EXHIBIT 4.1.2
-------------
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, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT.
No. ____ $_____________
STRATUS SERVICES GROUP, INC.
6% CONVERTIBLE DEBENTURE
DUE DECEMBER 4, 2005
THIS DEBENTURE is one of a series of duly authorized and issued debentures
of Stratus Services Group, Inc., a Delaware corporation, having its principal
place of business at the address set forth in Section 4(f) hereof (the
"COMPANY"), designated as its 6% Convertible Debentures, due December 4, 2005,
in the aggregate principal amount of Two Million Dollars ($2,000,000) (the
"DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to ___________ or its
registered assigns (the "HOLDER"), the principal sum of
________________($_________), on December 4, 2005 or such earlier date as the
Debentures are 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 at the rate of 6% per
annum, payable on a quarterly basis on March 31, June 30, October 30 and
December 31 of each year while such Debentures are outstanding and on each
Conversion Date (as defined herein) for such principal amount, commencing on the
earlier to occur of a Conversion Date for such principal amount and commencing
on January 1, 2001 (each an "INTEREST PAYMENT DATE"), in cash or shares of
Common Stock (as defined in Section 6). Subject to the terms and conditions
herein, the decision whether to pay interest hereunder in shares of Common Stock
or cash shall be at the discretion of the Company. Not less than five Trading
Days (as defined in Section 6) prior to each Interest Payment Date, the Company
shall provide the Holder with written notice of its election to pay interest
hereunder in cash or in shares of Common Stock pursuant to the terms of Section
4(a)(ii). The Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised. Failure to timely
provide such written notice shall be deemed an election by the Company to pay
the interest on such Interest Payment Date in shares of Common Stock pursuant to
the terms of Section 4(a)(ii). If interest is paid by the Company in shares of
its Common Stock, then the number
of shares Common Stock issuable on account of such interest shall equal the cash
amount of such interest on such Conversion Date divided by the Conversion Price
(as defined below) on such date. Interest shall be calculated on the basis on a
360-day year and shall accrue daily commencing on the Original Issue Date (as
defined in Section 6) 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 hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture is registered on the records
of the Company regarding registration and transfers of Debentures (the
"DEBENTURE REGISTER"). All overdue accrued and unpaid interest to be paid in
cash hereunder shall entail a late fee at the rate of 18% per annum (or such
lower maximum amount of interest permitted to be charged under applicable law)
("LATE FEE") (to accrue daily, from the date such interest is due hereunder
through and including the date of payment), payable in cash.
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. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 6) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 6) 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 3. 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 failure to pay any principal of, interest on or
liquidated damages in respect of, any Debentures, free of any claim of
subordination, as and when the same shall become due and payable (whether
on a Conversion Date or 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 of any of the Transaction Documents (as defined in Section 6), and
such failure or breach shall not have been remedied within twelve Business
Days after the date on which notice of such failure or breach shall have
been given;
-2-
(iii) the Company or any of its subsidiaries shall commence,
or there shall be commenced against the Company or any such subsidiary a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences any
other proceeding under any reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the
Company or any subsidiary thereof 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 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 the Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or 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 thereof
shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or 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 any corporate or other action is taken by the Company or any
subsidiary thereof for the purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under
any other Debenture 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 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;
(v) the Common Stock shall fail to be quoted for trading on
the Nasdaq National Market or Nasdaq SmallCap Market for an aggregate of
five Trading Days (which need not be consecutive Trading Days);
(vi) the Company shall be a party to any Change of Control
Transaction (as defined in Section 6), shall agree to sell or dispose 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 shares of Common
Stock or other equity securities of the Company (other than redemptions of
Underlying Shares (as defined in Section 6));
-3-
(vii) an Underlying Shares Registration Statement (as defined
in Section 6) shall not have been declared effective by the Commission (as
defined in Section 6) on or prior to the 120th day after the Original
Issue Date;
(viii) if, during the Registration Period (as defined in the
Registration Rights Agreement (as defined in Section 6)), the
effectiveness of the Underlying Shares Registration Statement lapses for
any reason or the Holder shall, other than during any Suspension Period
(as defined in the Registration Rights Agreement) pursuant to Section 3(g)
of the Registration Rights Agreement, not be permitted to resell
Registrable Securities (as defined in the Registration Rights Agreement)
under the Underlying Shares Registration Statement, in either case, for
more than fifteen consecutive Trading Days or an aggregate of thirty
Trading Days (which need not be consecutive Trading Days);
(ix) the event or occurrence that gives rise to the obligation
of the Company to pay any Periodic Amount (as defined in the Registration
Rights Agreement) shall not have been cured to the satisfaction of the
Holder prior to the expiration of thirty days from the date that such
Periodic Payment first becomes payable (other than as resulting from a
failure of an Underlying Shares Registration Statement to be declared
effective by the Commission on or prior to the 120th day after the
Original Issue Date, which shall be covered by Section 3(a)(vii));
(x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the fifth Trading Day after a Conversion
Date pursuant to and in accordance with Section 4(b) 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; and
(xi) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within five days
after notice is deemed delivered hereunder.
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), 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. The aggregate amount
payable upon an Event of Default (the "DEFAULT PAYMENT") shall be equal to the
sum of (i) the Mandatory Prepayment Amount (as defined in Section 6) plus (ii)
the product of (A) the number of Underlying Shares issued in respect of
conversions hereunder within thirty days of the date of a declaration of an
Event of Default and then held by the Holder and (B) the Closing Price (as
defined in Section 6) on the date the Default Payment is due or the date the
full Default Payment is paid, whichever is greater. Interest shall accrue on the
Default Payment from the seventh day after such payment is due (being the date
of an Event of Default) through the date of the payment in full of the Default
Payment at the rate of the Late Fee, to accrue daily from the date the Default
Payment is due through and including the date of payment. All Debentures and
Underlying Shares for which the full Default
-4-
Payment shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. The Debentures and Underlying
Shares for which a Default Payment shall have been demanded in accordance with
this Section shall remain outstanding until such time as the full Default
Payment shall have been made (to the extent that a partial Default Payment shall
have been made, only such portion of the Debentures and Underlying Shares for
which such partial payment was made shall be retired). 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.
SECTION 4. CONVERSION.
(a) (i) CONVERSION AT OPTION OF HOLDER. 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 120th day following the
Original Issue Date (subject to the limitations on conversion set forth in
Section 4(a)(iii) hereof). The Holder shall effect conversions at its option by
delivering to the Company the form of conversion notice attached hereto as
EXHIBIT A (a "CONVERSION NOTICE"), specifying therein the principal amount of
Debentures to be converted and the date on which such conversion is to be
effected, which date may not be prior to the date such Conversion Notice is
deemed to have been delivered hereunder (a "CONVERSION DATE") and shall contain
a schedule in the form of SCHEDULE 1 to the Conversion Notice (as amended on
each Conversion Date, the "CONVERSION SCHEDULE") reflecting the remaining
principal amount of this Debenture and all accrued and unpaid interest thereon
subsequent to the conversion at issue. If no Conversion Date is specified in a
Conversion Notice, the Conversion Date shall be the date that such Conversion
Notice is deemed delivered hereunder. Subject to Section 4(b), each Conversion
Notice, once given, shall be irrevocable. To effect conversions hereunder, the
Holder shall not be required to physically surrender this Debenture to the
Company unless the aggregate principal amount of this Debenture is so converted
in which event the Holder shall promptly thereafter (but not as a condition to
the Company's obligation to timely deliver Underlying Shares) deliver such
Debenture certificate to, or as directed by the Company for cancellation.
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, which shall be evidenced by
entries set forth in the Conversion Schedule. The Holder and the Company shall
maintain records showing the principal amount converted and the date of such
conversions. 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.
(ii) NUMBER OF UNDERLYING SHARES ISSUABLE UPON CONVERSION. (A) The
number of shares of Common Stock issuable upon a conversion hereunder shall be
determined by adding
-5-
the sum of (i) the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted and (y) the Conversion Price (as
defined herein), and (ii) the amount equal to (I) the product of (x) the
outstanding principal amount of this Debenture to be converted and (y) the
product of (1) the quotient obtained by dividing .06 by 360 and (2) the number
of days for which such principal amount was outstanding, divided by (II) the
Conversion Price on the Conversion Date, PROVIDED, that if the Company shall
have elected to pay the interest due on a Conversion Date in cash pursuant to
the terms hereof, subsection (ii) shall not be used in the calculation of the
number of shares of Common Stock issuable upon a conversion hereunder.
(B) 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 interest hereunder in shares of Common
Stock;
(2) after the Interest Effectiveness Date (as defined in
Section 6) such shares of Common Stock (x) are not registered for resale
pursuant to an effective Underlying Shares Registration Statement and (y)
may not be sold without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act;
(3) the Common Stock shall fail to be listed or quoted for
trading on either the Nasdaq SmallCap Market or Nasdaq National Market;
(4) the Company has failed to timely satisfy its
conversion obligations hereunder; or
(5) the issuance of such shares of Common Stock
would result in a violation of Sections 4(a)(iii)(A) or (B),
then, at the option of the Holder, the Company, in lieu of
delivering shares of Common Stock pursuant to Section 4(a)(ii)(A)(ii), shall
deliver, within three Trading Days of each applicable Conversion Date, an amount
in cash equal to the product of (a) the outstanding principal amount of the
Debentures to be converted on such Conversion Date and (b) the product of (x)
the quotient obtained by dividing .06 by 360 and (y) the number of days for
which such principal amount was outstanding.
(iii) CERTAIN CONVERSION RESTRICTIONS.
(A) A Holder may not convert Debentures 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 4.999% of the then issued and outstanding shares of
Common Stock,
-6-
including shares issuable upon conversion of, and payment of interest on, the
Debentures 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 4.999% 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 Debentures are convertible shall be the
responsibility and obligation of the Holder. If the Holder has delivered a
Conversion Notice for a principal amount of Debentures 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 4(b) and, at the option of the
Holder, either retain any principal amount tendered for conversion in 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
61 days prior notice to the Company. Other Holders shall be unaffected by any
such waiver.
(B) A Holder may not convert Debentures 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 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, the Debentures 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 9.999% 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 Debentures are
convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for a principal amount of Debentures
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 4(b) and, at
the option of the Holder, either retain any principal amount tendered for
conversion in 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 61 days prior notice to the Company. Other Holders
shall be unaffected by any such waiver.
-7-
(C) If the Common Stock is then listed for
trading on the Nasdaq SmallCap Market or the Nasdaq National Market and the
Company has not obtained the Shareholder Approval (as defined below), then the
Company may not issue in excess of 1,145,112 shares of Common Stock (which
equals 19.999% of the number of shares of Common Stock outstanding on the
Trading Day immediately preceding the Original Closing Date) upon conversions of
the Debentures at a price per share that is less than the Closing Price on the
Trading Day immediately preceding the Original Issue Date (such number of
shares, the "ISSUABLE MAXIMUM"). Each holder of Debentures (a "DEBENTURE
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
Debentures issued and sold to such Debenture Holder on the Original Issue Date
by (y) the number of the Debenture issued and sold by the Company on the
Original Issue Date. If any Debenture Holder shall no longer hold Debentures,
then such Debenture Holder's remaining portion of the Issuable Maximum shall be
allocated pro-rata among the remaining Debenture Holders. If on any Conversion
Date (A) the shares of Common Stock are listed for trading on the Nasdaq
SmallCap Market or Nasdaq National Market, (B) the Conversion Price then in
effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon conversion in full of all then outstanding Debentures,
together with any shares of Common Stock previously issued upon conversion of
the Debentures would exceed the Issuable Maximum, and (C) the Company shall not
have previously obtained the vote of shareholders (the "SHAREHOLDER APPROVAL"),
if any, as may be required by the applicable rules and regulations of the Nasdaq
Stock Market (or any successor entity) applicable to approve the issuance of
shares of Common Stock in excess of the Issuable Maximum pursuant to the terms
hereof, then the Company shall issue to the Debenture Holder requesting a
conversion a number of shares of Common Stock equal to such Debenture 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 Debenture Holder for which a
conversion in accordance with the Conversion Price would result in an issuance
of shares of Common Stock in excess of such Debenture Holder's pro-rata portion
(which shall be calculated pursuant to the terms hereof) of the Issuable Maximum
(the "EXCESS PRINCIPAL"), the converting Debenture Holder shall have the option
to require the Company to either: (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but in
any event not later than the 60th day after such request, or (2) pay cash to the
converting Debenture Holder in an amount equal to the Excess Principal in full
satisfaction of the principal and interest owing under the Debentures held by
such Debenture Holder. If the converting Debenture Holder shall have elected the
first option pursuant to the immediately preceding sentence and the Company
shall have failed to obtain the Shareholder Approval on or prior to the 60th day
after such request, then within three days of such 60th day, the Company shall
pay cash to the converting Debenture Holder an amount equal to the Excess
Principal in full satisfaction of the principal and interest owing under the
Debentures held by such Debenture Holder. If the Company fails to pay the Excess
Principal in full pursuant to this Section within seven days after the date
payable, the Company will pay interest thereon at a rate of the Late Fee, to the
converting Debenture Holder, accruing daily from the Conversion Date until such
amount, plus all such interest thereon, is paid in full. The Company and the
Holder understand and agree that shares of Common Stock issued to and then held
by the Holder
-8-
as a result of conversions of under this Debenture shall not be entitled to cast
votes on any resolution to obtain Shareholder Approval pursuant hereto.
(b) (i) Not later than three Trading Days after any Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of Debentures, and
(ii) a bank check in the amount of accrued and unpaid interest (if the Company
has timely elected or is required to pay accrued interest in cash). The Company
shall, upon request of the Holder, if available, 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. If in the case of
any Conversion Notice such certificate or certificates are not delivered to or
as directed by the applicable Holder by the third Trading Day after a Conversion
Date, the Holder shall be entitled by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
certificates representing the principal amount of Debentures tendered for
conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) 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, $5,000 for each Trading Day after such
third Trading Day until such certificates are delivered. Nothing herein shall
limit a Xxxxxx's right to pursue actual damages or declare an Event of Default
pursuant to Section 3 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. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Debentures or as payment of
interest thereon by the third 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 4(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 provision of this Section.
(iii) 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 4(b)(i) by the third Trading Day after the
Conversion Date, and if after such third 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 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
-9-
receiving from the conversion at issue multiplied by (2) the market price of the
Common Stock at the time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder, either reissue Debentures in principal amount
equal to the principal amount of the attempted conversion or deliver to the
Holder the number of shares of Common Stock that would have been issued had the
Company timely complied with its delivery requirements under Section 4(b)(i).
For example, if the Holder purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted conversion of
Debentures with respect to which the market price of the Underlying Shares on
the date of conversion 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(b)(ii) in
respect of the certificates resulting in such Buy-In.
(c) (i) The conversion price (the "CONVERSION PRICE") in effect
on any Conversion Date shall be the lesser of (1) $[ ](1) (the "INITIAL
CONVERSION PRICE"), and (2) 75% of the average of the Per Share Market Values
during the five consecutive Trading Days immediately preceding the applicable
Conversion Date, PROVIDED, that such five Trading Day period shall, at the
option of the Holder, be extended for the number of Trading Days during such
period in which (A) trading in the Common Stock is not listed or quoted for
trading on the Nasdaq SmallCap Market or Nasdaq National Market, or (B) after
the date declared effective by the Commission, the Underlying Shares
Registration Statement is either not effective or the Prospectus included in
the Underlying Shares Registration Statement may not be used by the Holder
for the resale of Underlying Shares.
(ii) If the Company, at any time while any Debentures
are outstanding, (a) shall pay a stock dividend or otherwise make a distribution
or distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (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 Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the Effective Date in
the case of a subdivision, combination or re-classification.
--------
(1) 120% of the Per Share Market Value on the Trading Day immediately preceding
the Closing Date.
-10-
(iii) If the Company, at any time while any Debentures
are outstanding, shall issue rights, options or warrants to all holders of
Common Stock (and not to Holders) entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the Per Share Market Value
at the record date mentioned below, then the 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 such Per Share Market Value. 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 Conversion
Price pursuant to this Section, if any such right, option or warrant shall
expire and shall not have been exercised, the Conversion Price shall immediately
upon such 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 Conversion Price made pursuant to the provisions of
this Section after the issuance of such rights or warrants) had the adjustment
of the 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 with respect to Common Stock Equivalents (as defined below), at any
time while this Debenture is outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that is 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 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, or due to warrants, options or rights issued in connection
with such issuance, be entitled to receive shares of Common Stock at a price
less than the Conversion Price, such issuance shall be deemed to have occurred
for less than the Conversion Price), then, at the option of the Holder for such
conversions as it shall indicate, the Conversion Price shall be adjusted to
mirror the conversion, exchange or purchase price for such Common Stock or
Common Stock Equivalents (including any reset provisions thereof) at issue. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued. The Company shall notify the Holder in writing, no later than the
Trading Day following the issuance of any Common Stock or Common Stock
Equivalent subject to this section, indicating therein the applicable issuance
price, or of applicable reset price, exchange price, conversion price and other
pricing terms. No adjustment under this Section shall be made as a result of (i)
issuances of Common Stock or Common Stock Equivalents to the extent disclosed in
Schedule 2.1(c) to the Purchase
-11-
Agreement, (ii) issuances and exercises of options to purchase shares of Common
Stock issued for compensatory purposes pursuant to any of the Company's stock
option or stock purchase plans, (iii) exercises under the Warrants (as defined
in the Purchase Agreement), or (iv) issuances of Common Stock or Common Stock
Equivalents as payment of all or a portion of the purchase price for the
acquisition by the Company of a previously unaffiliated business (other than
such issuances that would result in a Change of Control Transaction).
(v) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price at which Debentures shall thereafter be convertible shall be determined by
multiplying the 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 Per Share Market Value
determined as of the record date mentioned above, and of which the numerator
shall be such Per Share Market Value on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(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 (other than securities which are listed for trading on the
Nasdaq SmallCap Market or on a Subsequent Market (as defined in Section 6) on
the date of effectiveness of such reclassification or share exchange), or into
cash or property, the Holders shall have the right thereafter to, at their
option, (A) 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 only 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 Holders of the
Debentures 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 or (B) require the Company to prepay
the aggregate of its outstanding principal amount of Debentures, plus all
interest and other amounts due and payable thereon, at a price determined in
accordance with Section 3(b). The entire prepayment price shall be paid in cash.
This provision shall similarly apply to successive reclassifications or share
exchanges.
(vii) All calculations under this Section 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
No adjustments in either the Initial
-12-
Conversion Price or Conversion Price shall be required if such adjustment is
less than $0.01, PROVIDED, that any adjustments which by reason of this Section
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment.
(viii) Whenever either the Initial Conversion Price or
Conversion Price is adjusted pursuant to any of Section 4(c)(ii) - (v), the
Company shall promptly mail to each Holder a notice setting forth the Initial
Conversion Price or the Conversion Price (as applicable) after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(ix) 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 the Debentures, and shall
cause to be mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior to the
applicable record or Effective Date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, PROVIDED, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert Debentures during the 20-day
period commencing the date of such notice to the Effective Date of the event
triggering such notice.
(x) In case of any (1) merger or consolidation of the
Company with or into another Person, or (2) sale by the Company of more than
one-half of the assets of the Company (on an as valued basis) in one or a series
of related transactions, a Holder shall have the right to (A) convert its
aggregate principal amount of Debentures 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 Debentures could have been
converted immediately prior to such merger, consolidation or sales would have
been entitled, or (B)
-13-
if permitted hereunder, declare an Event of Default. This provision shall
similarly apply to successive such events.
(d) 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 Per Share Market Value 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.
(e) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(f) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the Company, at 000 Xxxxx Xxxx,
Xxxxx 000, Xxxxxxxxx, Xxx Xxxxxx 00000, facsimile: (000) 000-0000, attention:
Xxxxxx X. Xxxxxxx, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holders delivered in accordance with
this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to each Holder at
the facsimile telephone number or address of such Holder 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
6:30 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 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) four days after deposit in the United States mail, (iv) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (v) upon actual receipt by the party to whom such notice is
required to be given.
SECTION 5. PREPAYMENT AT THE OPTION OF THE COMPANY.
-14-
(a) The Company shall have the right at all times and any time after the
Original Issue Date, upon ten Trading Days' notice to the Holders (an "OPTIONAL
PREPAYMENT NOTICE" and the date such notice is received by the Holders, the
"NOTICE DATE"), to prepay all or a portion of the Debentures then held by the
Holders at a cash price equal to the Optional Prepayment Price (as defined in
Section 6). Following the 120th day after the Original Issue Date, the Company
may only deliver an Optional Prepayment Notice to the Holders if, on the Notice
Date: (i) either there is an effective Underlying Shares Registration Statement
pursuant to which the Holders are permitted to utilize the prospectus thereunder
to resell all of the issued Underlying Shares and all of the Underlying Shares
as are issuable upon conversion in full of the Notes subject to the Optional
Prepayment Notice or all of such issued or issuable Underlying Shares may be
sold without volume restrictions pursuant to Rule 144(k) promulgated under the
Securities Act and (ii) the Common Stock is listed or quoted for trading on the
Nasdaq SmallCap Market or Nasdaq National Market. Following the 120th day after
the Original Issue Date, if any of the foregoing conditions shall cease to be in
effect during the period between the Notice Date and the date the Optional
Prepayment Price is paid in full, then the Holders subject to such prepayment
may elect, by written notice to the Company given at any time after any of the
foregoing conditions shall cease to be in effect, to invalidate AB INITIO such
prepayment, notwithstanding anything herein contained to the contrary. Holders
may convert any portion of the outstanding principal amount of the Debentures
subject to an Optional Redemption Notice during the ten Trading Days from the
receipt of the Optional Prepayment Notice, but only during such Trading Days
that occur from and after the 120th day following the Original Issue Date. The
full Optional Prepayment Price shall be paid on the tenth Trading Day following
the Notice Date (the "DUE DATE").
(b) If any portion of the Optional Prepayment Price shall not be paid by the
Company by the Due Date, interest shall accrue thereon at the rate equal to the
Late Fee until the Optional Prepayment Price plus all such interest is paid in
full. In addition, if any portion of the Optional Prepayment Price remains
unpaid after such date, the Holder subject to such prepayment may elect by
written notice to the Company to either: (x) demand conversion in accordance
with the formula and the time period therefor set forth in Section 4 of any
portion of the principal amount of the Debentures for which the Optional
Prepayment Price, plus accrued liquidated damages thereof, has not been paid in
full (the "UNPAID PREPAYMENT PRINCIPAL AMOUNT"), in which event the applicable
Per Share Market Value shall be the lower of the Per Share Market Value
calculated on the Due Date and the Per Share Market Value as of the Holder's
written demand for exchange, or (y) invalidate AB INITIO such optional
prepayment, notwithstanding anything herein contained to the contrary. If the
Holder elects option (x) above, the Company shall, within three (3) Trading Days
after such election is deemed delivered hereunder, deliver to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Principal Amount subject to such conversion demand and otherwise perform its
obligations hereunder with respect thereto. If the Holder elects option (y)
above, the aggregate principal amount under this Debenture and all interest due
hereunder shall be increased by the amount of any accrued Late Fee and the
Company shall no longer have any prepayment rights under this Debenture.
Section 6. DEFINITIONS. For the purposes hereof, the following terms shall
have the following meanings:
-15-
"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 or State of New Jersey are authorized or
required by law or other government action to close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence 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 33% of the
voting securities of the Company, (ii) a replacement at one time or over time 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), (iii) the merger of the Company with or into
another entity that is not wholly-owned by the Company, consolidation or sale of
50% or more of the assets of the Company in one or a series of related
transactions, or (iv) 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), (ii) or (iii).
"CLOSING PRICE" means on any particular date: (a) the closing sales price
per share of Common Stock on such date on the OTC or on such Subsequent Market
on which the shares of Common Stock are then listed or quoted (as reported by
Bloomberg L.P. at 4:15 PM (New York time) for the closing sales price for
regular session trading on such day), or if there is no such price on such date,
then the closing sales price on the OTC or on such Subsequent Market on the date
nearest preceding such date (as reported by Bloomberg L.P. at 4:15 PM (New York
time) for the closing sales price for regular session trading on such day), or
(b) if the shares of Common Stock are not then listed or quoted on the OTC or a
Subsequent Market, the closing sales price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the shares of
Common Stock are not then reported by the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the shares of
Common Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the Holders
of a majority in interest of the principal amount of Debentures then
outstanding.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, $.01 par value per share, of the
Company and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"EFFECTIVE DATE" means the date on which an Underlying Shares Registration
Statement shall have first been declared effective by the Securities and
Exchange Commission.
-16-
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"INTEREST EFFECTIVENESS DATE" means the earlier to occur of (x) the
Effectiveness Date (as defined in the Registration Right Agreement) and (y) the
Effective Date.
"MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal the sum of
(i) the greater of (A) if the Closing Price is less than or equal to the Initial
Conversion Price (subject to adjustment as provided herein), 125% of the
principal amount of Debentures to be prepaid, plus all accrued and unpaid
interest and, and (B) if the Closing Price is greater than the Initial
Conversion Price (subject to adjustment as provided herein), the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Closing
Price on (x) the date the Mandatory Prepayment Amount is demanded or otherwise
due or (y) the date the Mandatory Prepayment Amount is paid in full, whichever
is greater, and (ii) all other amounts, costs, expenses and liquidated damages
due in respect of such Debentures.
"OPTIONAL PREPAYMENT PRICE" shall equal the sum of: (i) the product of (A)
the Optional Prepayment Rate and (B) the principal amount of Debentures to be
prepaid, (ii) all accrued and unpaid interest on the Debentures being paid, and
(iii) all other amounts, expenses, costs and liquidated damages due in respect
of such Debentures.
"OPTIONAL PREPAYMENT RATE" means (i) for Optional Prepayment Price paid
prior to the 121st day following the Original Issue Date, 115%, (ii) for
Optional Prepayment Price paid between the 121st day following the Original
Issue Date until and including the 180th day following the Original Issue Date,
120%, and (iii) for Optional Prepayment Price paid from and after the 181st day
following the Original Issue Date, 125%.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of this
Debenture to the initial Holder as indicated on the signature page hereof,
regardless of the number of transfers of any Debenture and regardless of the
number of instruments which may be issued to evidence such Debenture.
"OTC" means the OTC Bulletin Board service.
"PER SHARE MARKET VALUE" means on any particular date: (a) the closing bid
price per share of Common Stock on such date on the OTC or on such Subsequent
Market on which the shares of Common Stock are then listed or quoted (as
reported by Bloomberg L.P. at 4:15 PM (New York time) for the closing bid price
for regular session trading on such day), or if there is no such price on such
date, then the closing bid price on the OTC or on such Subsequent Market on the
date nearest preceding such date (as reported by Bloomberg L.P. at 4:15 PM (New
York time) for the closing bid price for regular session trading on such day),
or (b) if the shares of Common Stock are not then listed or quoted on the OTC or
a Subsequent Market, the closing bid price for a share of
-17-
Common Stock in the over-the-counter market, as reported by the National
Quotation Bureau Incorporated or similar organization or agency succeeding to
its functions of reporting prices) at the close of business on such date, or (c)
if the shares of Common Stock are not then reported by the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices), then the average of the "Pink Sheet" quotes for
the relevant conversion period, as determined in good faith by the Holder, or
(d) if the shares of Common Stock are not then publicly traded the fair market
value of a share of Common Stock as determined by an Appraiser selected in good
faith by the Holders of a majority in interest of the principal amount of
Debentures then outstanding.
"PERSON" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement, dated
December 1, 2000, 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 December 1, 2000, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in accordance
with its terms.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SUBSEQUENT MARKET" means the New York Stock Exchange, Nasdaq SmallCap
Market, American Stock Exchange or Nasdaq National Market.
"TRADING DAY" means (a) a day on which the shares of Common Stock are
traded on the OTC or on such Subsequent Market on which the shares of Common
Stock are then listed or quoted, or (b) if the shares of Common Stock are not
listed on the OTC or a Subsequent Market, a day on which the shares of Common
Stock are traded in the over-the-counter market, as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); PROVIDED, that in the event that the shares
of Common Stock are not listed or quoted as set forth in (a) and (b) hereof,
then Trading Day shall mean a Business Day.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in the Purchase
Agreement.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of Debentures 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.
-18-
SECTION 7. 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 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 there are
Debentures outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holders: (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holders; (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. The Company may only voluntarily prepay the outstanding principal
amount on the Debentures in accordance with Section 5 hereof.
SECTION 8. 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 9. 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.
SECTION 10. 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 other than (i) up to $6,000,000 of indebtedness
under the Company's factoring agreement (as described in the Company's 10-QSB)
and (ii) $375,000 of outstanding secured acquisition debt . The Company will not
and will not permit any of its 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 therefrom that is senior in any
respect to the Company's obligations under the Debentures, other than
indebtedness incurred under an asset based lending facility, revolving credit
facility or factoring arrangement of the Company with a lender whose primary
business is the lending of money and not the investment in securities or any
indebtedness incurred in connection with the acquisition of any property,
assets, businesses or equipment financing.
SECTION 11. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to conflicts of
laws thereof. The Company and the Holder hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder
-19-
or in connection herewith or with any transaction contemplated hereby or
discussed herein, 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 that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument 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. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party 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 Agreement or the transactions contemplated hereby. If either
party shall commence an action or proceeding to enforce any provisions of a
Transaction Document, 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.
SECTION 12. 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.
-20-
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 the Debentures 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 impede 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.
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to be duly
executed by a duly authorized officer as of the 1st day of December, 2000.
STRATUS SERVICES GROUP, INC.
By:
---------------------------------------------
Xxxxxx X. Xxxxxxx, Chairman & CEO
ORIGINAL ISSUE DATE: December 4, 2000.
EXHIBIT A
NOTICE OF HOLDER CONVERSION
The undersigned hereby elects to convert the principal amount of
Debentures set forth below into shares of common stock, $.01 par value per share
(the "Common Stock"), of Stratus Services Group, Inc. (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.
Conversion calculations:
-----------------------------------------------
Date to Effect Conversion
-----------------------------------------------
Principal Amount of Debentures to be Converted
-----------------------------------------------
Number of shares of Common Stock to be Issued
Payment of Interest in Kind |_| Yes |_| No
If yes, $_______ of Interest Accrued on
Account of Conversion at Issue
-----------------------------------------------
Applicable Conversion Price
-----------------------------------------------
Signature
-----------------------------------------------
Name
-----------------------------------------------
Address
SCHEDULE 1
CONVERSION SCHEDULE
6% Convertible Debentures, due December 4, 2005, in the aggregate
principal amount of $2,000,000 issued by Stratus Services Group, Inc. This
Conversion Schedule reflects conversions made under Section 4(a)(i) of the above
referenced Debentures.
Dated:
Amount of Aggregate Principal
Date of Conversion Conversion Amount Remaining
Subsequent to Conversion
------------------------- -------------------- ---------------------------
------------------------- -------------------- ---------------------------
------------------------- -------------------- ---------------------------
------------------------- -------------------- ---------------------------
------------------------- -------------------- ---------------------------
------------------------- -------------------- ---------------------------
------------------------- -------------------- ---------------------------
------------------------- -------------------- ---------------------------
------------------------- -------------------- ---------------------------
------------------------- -------------------- ---------------------------
------------------------- -------------------- ---------------------------
------------------------- -------------------- ---------------------------
-2-
