTION NOTICE"), to
redeem a portion or all amounts outstanding under this Debenture prior to the
Maturity Date; provided that the Closing Bid Price of the of the Company's
Common Stock, as reported by Bloomberg, LP, is less than the Fixed Conversion
Price at the time of the Redemption Notice. The Company shall pay an amount
equal to (i) the principal amount being redeemed, plus (ii) a redemption premium
equal to twenty percent (20%) of the principal amount being redeemed, plus (iii)
accrued interest on the principal amount being redeemed, which shall be paid to
the Holder within two (2) business days after the expiration of the Redemption
Notice period.
Notwithstanding the forgoing, in the event that the Company has elected to
redeem a portion of the outstanding principal amount and accrued interest under
this Debenture, the Holder shall be permitted to convert all or any portion of
this Debenture during such three (3) business day notice period. .
SECURITY AGREEMENTS. This Debenture is secured by Common Stock pursuant to
a Pledge and Escrow Agreement (the "PLEDGE AND ESCROW AGREEMENT") dated the date
hereof by and among the Company, the Holder and Xxxxx Xxxxxxxx, Esq., as Escrow
Agent; the Amended and Restated Security Agreement dated the date hereof by and
among the Company and the Holder; the Amended and Restated Security Agreement
dated the date hereof by and among City Technology, Inc., a wholly-owned
subsidiary of the Company, and the Holder; the Amended and Restated Security
Agreement dated the date hereof by and among City Network, Inc.--Taiwan, a
wholly-owned subsidiary of the Company, and the Holder; the Amended and Restated
Security Agreement dated the date hereof by and among City Construction Co.,
Ltd., a wholly-owned subsidiary of the Company, and the Holder (all four amended
and restated security agreements, collectively, the "SECURITY AGREEMENTS").
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
SECTION 2. EVENTS OF DEFAULT.
(a) An "EVENT OF DEFAULT", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body) provided that the Company does not cure such Event of Default
within ten (10) days of receipt of written notice of the Event of Default from
the Holder:
(i) Any default in the payment of the principal of, interest on or
other charges in respect of this Debenture, free of any claim of subordination,
as and when the same shall become due and payable (whether on the Maturity Date
or by acceleration or otherwise);
(ii) The Company shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach or default of
any provision of this Debenture (except as may be covered by SECTION 2(A)(I)
hereof) or any Transaction Document (as defined in SECTION 5) which is not cured
with in the time prescribed;
(iii) The Company or any subsidiary of the Company shall commence, or
there shall be commenced against the Company or any subsidiary of the Company
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company or any subsidiary of the Company
commences any other proceeding under any reorganization, arrangement, adjustment
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of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary of the Company or there is commenced against the
Company or any subsidiary of the Company any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of sixty-one (61) days;
or the Company or any subsidiary of the Company is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company or any subsidiary of the Company suffers
any appointment of any custodian, private or court appointed receiver or the
like for it or any substantial part of its property which continues undischarged
or unstayed for a period of sixty one (61) days; or the Company or any
subsidiary of the Company makes a general assignment for the benefit of
creditors; or the Company or any subsidiary of the Company shall fail to pay, or
shall state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary of the Company
shall by any act or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing; or any corporate or other action is
taken by the Company or any subsidiary of the Company for the purpose of
effecting any of the foregoing;
(iv) The Company or any subsidiary of the Company shall default in any
of its obligations under any other debenture issued to the Holder pursuant to
the Securities Purchase Agreement or any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or evidenced any
indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company or any subsidiary of the Company in an
amount exceeding $100,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
become due and payable;
(v) The Common Stock shall cease to be eligible for trading or listed
for trading on either the Nasdaq OTC Bulletin Board ("OTC"), Nasdaq Capital
Market, New York Stock Exchange, American Stock Exchange or the Nasdaq National
Market (each, a "SUBSEQUENT MARKET") and shall not again be eligible for trading
thereon within five (5) Trading Days of such delisting;
(vi) The Company or any subsidiary of the Company shall be a party to
any Change of Control Transaction (as defined in SECTION 5);
(vii) The Company shall fail to file the Underlying Shares
Registration Statement (as defined in Section 5) with the Commission (as defined
in Section 5) within thirty (30) days of the Scheduled Filing Deadline (as
defined in the Investor Registration Rights Agreement (the "REGISTRATION RIGHTS
AGREEMENT") dated March 16, 2006 between the Company and the Holder), or the
Underlying Registration Statement shall not have been declared effective by the
Commission within one sixty (60) days of the Scheduled Effective Deadline (as
defined in the Registration Rights Agreement),
(viii) If the effectiveness of the Underlying Shares Registration
Statement lapses for any reason or if after the initial effective date of the
Underlying Shares Registration Statement the Holder shall not be permitted to
resell the shares of Common Stock underlying this Debenture under the Underlying
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Shares Registration Statement, in either case, for more than eight (8)
consecutive Trading Days or an aggregate of fifteen (15) Trading Days (which
need not be consecutive);
(ix) The Company shall fail for any reason to deliver Common Stock
certificates to the Holder prior to the fifth (5th) Trading Day after a
Conversion Date or the Company shall provide notice to the Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversions of this Debenture in accordance with the terms hereof;
(viii) The Company shall fail for any reason to deliver the payment in
cash pursuant to a Buy-In (as defined herein) within three (3) Trading Days
after notice is claimed delivered hereunder;
(b) During the time that any portion of this Debenture is outstanding, if
any Event of Default has occurred, the full principal amount of this Debenture,
together with interest and other amounts owing in respect thereof, to the date
of acceleration shall become at the Holder's election, immediately due and
payable in cash, PROVIDED HOWEVER, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Company.
In addition to any other remedies, the Holder shall have the right (but not the
obligation) to convert this Debenture at any time after (x) an Event of Default
or (y) the Maturity Date at the Conversion Price then in-effect. The Holder need
not provide, and the Company hereby waives, any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Xxxxxx at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon. Upon an Event of Default, notwithstanding any
other provision of this Debenture or any Transaction Document, the Holder shall
have no obligation to comply with or adhere to any limitations, if any, on the
conversion of this Debenture or the sale of the Underlying Shares.
SECTION 3. CONVERSION.
(a) CONVERSION AT OPTION OF HOLDER.
(i) This Debenture shall be convertible into shares of Common Stock at
the option of the Holder, in whole or in part at any time and from time to time,
after the Original Issue Date (as defined in SECTION 5) (subject to the
limitations on conversion set forth in SECTION 3(B) hereof). The number of
shares of Common Stock issuable upon a conversion hereunder equals the quotient
obtained by dividing (x) the outstanding amount of this Debenture to be
converted by (y) the Conversion Price (as defined in SECTION 3(C)(I)). The
Company shall deliver Common Stock certificates to the Holder by the fifth (5th)
Trading Day after a Conversion Date.
(ii) Notwithstanding anything to the contrary contained herein, if on
any Conversion Date: (1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay principal and interest hereunder in shares of Common
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Stock; or (2) the Common Stock is not listed or quoted for trading on the OTC or
on a Subsequent Market; then, at the option of the Holder, the Company, in lieu
of delivering shares of Common Stock pursuant to SECTION 3(A)(I), shall deliver,
within three (3) Trading Days of each applicable Conversion Date, an amount in
cash equal to the product of the outstanding principal amount to be converted
plus any interest due therein divided by the Conversion Price and multiplied by
the highest closing price of the stock from date of the conversion notice until
the date that such cash payment is made.
Further, if the Company shall not have delivered any cash due in respect of
conversion of this Debenture or as payment of interest thereon by the fifth
(5th) Trading Day after the Conversion Date, the Holder may, by notice to the
Company, require the Company to issue shares of Common Stock pursuant to SECTION
3(C), except that for such purpose the Conversion Price applicable thereto shall
be the lesser of the Conversion Price on the Conversion Date and the Conversion
Price on the date of such Holder demand. Any such shares will be subject to the
provisions of this Section.
(iii) The Holder shall effect conversions by delivering to the Company
a completed notice in the form attached hereto as Exhibit A (a "CONVERSION
NOTICE"). The date on which a Conversion Notice is delivered shall be the
"CONVERSION DATE." Unless the Holder is converting the entire principal amount
outstanding under this Debenture, the Holder is not required to physically
surrender this Debenture to the Company in order to effect conversions.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture plus all accrued and unpaid interest thereon
in an amount equal to the applicable conversion. The Holder and the Company
shall maintain records showing the principal amount converted and the date of
such conversions.
(b) CERTAIN CONVERSION RESTRICTIONS. A Holder may not convert this
Debenture or receive shares of Common Stock as payment of interest hereunder to
the extent such conversion or receipt of such interest payment would result in
the Holder, together with any affiliate thereof, beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
promulgated thereunder) in excess of 4.9% of the then issued and outstanding
shares of Common Stock, including shares issuable upon conversion of, and
payment of interest on, this Debenture held by such Holder after application of
this Section. Since the Holder will not be obligated to report to the Company
the number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 4.9% of the then outstanding shares of Common Stock
without regard to any other shares which may be beneficially owned by the Holder
or an affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of
which portion of the principal amount of this Debenture is convertible shall be
the responsibility and obligation of the Holder. If the Holder has delivered a
Conversion Notice for a principal amount of this Debenture that, without regard
to any other shares that the Holder or its affiliates may beneficially own,
would result in the issuance in excess of the permitted amount hereunder, the
Company shall notify the Holder of this fact and shall honor the conversion for
the maximum principal amount permitted to be converted on such Conversion Date
in accordance with the periods described in SECTION 3(A)(I) and, at the option
of the Holder, either retain any principal amount tendered for conversion in
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excess of the permitted amount hereunder for future conversions or return such
excess principal amount to the Holder. The provisions of this Section may be
waived by a Holder (but only as to itself and not to any other Holder) upon not
less than 65 days prior notice to the Company. Other Holders shall be unaffected
by any such waiver.
(c) CONVERSION PRICE AND ADJUSTMENTS TO CONVERSION PRICE.
(i) The Holder shall be entitled to convert, at its sole option at any
time, a portion or all amounts of principal and interest due and outstanding
under this Debenture into shares of the Company's Common Stock at the lesser per
share price of (i) $0.268 (the "FIXED CONVERSION PRICE") or (ii) ninety percent
(95%) of the lowest Volume Weighted Average Price of the Common Stock of the
thirty (30) trading days immediately preceding the Conversion Date as quoted by
Bloomberg, LP (the "MARKET CONVERSION PRICE"). The Fixed Conversion Price and
the Market Conversion Price are collectively referred to as the "CONVERSION
PRICE." The Conversion Price may be adjusted pursuant to the provisions of this
Section 3(c).
(ii) If the Company, at any time while this Debenture is outstanding,
shall (a) pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then the Fixed Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
be determined as of and become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall be determined as of immediately before and become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while this Debenture is outstanding,
shall issue rights, options or warrants to all holders of Common Stock (and not
to the Holder) entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Fixed Conversion Price, then the Fixed
Conversion Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants (plus the
number of additional shares of Common Stock offered for subscription or
purchase), and of which the numerator shall be the number of shares of the
Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants, plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at the Fixed Conversion Price. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights, options or warrants. However, upon the expiration of any such right,
option or warrant to purchase shares of the Common Stock the issuance of which
resulted in an adjustment in the Fixed Conversion Price pursuant to this
Section, if any such right, option or warrant shall expire and shall not have
been exercised, the Fixed Conversion Price shall immediately upon such
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expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Fixed Conversion Price made pursuant to the provisions of
this Section after the issuance of such rights or warrants) had the adjustment
of the Fixed Conversion Price made upon the issuance of such rights, options or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock actually purchased upon the exercise
of such rights, options or warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable, at any
time while this Debenture is outstanding, other than issuances covered in
Section 3(c)(iii) hereof, shall issue shares of Common Stock or rights,
warrants, options or other securities or debt that are convertible into or
exchangeable for shares of Common Stock ("Common Stock Equivalents") entitling
any Person to acquire shares of Common Stock, at a price per share less than the
Fixed Conversion Price (if the holder of the Common Stock or Common Stock
Equivalent so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, be entitled to receive shares of Common Stock at a price per share
which is less than the Fixed Conversion Price, such issuance shall be deemed to
have occurred for less than the Fixed Conversion Price; provided that the
calculation set forth below shall not account for any amount of the price per
share below the Fixed Conversion Price already in effect as of the date hereof),
then, at the sole option of the Holder, the Fixed Conversion Price shall be
reduced on the date of such issuance to a price (calculated to the nearest cent)
determined by multiplying the Fixed Conversion Price in effect immediately prior
to such issuance by a fraction, the numerator of which shall be an amount equal
to the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such issuance plus (B) the quotient obtained by dividing the
consideration received by the Company upon such issuance by the Fixed Conversion
Price, and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately after such issuance.. Such adjustment shall
be made whenever such Common Stock or Common Stock Equivalents are issued. The
Company shall notify the Holder in writing, no later than one (1) business day
following the issuance of any Common Stock or Common Stock Equivalent subject to
this Section 3(c)(iv), indicating therein the applicable issuance price, or of
applicable reset price, exchange price, conversion price and other pricing
terms. No adjustment under this Section 3(c)(iv) shall be made as a result of
issuances and exercises of options to purchase shares of Common Stock issued for
compensatory purposes pursuant to a bona fide employee stock incentive plan of
the Company.
(v) If the Company, at any time while this Debenture is outstanding,
shall distribute to all holders of Common Stock (and not to the Holder)
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security, other than as contemplated in Section 3(c)(iii) or
(iv), then in each such case the Fixed Conversion Price at which this Debenture
shall thereafter be convertible shall be determined by multiplying the Fixed
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Closing Bid Price determined as
of the record date mentioned above, and of which the numerator shall be such
Closing Bid Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
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determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder shall have the right thereafter
to convert the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of the Common Stock following
such reclassification or share exchange, and the Holder of this Debenture shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the then
outstanding principal amount, together with all accrued but unpaid interest and
any other amounts then owing hereunder in respect of this Debenture could have
been converted immediately prior to such reclassification or share exchange
would have been entitled.
(vii) The Company shall at all times reserve and keep available out of
its authorized Common Stock a reasonable number of shares of Common Stock
issuable upon conversion of all outstanding principal amount, plus accrued
interest on such outstanding principal amount, under this Debenture; and within
three (3) Business Days following the receipt by the Company of a Holder's
notice that such minimum number of Underlying Shares is not so reserved, the
Company shall promptly reserve a sufficient number of shares of Common Stock to
comply with such requirement.
(viii) All calculations under this SECTION 3 shall be rounded up to
the nearest $0.001 or whole share, as applicable.
(ix) Whenever the Conversion Price is adjusted pursuant to SECTION 3
hereof, the Company shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(x) If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the Company, at least twenty (20) calendar days prior to the
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applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day calendar period commencing the date of such notice to the effective date
of the event triggering such notice.
(xi) In case of any (1) consolidation of the Company with another
Person or merger of the Company in which it does not survive and a change in
control of the Company that would be required to be reported on Form 8-K, or (2)
sale by the Company or any subsidiary of the Company of all or substantially all
of the assets of the Company in one or a series of related transactions, a
Holder shall have the right to (A) convert the aggregate amount of this
Debenture then outstanding into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of Common Stock
following such merger, consolidation or sale, and such Holder shall be entitled
upon such event or series of related events to receive such amount of
securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of this Debenture could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled, or (B) require the surviving entity to issue to the Holder a
convertible Debenture with a principal amount equal to the aggregate principal
amount of this Debenture then held by such Holder, plus all accrued and unpaid
interest and other amounts owing thereon, which such newly issued convertible
Debenture shall have terms identical (including with respect to conversion) to
the terms of this Debenture, and shall be entitled to all of the rights and
privileges of the Holder of this Debenture set forth herein and the agreements
pursuant to which this Debentures were issued. In the case of clause (B), the
conversion price applicable for the newly issued shares of convertible preferred
stock or convertible Debentures shall be based upon the amount of securities,
cash and property that each share of Common Stock would receive in such
transaction and the Conversion Price in effect immediately prior to the
effectiveness or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to continue to give
the Holder the right to receive the securities, cash and property set forth in
this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.
(d) OTHER PROVISIONS.
(i) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
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forth in this Debenture) be issuable (taking into account the adjustments and
restrictions of SECTIONS 2(B) AND 3(C)) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(ii) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Closing Bid Price at such time. If the Company
elects not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.
(iii) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debenture so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(iv) Nothing herein shall limit a Holder's right to pursue actual
damages or declare an Event of Default pursuant to SECTION 2 herein for the
Company 's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
(v) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to SECTION 3(A)(I) by the fifth (5th) Trading Day after the Conversion Date, and
if after such fifth (5th) Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Underlying Shares which the Holder was entitled to, but did
not, receive upon a conversion pursuant to Section 3(a)(i) herein (a "BUY-IN"),
then the Company shall pay in cash to the Holder (without limiting any remedies
available to or elected by the Holder) any amount assessed against the Holder on
account of any broker trade (including any costs incurred in purchasing shares
rather than delivering shares the Holder was due to receive from the Company),
plus any amount of the Holder's transaction costs in respect thereof.
SECTION 4. NOTICES. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
10
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) ten (10) business days after being sent by U.S. certified mail, return
receipt requested, or (iv) two (2) business days after deposit with a nationally
recognized overnight delivery service or worldwide courier service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company, to: City Network, Inc.
0X-0, Xx.00, Xxxx Xx Xxxx
Xxxxxxx Xxxx, Xxxxxx Xxxxxx, 000
Xxxxxx, ROC F5 235
Attention: Xx Xxxx-Xxxx Xxx
Telephone: 000-0-0000-0000
Facsimile: 886-2-8226-8585
With a copy to: Loeb & Loeb LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000-0037
Attention: Xxxxxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000.0000
If to the Holder: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
With a copy to: Xxxx Xxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
SECTION 5. DEFINITIONS. For the purposes hereof, the following terms shall
have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.
11
"CHANGE OF CONTROL TRANSACTION" means the occurrence of (a) an acquisition
after the date hereof by an individual or legal entity or "group" (as described
in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of fifty percent (50%) or more of the
voting securities of the Company (except that the acquisition of voting
securities by the Holder shall not constitute a Change of Control Transaction
for purposes hereof), (b) a replacement at one time or over time of more than
one-half of the members of the board of directors of the Company which is not
approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (c) the merger, consolidation or sale of all or
substantially all of the assets of the Company or any subsidiary of the Company
in one or a series of related transactions with or into another entity, or (d)
the execution by the Company of an agreement to which the Company is a party or
by which it is bound, providing for any of the events set forth above in (a),
(b) or (c).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $.001, of the Company and
stock of any other class into which such shares may hereafter be changed or
reclassified.
"CONVERSION DATE" shall mean the date upon which the Holder gives the
Company notice of their intention to effectuate a conversion of this Debenture
into shares of the Company's Common Stock as outlined herein.
"CLOSING BID PRICE" means the price per share in the last reported trade of
the Common Stock on the OTC or on the exchange which the Common Stock is then
listed as quoted by Bloomberg, LP.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.
"PERSON" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"TRADING DAY" means a day on which the shares of Common Stock are quoted on
the OTC or quoted or traded on such Subsequent Market on which the shares of
Common Stock are then quoted or listed; provided, that in the event that the
shares of Common Stock are not listed or quoted, then Trading Day shall mean a
Business Day.
"TRANSACTION DOCUMENTS" means the Securities Purchase Agreement; the
Registration Rights Agreement; the Pledge and Escrow Agreement, the Security
12
Agreements; the Irrevocable Transfer Agent Instructions and any related
agreements contemplated by the Securities Purchase Agreement.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement,
covering among other things the resale of the Underlying Shares and naming the
Holder as a "selling stockholder" thereunder.
SECTION 6. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Company shall not and shall cause their subsidiaries not to,
without the consent of the Holder, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock or other equity securities other than as to
the Underlying Shares to the extent permitted or required under the Transaction
Documents; or (iii) enter into any agreement with respect to any of the
foregoing.
SECTION 7. This Debenture shall not entitle the Holder to any of the rights
of a stockholder of the Company, including without limitation, the right to
vote, to receive dividends and other distributions, or to receive any notice of,
or to attend, meetings of stockholders or any other proceedings of the Company,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
SECTION 8. If this Debenture is mutilated, lost, stolen or destroyed, the
Company shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Company.
SECTION 9. No indebtedness of the Company is senior to this Debenture in
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution or otherwise. Without the Holder's consent, the Company will not
and will not permit any of their subsidiaries to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any indebtedness of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits there from that is senior in
any respect to the obligations of the Company under this Debenture.
SECTION 10. This Debenture shall be governed by and construed in accordance
with the laws of the State of New Jersey, without giving effect to conflicts of
laws thereof. Each of the parties consents to the jurisdiction of the Superior
Courts of the State of New Jersey sitting in Xxxxxx County, New Jersey and the
13
U.S. District Court for the District of New Jersey sitting in Newark, New Jersey
in connection with any dispute arising under this Debenture and hereby waives,
to the maximum extent permitted by law, any objection, including any objection
based on FORUM NON CONVENIENS to the bringing of any such proceeding in such
jurisdictions.
SECTION 11. If the Company fails to strictly comply with the terms of this
Debenture, then the Company shall reimburse the Holder promptly for all fees,
costs and expenses, including, without limitation, attorneys' fees and expenses
incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the
Holder's rights, remedies and obligations, (ii) collecting any sums which become
due to the Holder, (iii) defending or prosecuting any proceeding or any
counterclaim to any proceeding or appeal; or (iv) the protection, preservation
or enforcement of any rights or remedies of the Holder.
SECTION 12. Any waiver by the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver must be in writing.
SECTION 13. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
SECTION 14. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
SECTION 15. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
14
AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
15
IN WITNESS WHEREOF, the Company has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
CITY NETWORK, INC.
By: /s/ Xxxxx Xxxx
-------------------------------------------
Name: Xxxxx Xxxx
Title: Chairman, President and Chief Executive
Officer
16
EXHIBIT "A"
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE HOLDER IN ORDER TO CONVERT ANY OR ALL OF THE DEBENTURE)
TO:
City Network, Inc.
6F-3, Xx.00, Xxxx Xx Xxxx
Xxxxxxx Xxxx, Xxxxxx Xxxxxx, 000
Xxxxxx, ROC F5 235
Attention: Xx. Xxxx-Xxxx Xxx
The undersigned hereby irrevocably elects to convert $___________________
of the principal amount of the above Debenture into Shares of Common Stock of
City Network, Inc., according to the conditions stated therein, as of the
Conversion Date written below.
Conversion Date: ________________________________________
Applicable Conversion Price: ________________________________________
Signature: ________________________________________
Name: ________________________________________
Address: ________________________________________
Amount to be converted: $_______________________________________
Amount of Debenture unconverted: $_______________________________________
Conversion Price per share: $_______________________________________
Number of shares of Common Stock
to be issued: ________________________________________
Please issue the shares of
Common Stock in the following
name and to the following address: ________________________________________
Issue to: ________________________________________
Authorized Signature: ________________________________________
Name: ________________________________________
Title: ________________________________________
Phone Number: ________________________________________
Broker DTC Participant Code: ________________________________________
Account Number: ________________________________________