EXHIBIT 4.1
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: October 31, 2005
Original Conversion Price (subject to adjustment herein): $1.738
$5,000,000
VARIABLE RATE SECURED CONVERTIBLE DEBENTURE
DUE OCTOBER 31, 2008
THIS VARIABLE RATE SECURED DEBENTURE is one of a series of duly
authorized and issued Secured Convertible Debentures of Silverstar Holdings,
Ltd., a Bermuda corporation, having a principal place of business at Clarendon
House, Church Street, Xxxxxxxx, XX CX, Bermuda (the "Company"), designated as
its Variable Rate Secured Convertible Debenture, due October 31, 2008 (this
debenture, the "Debenture" and collectively with the other such series of
debentures, the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to DKR SoundShore Oasis
Holding Fund Ltd. or its registered assigns (the "Holder"), or shall have paid
pursuant to the terms hereunder, the principal sum of $5,000,000 by October 31,
2008, or such earlier date as this Debenture is required or permitted to be
repaid as provided hereunder (the "Maturity Date"), and to pay interest to the
Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture in accordance with the provisions hereof. This Debenture is
subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
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"Alternate Consideration" shall have the meaning set forth in Section
5(d).
"Base Conversion Price" shall have the meaning set forth in Section
5(b).
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which
banking institutions in the State of New York are authorized or required by
law or other government action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 50% of the voting securities of the Company, or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving
effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 66% of the aggregate voting power
of the Company or the successor entity of such transaction, or (iii) the
Company sells or transfers its assets, as an entirety or substantially as
an entirety, to another Person and the stockholders of the Company
immediately prior to such transaction own less than 66% of the aggregate
voting power of the acquiring entity immediately after the transaction,
(iv) a replacement at one time or within a three year period of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as
members of the board of directors on any date whose nomination to the board
of directors was approved by a majority of the members of the board of
directors who are members on the date hereof), or (v) 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 (i) through (iv).
"Common Stock" means the common stock, par value $0.01 per share, of
the Company and stock of any other class of securities into which such
securities may hereafter have been reclassified or changed into.
"Conversion Date" shall have the meaning set forth in Section 4(a).
"Conversion Price" shall have the meaning set forth in Section 4(b).
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of this Debenture.
"Debenture Register" shall have the meaning set forth in Section 2(c).
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"Dilutive Issuance" shall have the meaning set forth in Section 5(b).
"Dilutive Issuance Notice" shall have the meaning set forth in Section
5(b).
"Effectiveness Period" shall have the meaning given to such
term in the Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question, (i) the
Company shall have duly honored all conversions and redemptions scheduled
to occur or occurring by virtue of one or more Notice of Conversions of the
Holder, if any, (ii) all liquidated damages and other amounts owing to the
Holder in respect of this Debenture shall have been paid, (iii) there is an
effective Registration Statement pursuant to which the Holder is permitted
to utilize the prospectus thereunder to resell all of the shares issuable
pursuant to the Transaction Documents (and the Company believes, in good
faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iv) the Common Stock is trading on the Trading Market
and all of the shares issuable pursuant to the Transaction Documents are
listed for trading on a Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on a Trading Market will continue
uninterrupted for the foreseeable future), (v) there is a sufficient number
of authorized but unissued and otherwise unreserved shares of Common Stock
for the issuance of all of the shares issuable pursuant to the Transaction
Documents, (vi) there is then existing no Event of Default or event which,
with the passage of time or the giving of notice, would constitute an Event
of Default, (vii) the issuance of the shares in question (or, in the case
of a redemption, the shares issuable upon conversion in full of the
redemption amount) to the Holder would not violate the limitations set
forth in Section 4(c)(i) and Section 4(c)(ii) and (viii) no public
announcement of a pending or proposed Fundamental Transaction, Change of
Control Transaction or acquisition transaction has occurred that has not
been consummated.
"Event of Default" shall have the meaning set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Fundamental Transaction" shall have the meaning set forth in Section
5(d).
"Interest Period" means, initially, the period beginning on and
including the Original Issue Date and ending on and including October 31,
2005 and on the last calendar day of each month thereafter.
"Late Fees" shall have the meaning set forth in Section 2(d).
"Mandatory Default Amount" shall equal the sum of (i) the greater of:
(A) 115% of the principal amount of this Debenture to be prepaid, plus all
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accrued and unpaid interest thereon, or (B) the principal amount of this
Debenture to be prepaid, plus all other accrued and unpaid interest hereon,
divided by the Conversion Price on (x) the date the Mandatory Default
Amount is demanded or otherwise due or (y) the date the Mandatory Default
Amount is paid in full, whichever is less, multiplied by the VWAP on (x)
the date the Mandatory Default Amount is demanded or otherwise due or (y)
the date the Mandatory Default Amount is paid in full, whichever is
greater, and (ii) all other amounts, costs, expenses and liquidated damages
due in respect of this Debenture.
"Monthly Conversion Period" shall have the meaning set forth in Section
6(a) hereof.
"Monthly Conversion Price" shall have the meaning set forth in Section
6(a) hereof.
"Monthly Redemption" shall mean the redemption of this Debenture
pursuant to Section 6(b) hereof.
"Monthly Redemption Amount" shall mean, as to a Monthly Redemption,
$185,185.19
"Monthly Redemption Date" means the 1st of each month, commencing July
1, 2006 and ending upon the full redemption of this Debenture.
"Monthly Redemption Notice" shall have the meaning set forth in Section
6(b) hereof.
"Monthly Redemption Period" shall have the meaning set forth in Section
6(b) hereof.
"Monthly Redemption Share Amount" shall have the meaning set forth in
Section 6(b) hereof.
"New York Courts" shall have the meaning set forth in Section 9(d).
"Notice of Conversion" shall have the meaning set forth in Section
4(a).
"Optional Redemption" shall have the meaning set forth in Section 6(a).
"Optional Redemption Amount" shall mean the sum of (i) 115% of the
principal amount of the Debenture then outstanding, (ii) accrued but unpaid
interest and (iii) all liquidated damages and other amounts due in respect
of the Debenture.
"Optional Redemption Date" shall have the meaning set forth in Section
6(a).
"Optional Redemption Notice" shall have the meaning set forth in
Section 6(a).
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"Optional Redemption Notice Date" shall have the meaning set forth in
Section 6(a).
"Original Issue Date" shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Permitted Indebtedness" shall mean (a) the Indebtedness existing on
the Original Issue Date and set forth on Schedule 3.1(gg) attached to the
Purchase Agreement, (b) lease obligations and purchase money Indebtedness
of up to $500,000, in the aggregate, incurred in connection with the
acquisition of capital assets and lease obligations with respect to newly
acquired or leased assets and (c) Indebtedness incurred after the Original
Issue Date pursuant to which the holders thereof shall have entered into a
written subordination agreement, which Indebtedness shall have a maturity
date after the Maturity Date hereof and shall otherwise be junior in all
respects (including right of payment) to the Debentures.
"Permitted Lien" shall mean the individual and collective reference to
the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith
judgment of the management of the Company) have been established in
accordance with GAAP, (b) Liens imposed by law which were incurred in the
ordinary course of business, such as carriers', warehousemen's and
mechanics' Liens, statutory landlords' Liens, and other similar Liens
arising in the ordinary course of business, and (x) which do not
individually or in the aggregate materially detract from the value of such
property or assets or materially impair the use thereof in the operation of
the business of the Company and its consolidated Subsidiaries or (y) which
are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
property or asset subject to such Lien and (c) Liens incurred in connection
with Permitted Indebtedness under clause (b) and (c) thereunder, provided
that with respect to (b), such Liens are not secured by assets of the
Company or its Subsidiaries other than the assets so acquired or leased.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Pre-Redemption Conversion Shares" shall have the meaning set forth in
Section 6(a) hereof.
"Prime Rate" means, for each Interest Period means, (i) the Prime Rate
as shown on such Trading Day immediately prior to the beginning of such
Interest Period in The Wall Street Journal (Eastern Edition) under the
caption "Money Rates - Prime Rate"; or (ii) if The Wall Street Journal does
not publish such rate, the rate of interest publicly
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announced by Citibank N.A. as its prime rate, on the Trading Day
immediately prior to the beginning of such Interest Period.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of October 21, 2005 to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among
other things the resale of the Conversion Shares and naming the Holder as a
"selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shareholder Approval" shall have the meaning given to such term in the
Purchase Agreement.
"Subsidiary" shall have the meaning given to such term in the Purchase
Agreement.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
Nasdaq Capital Market, the American Stock Exchange, the New York Stock
Exchange or the Nasdaq National Market.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed
or quoted on a Trading Market and if prices for the Common Stock are then
quoted on the OTC Bulletin Board, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board; (c) if the Common Stock is not then listed or quoted on the
OTC Bulletin Board and if prices for the
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Common Stock are then reported in the "Pink Sheets" published by the Pink
Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Holder and reasonably acceptable to the
Company.
Section 2. Interest.
a) Payment of Interest. The Company shall pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this
Debenture at the rate per annum equal to the Prime Rate for the applicable
Interest Period plus 1.5%, or such lesser rate as shall be the highest rate
permitted by applicable law, payable monthly on the first day of each
month, beginning on the first such date after the Original Issue Date, on
each Monthly Redemption Date (as to that principal amount then being
redeemed), on each Conversion Date (as to that principal amount then being
converted), on each Optional Redemption Date (as to that principal amount
then being redeemed) and on the Maturity Date (except that, if any such
date is not a Business Day, then such payment shall be due on the next
succeeding Business Day), in cash via wire transfer. At any time following
the Effective Date, the interest rate for any Interest Period shall be
decreased by 2% to the extent the average of the five VWAPs immediately
prior to such Interest Period (the "Trigger Price") exceeds the then
applicable Conversion Price by 25% (and shall be decreased by an additional
2% for every successive 25% that the Trigger Price exceeds the then
applicable Conversion Price but in no event shall the interest rate be less
than 0%). By way of an example, if the interest rate for an Interest Period
as determined pursuant to the first sentence of this section would be 5%
and the Trigger Price immediately prior to such period is $5.00 and the
then applicable Conversion Price is $4.00, the interest rate for such
Interest Period would be 3%. Any such decrease shall be applicable only as
to the then applicable Interest Period and shall not be applicable to
successive Interest Periods which shall be calculated independently of any
preceding Interest Periods. Accordingly, in the example above, if the
Trigger Price as to the next Interest Period is less than $4.00, no
reduction shall be made as to the interest rate for such period.
b) Interest Calculations. Interest shall be calculated on the basis of
a 360-day year and shall accrue daily commencing on the Original Issue Date
until payment in full of the principal sum, together with all accrued and
unpaid interest and other amounts which may become due hereunder, has been
made. Interest shall cease to accrue with respect to any principal amount
converted, provided that the Company in fact delivers the Conversion Shares
within the time period required by Section 4(d)(ii). Interest hereunder
will be paid to the Person in whose name this Debenture is registered on
the records of the Company regarding registration and transfers of this
Debenture (the "Debenture Register").
c) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 18% per annum (or such
lower maximum amount of
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interest permitted to be charged under applicable law) ("Late Fees") which
will accrue daily, from the date such interest is due hereunder through and
including the date of payment.
d) Prepayment. Except as otherwise set forth in this Debenture, the
Company may not prepay any portion of the principal amount of this
Debenture without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration of transfer or exchange.
b) Investment Representations. This Debenture has been issued subject
to certain investment representations of the original Holder set forth in
the Purchase Agreement and may be transferred or exchanged only in
compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or
not this Debenture is overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date
until this Debenture is no longer outstanding, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in
whole or in part at any time and from time to time (subject to the
limitations on conversion set forth in Section 4(c) hereof). The Holder
shall effect conversions by delivering to the Company the form of Notice of
Conversion attached hereto as Annex A (a "Notice of Conversion"),
specifying therein the principal amount of this Debenture to be converted
and the date on which such conversion is to be effected (a "Conversion
Date"). If no Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is
provided hereunder. To effect conversions hereunder, the Holder shall not
be required to physically surrender this Debenture to the Company unless
the entire principal amount of this Debenture has been so converted and all
accrued but unpaid interest thereon has been paid. Conversions hereunder
shall have the effect of lowering the outstanding principal amount of this
Debenture in an amount equal to the applicable conversion. The Holder and
the Company shall maintain records showing the principal amount converted
and the date of such conversions. The Company shall deliver any objection
to any Notice of Conversion within 1 Business Day of receipt of such
notice.
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In the event of any dispute or discrepancy, the records of the Holder shall
be controlling and determinative in the absence of manifest error. The
Holder and any assignee, by acceptance of this Debenture, acknowledge and
agree that, by reason of the provisions of this paragraph, following
conversion of a portion of this Debenture, the unpaid and unconverted
principal amount of this Debenture may be less than the amount stated on
the face hereof.
b) Conversion Price. The conversion price in effect on any Conversion
Date shall be equal to $1.738 (subject to adjustment herein) (the
"Conversion Price").
c) Conversion Limitations.
i. Trading Market Limitations. Notwithstanding anything herein to
the contrary, if the Company has not obtained Shareholder Approval (as
defined below), then the Company may not issue upon conversion of this
Debenture, a number of shares of Common Stock which, when aggregated
with any shares of Common Stock issued prior to such Conversion Date
(A) pursuant to any Debentures issued pursuant to the Purchase
Agreement and (B) pursuant to any Warrants issued pursuant to the
Purchase Agreement, would exceed 19.999% of the number of shares of
Common Stock outstanding on the Trading Day immediately preceding the
Original Issue Date (such number of shares, the "Issuable Maximum").
Each Holder shall be entitled to a portion of the Issuable Maximum
equal to the quotient obtained by dividing (x) the aggregate principal
amount of the Debenture(s) issued and sold to such Holder on the
Original Issue Date by (y) the aggregate principal amount of all
Debentures issued and sold by the Company on the Original Issue Date.
If any Holder shall no longer hold the Debenture(s), then such
Holder's remaining portion of the Issuable Maximum shall be allocated
pro-rata among the remaining Holders. If on any Conversion Date: (1)
the applicable Conversion Price then in effect is such that the shares
issuable under this Debenture on any Conversion Date together with the
aggregate number of shares of Common Stock that would then be issuable
upon conversion in full of all then outstanding Debentures would
exceed the Issuable Maximum, and (2) the Company's shareholders shall
not have previously approved the transactions contemplated by the
Transaction Documents, if any (the "Shareholder Approval"), then the
Company shall issue to the Holder requesting a conversion a number of
shares of Common Stock equal to such Holder's pro-rata portion (which
shall be calculated pursuant to the terms hereof) of the Issuable
Maximum and, with respect to the remainder of the aggregate principal
amount of the Debentures then held by such Holder for which a
conversion in accordance with the applicable conversion price would
result in an issuance of shares of Common Stock in excess of such
Holder's pro-rata portion (which shall be calculated pursuant to the
terms hereof) of the Issuable Maximum (the "Excess Principal"), the
Company shall be prohibited from converting such Excess Principal, and
shall notify the Holder of the reason therefor. This Debenture shall
thereafter be unconvertible to such extent until and unless
Shareholder Approval
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is subsequently obtained, but this Debenture shall otherwise remain in
full force and effect.
ii. Holder's Restriction on Conversion. The Company shall not
effect any conversion of this Debenture, and the Holder shall not have
the right to convert any portion of this Debenture, pursuant to
Section 4(a) or otherwise, to the extent that after giving effect to
such conversion, the Holder (together with the Holder's Affiliates),
as set forth on the applicable Notice of Conversion, would
beneficially own in excess of 4.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock issuable
upon conversion of this Debenture with respect to which the
determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A)
conversion of the remaining, nonconverted portion of this Debenture
beneficially owned by the Holder or any of its Affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of
any other securities of the Company (including, without limitation,
any other Debentures or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its Affiliates. Except as
set forth in the preceding sentence, for purposes of this Section
4(c)(ii), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. To the extent that the limitation contained in
this section applies, the determination of whether this Debenture is
convertible (in relation to other securities owned by the Holder) and
of which a portion of this Debenture is convertible shall be in the
sole discretion of such Holder. To ensure compliance with this
restriction, the Holder will be deemed to represent to the Company
each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this
paragraph and the Company shall have no obligation to verify or
confirm the accuracy of such determination. In addition, a
determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder. For purposes of this
Section 4(c)(ii), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding shares
of Common Stock as reflected in (x) the Company's most recent Form
10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or
the Company's Transfer Agent setting forth the number of shares of
Common Stock outstanding. Upon the written or oral request of the
Holder, the Company shall within two Trading Days confirm orally and
in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Debenture, by
the Holder or its Affiliates since the date as of which such number of
outstanding shares of
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Common Stock was reported. The provisions of this Section 4(c) may be
waived by the Holder, at the election of the Holder, upon not less
than 61 days' prior notice to the Company, and the provisions of this
Section 4(c) shall continue to apply until such 61st day (or such
later date, as determined by the Holder, as may be specified in such
notice of waiver). The provisions of this paragraph shall be
implemented in a manner otherwise than in strict conformity with the
terms of this Section 4(c) to correct this paragraph (or any portion
hereof) which may be defective or inconsistent with the intended 4.99%
beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such
4.99% limitation. The limitations contained in this paragraph shall
apply to a successor holder of this Debenture. The holders of Common
Stock of the Company shall be third party beneficiaries of this
Section 4(c) and the Company may not waive this Section 4(c) without
the consent of holders of a majority of its Common Stock.
d) Mechanics of Conversion
i. Conversion Shares Issuable Upon Conversion of Principal
Amount. The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be
converted by (y) the Conversion Price. i.
ii. Delivery of Certificate Upon Conversion. Not later than three
Trading Days after any Conversion Date, the Company will deliver or
cause to be delivered to the Holder (A) a certificate or certificates
representing the Conversion Shares which shall be free of restrictive
legends and trading restrictions (other than those required by the
Purchase Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of this Debenture and (B) an amount
in cash via wire transfer in the amount of accrued and unpaid
interest. The Company shall, if available and if allowed under
applicable securities laws, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing
similar functions.
iii. Failure to Deliver Certificates. If in the case of any
Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the third
Trading Day after a Conversion Date, the Holder shall be entitled by
written notice to the Company at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the
certificates representing the principal amount of this Debenture
tendered for conversion.
iv. Obligation Absolute; Partial Liquidated Damages. If the
Company fails for any reason to deliver to the Holder such certificate
or certificates
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pursuant to Section 4(d)(ii) by the third Trading Day after the
Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, for each $1000 of principal
amount being converted, $10 per Trading Day (increasing to $20 per
Trading Day after 5 Trading Days after such damages begin to accrue)
for each Trading Day after such third Trading Day until such
certificates are delivered. The Company's obligations to issue and
deliver the Conversion Shares upon conversion of this Debenture in
accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the
same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce
the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any
other Person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other person, and
irrespective of any other circumstance which might otherwise limit
such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares; provided, however, such delivery
shall not operate as a waiver by the Company of any such action the
Company may have against the Holder. In the event the Holder of this
Debenture shall elect to convert any or all of the outstanding
principal amount hereof, the Company may not refuse conversion based
on any claim that the Holder or any one associated or affiliated with
the Holder has been engaged in any violation of law, agreement or for
any other reason, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of this
Debenture shall have been sought and obtained and the Company posts a
surety bond for the benefit of the Holder in the amount of 150% of the
principal amount of this Debenture outstanding, which is subject to
the injunction, which bond shall remain in effect until the completion
of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder to the extent it obtains judgment. In
the absence of an injunction precluding the same, the Company shall
issue Conversion Shares or, if applicable, cash, upon a properly
noticed conversion. Nothing herein shall limit a Xxxxxx's right to
pursue actual damages or declare an Event of Default pursuant to
Section 8 herein for the Company's failure to deliver Conversion
Shares within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit
the Holder from seeking to enforce damages pursuant to any other
Section hereof or under applicable law.
v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Conversion. In addition to any other rights
available to the Holder, if the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to
Section 4(d)(ii) by the third Trading Day after the Conversion Date,
and if after such third Trading Day the Holder is required by its
brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares
12
which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall (A) pay in cash to the Holder (in
addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of
Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the actual sale price of the
Common Stock at the time of the sale (including brokerage commissions,
if any) giving rise to such purchase obligation and (B) at the option
of the Holder, either reissue (if surrendered) this Debenture in a
principal amount equal to the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Company timely complied with
its delivery requirements under Section 4(d)(ii). For example, if the
Holder purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of this
Debenture with respect to which the actual sale price of the
Conversion Shares at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase obligation was a
total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In. Notwithstanding
anything contained herein to the contrary, if a Holder requires the
Company to make payment in respect of a Buy-In for the failure to
timely deliver certificates hereunder and the Company timely pays in
full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 4(d)(iv) in respect of the
certificates resulting in such Buy-In.
vi. Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock solely for the
purpose of issuance upon conversion of this Debenture as herein
provided, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holder (and the other
holders of the Debentures), not less than such number of shares of the
Common Stock as shall (subject to the terms and conditions set forth
in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5) upon the conversion of the
outstanding principal amount of this Debenture. The Company covenants
that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Registration Statement is then effective
under the Securities Act, registered for public sale in accordance
with such Registration Statement.
vii. Fractional Shares. Upon a conversion hereunder the Company
shall not be required to issue stock certificates representing
fractions of shares of the Common Stock, but may if otherwise
permitted, make a cash payment in
13
respect of any final fraction of a share based on the VWAP at such
time. If the Company elects not, or is unable, to make such a cash
payment, the Holder shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
viii. Transfer Taxes. The issuance of certificates for shares of
the Common Stock on conversion of this Debenture shall be made without
charge to the Holder hereof 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 this 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.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while
this Debenture is outstanding: (A) pays a stock dividend or otherwise makes
a distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company pursuant to this Debenture), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock
of the Company, then the Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary thereof,
as applicable, at any time while this Debenture is outstanding, shall
offer, sell, grant any option to purchase or offer, sell or grant any right
to reprice its securities, or otherwise dispose of or issue any Common
Stock or Common Stock Equivalents entitling any Person to acquire shares of
Common Stock, at an effective price per share less than the then Conversion
Price (such lower price, the "Base Conversion Price" and such issuances
collectively, a "Dilutive Issuance"), as adjusted hereunder (if the holder
of the Common Stock or Common Stock Equivalents so issued shall at any
time, whether by operation of
14
purchase price adjustments, reset provisions, floating conversion, exercise
or exchange prices or otherwise, or due to warrants, options or rights per
share which is issued in connection with such issuance, be entitled to
receive shares of Common Stock at an effective price per share which is
less than the Conversion Price, such issuance shall be deemed to have
occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced by multiplying the
Conversion Price by a fraction, the numerator of which is the number of
shares of Common Stock issued and outstanding immediately prior to the
Dilutive Issuance plus the number of shares of Common Stock which the
offering price for such Dilutive Issuance would purchase at the then
Conversion Price, and the denominator of which shall be the sum of the
number of shares of Common Stock issued and outstanding immediately prior
to the Dilutive Issuance plus the number of shares of Common Stock so
issued or issuable in connection with the Dilutive Issuance. Such
adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. Notwithstanding the foregoing, no adjustment will
be made under this Section 5(b) in respect of an Exempt Issuance. The
Company shall notify the Holder in writing, no later than the Business Day
following the issuance of any Common Stock or Common Stock Equivalents
subject to this section, indicating therein the applicable issuance price,
or of applicable reset price, exchange price, conversion price and other
pricing terms (such notice the "Dilutive Issuance Notice"). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance
Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive
Issuance, after the date of such Dilutive Issuance the Holder is entitled
to receive a number of Conversion Shares based upon the Base Conversion
Price regardless of whether the Holder accurately refers to the Base
Conversion Price in the Notice of Conversion.
c) Pro Rata Distributions. If the Company, at any time while this
Debenture is outstanding, shall distribute to all holders of Common Stock
(and not to the holders of the Debenture) evidences of its indebtedness or
assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security, then in each such case the
Conversion Price shall be adjusted by multiplying such Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the VWAP determined as of the record date
mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by
the Board of Directors in good faith. In either case the adjustments shall
be described in a statement provided to the 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.
d) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or consolidation of the
Company with
15
or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(C) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock
is effectively converted into or exchanged for other securities, cash or
property (in any such case, a "Fundamental Transaction"), then upon any
subsequent conversion of this Debenture, the Holder shall have the right to
receive, for each Conversion Share that would have been issuable upon such
conversion immediately prior to the occurrence of such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one share of Common Stock (the "Alternate
Consideration"). For purposes of any such conversion, the determination of
the Conversion Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Conversion Price among the
Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall
be given the same choice as to the Alternate Consideration it receives upon
any conversion of this Debenture following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions, any successor
to the Company or surviving entity in such Fundamental Transaction shall
issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder's right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this
paragraph (d) and insuring that this Debenture (or any such replacement
security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.
e) Calculations. All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 5, the number of shares of Common Stock deemed to
be issued and outstanding as of a given date shall be the sum of the number
of shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.
f) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price
is adjusted pursuant to any of this Section 5, the Company shall
promptly mail to each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment. If the Company issues a variable rate
security, despite the prohibition thereon in the
16
Purchase Agreement, the Company shall be deemed to have issued Common
Stock or Common Stock Equivalents at the lowest possible conversion or
exercise price at which such securities may be converted or exercised
in the case of a Variable Rate Transaction (as defined in the Purchase
Agreement).
ii. Notice to Allow Conversion by Xxxxxx. If (A) the Company
shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of the Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights; (D) the approval of any stockholders of
the Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the Company
is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property; (E)
the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in each
case, the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Debenture, and shall
cause to be mailed to the Holder at its last addresses as it shall
appear upon the stock books of the Company, at least 20 calendar days
prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of
which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected
that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation,
merger, sale, transfer or share exchange; provided, that the failure
to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be
specified in such notice. The Holder is entitled to convert this
Debenture during the 20-day period commencing the date of such notice
to the effective date of the event triggering such notice.
Section 6. Redemption.
a) Optional Redemption at Election of Company. Subject to the
provisions of this Section 6, at any time after the date hereof, the
Company may deliver a notice to the Holder (an "Optional Redemption Notice"
and the date such notice is deemed delivered hereunder, the "Optional
Redemption Notice Date") of its irrevocable election to redeem some or all
of the then outstanding Debentures, for an amount, in cash via wire
transfer, equal to the Optional Redemption Amount on the 20th Trading Day
following
17
the Optional Redemption Notice Date (such date, the "Optional Redemption
Date" and such redemption, the "Optional Redemption") (provided, however,
the Company may pay up to 15% of the of the principal amount comprising a
portion of the Option Redemption Amount in shares of Common Stock (at a
price per share equal to 90% of the average of the 10 VWAPs immediately
prior to the applicable Optional Redemption Date) if all of the Equity
Conditions are satisfied as to such shares and the other conditions set
forth herein are satisfied). The Optional Redemption Amount is due in full
on the Optional Redemption Date. The Company covenants and agrees that it
will honor all Notices of Conversion tendered from the time of delivery of
the Optional Redemption Notice through the date all amounts owing thereon
are due and paid in full.
b) Monthly Redemption. On each Monthly Redemption Date, the Company
shall redeem the Monthly Redemption Amount plus accrued but unpaid
interest, the sum of all liquidated damages and any other amounts then
owing to such Holder in respect of this Debenture (the "Monthly
Redemption"). The Monthly Redemption Amount due on each Monthly Redemption
Date shall be paid in cash via wire transfer; provided, however, as to any
Monthly Redemption and upon 30 Trading Days' prior written irrevocable
notice (the "Monthly Redemption Notice" and the 30 Trading Day period
immediately following the Monthly Redemption Notice, the "Monthly
Redemption Period"), in lieu of a cash redemption payment the Company may
elect to pay all or part of the principal amount included in such Monthly
Redemption Amount in Conversion Shares in an amount not to exceed 10% of
the total dollar trading volume of the Common Stock during the 10 Trading
Days immediately prior to the applicable Monthly Redemption Date (such
dollar amount to be paid on a Monthly Redemption Date in Conversion Shares,
the "Monthly Redemption Share Amount") based on a conversion price equal to
85% of the average of the lowest 3 VWAPs during the 10 Trading Days
immediately prior to the applicable Monthly Redemption Date (subject to
adjustment for any stock dividend, stock split, stock combination or other
similar event affecting the Common Stock during such 10 Trading Day period)
(the price calculated during the 10 Trading Day period immediately prior to
the Monthly Redemption Date, the "Monthly Conversion Price" and such
period, the "Monthly Conversion Period"); provided, further, that the
Company may not pay such portion of a Monthly Redemption Amount in
Conversion Shares unless, (y) from the date the Holder receives the duly
delivered Monthly Redemption Notice through and until the date such Monthly
Redemption is paid in full, the Equity Conditions, unless waived in writing
by the Holder, have been satisfied and (z) as to such Monthly Redemption,
prior to such Monthly Redemption Period (but not more than 5 Trading Days
prior to the commencement of the Monthly Redemption Period), the Company
shall have delivered to the Holder's account with The Depository Trust
Company a number of shares of Common Stock to be applied against such
Monthly Redemption Share Amount equal to the quotient of (x) the applicable
Monthly Redemption Share Amount divided by (y) the then Conversion Price
(the "Pre-Redemption Conversion Shares"). The Holder may convert, pursuant
to Section 4(a), any principal amount of this Debenture subject to a
Monthly Redemption at any time prior to the date that the Monthly
Redemption Amount and all amounts owing thereon are due and paid in full.
Unless otherwise indicated by the Holder in the applicable Notice of
18
Conversion, any principal amount of this Debenture converted during the
applicable Monthly Redemption Period until the date the Monthly Redemption
Amount is paid in full shall be first applied to the principal amount
subject to the Monthly Redemption Amount payable in cash and then to the
Monthly Redemption Share Amount. Any principal amount of this Debenture
converted during the applicable Monthly Redemption Period in excess of the
Monthly Redemption Amount shall be applied against the last principal
amount of this Debenture scheduled to be redeemed hereunder, in reverse
time order from the Maturity Date; provided, however, if any such
conversion is applied to such Monthly Redemption Amount, the Pre-Redemption
Conversion Shares, if any were issued in connection with such Monthly
Redemption or were not already applied to such conversions, shall be first
applied against such conversion. The Company covenants and agrees that it
will honor all Notice of Conversions tendered up until such amounts are
paid in full. The Company's determination to pay a Monthly Redemption in
cash, shares of Common Stock or a combination thereof shall be applied
ratably to all of the holders of the Debentures based on their (or their
predecessor's) initial purchases of Debentures pursuant to the Purchase
Agreement. At any time the Company delivers a notice to the Holder of its
election to pay the Monthly Redemption Amount in shares of Common Stock,
the Company shall file a prospectus supplement pursuant to Rule 424 or file
a Current Report on Form 8-K disclosing such election.
c) Additional Redemption Right. Subject to the provisions of this
Section 6, in addition to the redemption rights above, in the event the
Company has not consummated the acquisition described in Section 4.9 of the
Purchase Agreement on or before December 31, 2005, at any time from the
Original Issue Date through December 31, 2005, the Company may deliver a
notice to the Holder (a "Short Term Optional Redemption Notice") of its
irrevocable election to redeem all (but not less than all) of the then
outstanding Debentures, for an amount, in cash (except as to (iv) below)
via wire transfer, equal to the sum of (i) 102.5% of the principal amount
of the Debenture then outstanding, (ii) accrued but unpaid interest, (iii)
all liquidated damages and other amounts due in respect of the Debenture
and (iv) a warrant to purchase shares of Common Stock as described below.
Such amount is due in full on the 30th calendar day following the date of
the Short Term Optional Redemption Notice (the "Short Term Optional
Redemption Date"). If the Company fails to deliver a Short Term Redemption
Notice on or before December 31, 2005, the Company shall no longer have the
right to exercise a redemption under this Section 6(c). The Company
covenants and agrees that it will honor Notices of Conversions of up to an
aggregate of 50% of the principal amount of this Debenture then outstanding
tendered from the time of delivery of the Short Term Optional Redemption
Notice through the date all amounts owing thereon are due and paid in full.
In addition to the cash payment described above, as partial payment for
such Short Term Optional Redemption, each Holder of Debentures shall be
issued a warrant to purchase their pro-rata share (based on such Holder's
Subscription Amount and the aggregate Subscription Amounts under the
Purchase Agreement) of 100,000 shares of Common Stock (subject to
adjustment for forward and reverse stock splits, recapitalizations, stock
dividends and the like), in the form of Exhibit C to the Purchase
Agreement, which warrants shall be exercisable immediately upon their
issuance, have a
19
term of exercise equal to 5 years and an exercise price equal to the lesser
of the exercise price of the Warrants issued pursuant to the Purchase
Agreement and 120% of the average Closing Price of the Common Stock for the
ten Trading Days immediately preceding the Short Term Optional Redemption
Date.
d) Redemption Procedure. The payment of cash pursuant to an Optional
Redemption or Short Term Optional Redemption shall be made via wire
transfer on the Optional Redemption Date or Short Term Optional Redemption
Date, as applicable. If any portion of the cash payment for an Optional
Redemption or Short Term Optional Redemption shall not be paid by the
Company by the respective due date, interest shall accrue thereon at the
rate of 18% per annum (or the maximum rate permitted by applicable law,
whichever is less) until the payment of such amount, plus all amounts owing
thereon is paid in full. Alternatively, if any portion of the Optional
Redemption Amount or Short Term Optional Redemption amount remains unpaid
after such date, the Holders subject to such redemption may elect, by
written notice to the Company given at any time thereafter, to invalidate
ab initio such redemption, notwithstanding anything herein contained to the
contrary, and, with respect the failure to honor the Optional Redemption as
applicable, the Company shall have no further right to exercise such
Optional Redemption. Notwithstanding anything to the contrary in this
Section 6, the Company's determination to redeem in cash or its elections
under Section 6(b) shall be applied among the Holders of Debentures
ratably. The Holder may elect to convert the outstanding principal amount
of the Debenture pursuant to Section 4 prior to actual payment in cash for
any redemption under this Section 6 by fax delivery of a Notice of
Conversion to the Company.
Section 7. Negative Covenants. So long as any portion of this Debenture
is outstanding, the Company will not and will not permit any of its Subsidiaries
to directly or indirectly: a) other than Permitted Indebtedness, enter into,
create, incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee, on or
with respect to any of its property or assets now owned or hereafter acquired or
any interest therein or any income or profits therefrom;
b) other than Permitted Liens, enter into, create, incur, assume or
suffer to exist any liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom;
c) amend its certificate of incorporation, bylaws or other charter
documents so as to materially and adversely affect any rights of the
Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise acquire
more than a de minimis number of shares of its Common Stock or Common Stock
Equivalents other than as to the Conversion Shares to the extent permitted
or required under the Transaction Documents or as otherwise permitted by
the Transaction Documents;
20
e) enter into any agreement with respect to any of the foregoing; or
f) pay cash dividends or distributions on any equity securities of the
Company.
Section 8. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
i. any default in the payment of (A) the principal amount of any
Debenture, or (B) interest (including Late Fees) on, or liquidated
damages in respect of, any Debenture, as and when the same shall
become due and payable (whether on a Conversion Date or the Maturity
Date or by acceleration or otherwise) which default, solely in the
case of an interest payment or other default under clause (B) above,
is not cured, within 3 Trading Days;
ii. the Company shall fail to observe or perform any other
covenant or agreement contained in this Debenture or any other
Debenture (other than a breach by the Company of its obligations to
deliver shares of Common Stock to the Holder upon conversion which
breach is addressed in clause (xi) below) which failure is not cured,
if possible to cure, within the earlier to occur of (A) 5 Trading Days
after notice of such default sent by the Holder or by any other Holder
and (B)10 Trading Days after the Company shall become or should have
become aware of such failure;
iii. a default or event of default (subject to any grace or cure
period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents, or
(B) any other material agreement, lease, document or instrument to
which the Company or any Subsidiary is bound that involves at least
$250,000;
iv. any representation or warranty made herein, in any other
Transaction Documents, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate
made or delivered to the Holder or any other holder of Debentures
shall be untrue or incorrect in any material respect as of the date
when made or deemed made;
v. (i) the Company or any of its Subsidiaries shall commence a
case, as debtor, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the
Company or any Subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or
21
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any Subsidiary thereof or (ii) there is
commenced a case against the Company or any Subsidiary thereof, under
any applicable bankruptcy or insolvency laws, as now or hereafter in
effect or any successor thereto which remains undismissed for a period
of 60 days; or (iii) the Company or any Subsidiary thereof is
adjudicated by a court of competent jurisdiction insolvent or
bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or (iv) the Company or any Subsidiary
thereof suffers any appointment of any custodian or the like for it or
any substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or (v) the Company or any Subsidiary
thereof makes a general assignment for the benefit of creditors; or
(vi) the Company shall fail to pay, or shall state that it is unable
to pay, or shall be unable to pay, its debts generally as they become
due; or (vii) the Company or any Subsidiary thereof shall call a
meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (viii) the Company or any
Subsidiary thereof shall by any act or failure to act expressly
indicate its consent to, approval of or acquiescence in any of the
foregoing; or (ix) any corporate or other action is taken by the
Company or any Subsidiary thereof for the purpose of effecting any of
the foregoing;
vi. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an amount
exceeding $250,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable;
vii. the Common Stock shall not be eligible for quotation on or
quoted for trading on a Trading Market and shall not again be eligible
for and quoted or listed for trading thereon within five Trading Days;
viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or dispose
of all or in excess of 50% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction) or shall redeem or repurchase more than a de minimis
number of its outstanding shares of Common Stock or other equity
securities of the Company (other than redemptions of Conversion Shares
and repurchases of shares of Common Stock or other equity securities
of departing officers and directors of the Company; provided such
repurchases shall not exceed $100,000, in the aggregate, for all
officers and directors during the term of this Debenture);
22
ix. a Registration Statement shall not have been declared
effective by the Commission on or prior to the 180th calendar day
after the Closing Date;
x. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the Registration
Statement lapses for any reason or the Holder shall not be permitted
to resell Registrable Securities (as defined in the Registration
Rights Agreement) under the Registration Statement, in either case,
for more than 20 consecutive Trading Days or 30 non-consecutive
Trading Days during any 12 month period; provided, however, that in
the event that the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets or a
similar transaction and in the written opinion of counsel to the
Company, the Registration Statement, would be required to be amended
to include information concerning such transactions or the parties
thereto that is not available or may not be publicly disclosed at the
time, the Company shall be permitted an additional 10 consecutive
Trading Days during any 12 month period relating to such an event;
xi. the Company shall fail for any reason to deliver certificates
to a Holder prior to the third Trading Day after a Conversion Date
pursuant to and in accordance with Section 4(d) or the Company shall
provide notice to the Holder, including by way of public announcement,
at any time, of its intention not to comply with requests for
conversions of any Debentures in accordance with the terms hereof;
xii. any Person shall breach the agreements delivered to the
initial Holders pursuant to Section 2.2(a)(v) of the Purchase
Agreement and the Company does not obtain Shareholder Approval.
b) Remedies Upon Event of Default. If any Event of Default occurs, 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 via wire
transfer. The aggregate amount payable upon an Event of Default shall be
equal to the Mandatory Default Amount. Commencing 5 days after the
occurrence of any Event of Default that results in the eventual
acceleration of this Debenture, the interest rate on this Debenture shall
accrue at the rate of 18% per annum, or such lower maximum amount of
interest permitted to be charged under applicable law. Upon the payment in
full of the Mandatory Default Amount on this entire Debenture the Holder
shall promptly surrender this Debenture to or as directed by the Company.
The Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind, and the Holder may immediately
and without expiration of any grace period enforce any and all of its
rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Xxxxxx at
any time prior to payment hereunder and the Holder shall have all rights as
a Debenture holder until such time, if any, as the full payment under this
Section shall have been received by it. No such
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rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries
to be provided by the Holder hereunder, including, without limitation, any
Notice of Conversion, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service,
addressed to the Company, at the address set forth above, facsimile number
(000) 000-0000, Attn: Xxxxx Xxxxxxxx, Chief Executive Officer or such other
address or facsimile number as the Company may specify for such purposes by
notice to the Holder delivered in accordance with this Section. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, sent
by a nationally recognized overnight courier service addressed to each
Holder at the facsimile telephone number or address of such Xxxxxx
appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the
Holder. Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 5:30 p.m. (New York
City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 5:30 p.m. (New York City time) on any
date and earlier than 11:59 p.m. (New York City time) on such date, (iii)
the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed. This
Debenture is a direct debt obligation of the Company. This Debenture ranks
pari passu with all other Debentures now or hereafter issued under the
terms set forth herein.
c) Lost or Mutilated Debenture. If this Debenture shall be mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated
Debenture, or in lieu of or in substitution for a lost, stolen or destroyed
Debenture, a new Debenture for the principal amount of this Debenture so
mutilated, lost, stolen or destroyed but only upon receipt of evidence of
such loss, theft or destruction of such Debenture, and of the ownership
hereof, and indemnity, if requested, all reasonably satisfactory to the
Company.
d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of
New York, without regard to
24
the principles of conflicts of law thereof. Each party agrees that all
legal proceedings concerning the interpretations, enforcement and defense
of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced
in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the "New York Courts"). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of any such court, or such New York Courts are improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that
such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Debenture or the transactions
contemplated hereby. If either party shall commence an action or proceeding
to enforce any provisions of this Debenture, then the prevailing party in
such action or proceeding shall be reimbursed by the other party for its
attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
e) Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other
term of this Debenture. Any waiver must be in writing.
f) Severability. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect, and
if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If
it shall be found that any interest or other amount deemed interest due
hereunder violates applicable laws governing usury, the applicable rate of
interest due hereunder shall automatically be lowered to equal the maximum
permitted rate of interest. The Company covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on
this Debenture as contemplated herein, wherever enacted, now or at any
25
time hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law,
hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no
such law has been enacted.
g) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience only, do
not constitute a part of this Debenture and shall not be deemed to limit or
affect any of the provisions hereof.
i) Assumption. Any successor to the Company or surviving entity in a
Fundamental Transaction shall (i) assume in writing all of the obligations
of the Company under this Debenture and the other Transaction Documents
pursuant to written agreements in form and substance satisfactory to the
Holder (such approval not to be unreasonably withheld or delayed) prior to
such Fundamental Transaction and (ii) to issue to the Holder a new
debenture of such successor entity evidenced by a written instrument
substantially similar in form and substance to this Debenture, including,
without limitation, having a principal amount and interest rate equal to
the principal amounts and the interest rates of the Debentures held by the
Holder and having similar ranking to this Debenture, and satisfactory to
the Holder (any such approval not to be unreasonably withheld or delayed).
The provisions of this Section 9(i) shall apply similarly and equally to
successive Fundamental Transactions and shall be applied without regard to
any limitations of this Debenture.
*********************
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
SILVERSTAR HOLDINGS, LTD.
By: /s/ Xxxxx Xxxxxxxxx
-----------------------------------
Name: Xxxxx Xxxxxxxxx
Title: Chief Executive Officer
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Variable
Rate Secured Convertible Debenture of Silverstar Holdings, Ltd., a Bermuda
corporation (the "Company"), due on October 31, 2008 into shares of common
stock, par value $0.01 per share (the "Common Stock"), of the Company according
to the conditions hereof, as of the date written below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the Exchange
Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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Schedule 1
CONVERSION SCHEDULE
The Variable Rate Secured Convertible Debentures due on October 31, 2008 in the
aggregate principal amount of $5,000,000 issued by Silverstar Holdings, Ltd.
This Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.
Dated:
Aggregate Principal
Amount Remaining
Subsequent to
Date of Conversion Conversion
(or for first entry, Original (or original
Issue Date) Amount of Conversion Principal Amount) Company Attest
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