Contract
EXHIBIT
10.13
THIS
SECURITY AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE
MANNER AND TO THE EXTENT SET FORTH IN THE XXXXXX INTERCREDITOR AGREEMENTS (AS
SUCH TERM IS DEFINED IN THE PURCHASE AGREEMENT) AND EACH HOLDER OF THIS
SECURITY, BY ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS
OF THE XXXXXX INTERCREDITOR AGREEMENT.
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: July ___, 2009
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$
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Original
Conversion Price (subject to adjustment herein): $0.24
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VPP
ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE
DUE
NOVEMBER 30, 2011
THIS VPP
ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE is one of a series of duly
authorized and validly issued VPP Original Issue Discount Secured Convertible
Debentures of Capital Growth Systems, Inc., a Florida corporation, (the
“Company”), having its principal place of business at 000 X. Xxxxxx Xxxxx, Xxxxx
0000, Xxxxxxx, Xxxxxxxx 00000, designated as its VPP Original Issue Discount
Secured Convertible Debenture due on November 30, 2011 (the “Termination Date”)
(this debenture, the “Debenture” and, collectively with the other debentures of
such series, the “Debentures”).
FOR VALUE
RECEIVED, the Company promises to pay to ________________________ or its
registered assigns (the “Holder”), or shall have paid pursuant to the terms
hereunder, the principal sum of $_______________ on November 30, 2011 (the
“Maturity Date”) or such earlier date as this Debenture is required or permitted
to be repaid as provided hereunder, and to pay default interest, if any, to the
Holder on the then outstanding and unconverted and unredeemed 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 shall have the meanings set
forth in the Purchase Agreement and (b) the following terms shall have the
following meanings:
“Alternate
Consideration” shall have the meaning set forth in Section 5(e).
“Bankruptcy
Event” means any of the following events: (a) the Company or any Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof
commences a case or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Company or any
Significant Subsidiary thereof, (b) there is commenced against the Company or
any Significant Subsidiary thereof any such case or proceeding that is not
dismissed within 60 days after commencement, (c) the Company or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered, (d) the Company
or any Significant Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not
discharged or stayed within 60 calendar days after such appointment, (e) the
Company or any Significant Subsidiary thereof makes a general assignment for the
benefit of creditors, (f) the Company or any Significant Subsidiary thereof
calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts or (g) the Company or any Significant
Subsidiary thereof, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or takes any
corporate or other action for the purpose of effecting any of the
foregoing.
“Base
Conversion Price” shall have the meaning set forth in Section 5(b).
“Beneficial
Ownership Limitation” shall have the meaning set forth in Section
4(c).
“Business
Day” means any day except any Saturday, any Sunday, any day which shall be a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
“Buy-In”
shall have the meaning set forth in Section 4(d)(v).
“Change
of Control Transaction” means the occurrence after the date hereof of any of (a)
an acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 40% of the
voting securities of the Company (other than by means of conversion or exercise
of the Debentures and the Securities issued together with the Debentures), (b)
the Company merges into or consolidates with any other Person, or any Person
merges into or consolidates with the Company and, after giving effect to such
transaction, the stockholders of the Company immediately prior to such
transaction own less than 60% of the aggregate voting power of the Company or
the successor entity of such transaction, or (c) the Company sells or transfers
all or substantially all of its assets to another Person and the stockholders of
the Company immediately prior to such transaction own less than 60% of the
aggregate voting power of the acquiring entity immediately after the
transaction, (d) a replacement at one time or within a three year period of more
than one-half of the members of the Board of Directors which is not approved by
a majority of those individuals who are members of the Board of Directors on the
date hereof (or by those individuals who are serving as members of the Board of
Directors on any date whose nomination to the Board of Directors was approved by
a majority of the members of the Board of Directors who are members on the date
hereof), or (e) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the
events set forth in clauses (a) through (d) above.
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“Conversion”
shall have the meaning ascribed to such term in Section 4.
“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
Schedule” means the Conversion Schedule in the form of Schedule 1 attached
hereto.
“Conversion
Shares” means, collectively, the shares of Common Stock issuable upon conversion
of this Debenture in accordance with the terms hereof.
“Debenture
Register” shall have the meaning set forth in Section 2(c).
“Dilutive
Issuance” shall have the meaning set forth in Section 5(b).
“Dilutive
Issuance Notice” shall have the meaning set forth in Section 5(b).
“Equity
Conditions” means, during the period in question, (a) the Company shall have
duly honored all conversions and redemptions scheduled to occur or occurring by
virtue of one or more Notices of Conversion of the Holder, if any, (b) the
Company shall have paid all liquidated damages and other amounts owing to the
Holder in respect of this Debenture, (c)(i) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares of Common Stock issuable pursuant to the
Transaction Documents or (ii) all of the Conversion Shares issuable pursuant to
the Transaction Documents may be resold pursuant to Rule 144 without volume or
manner-of-sale restrictions as determined by the counsel to the Company pursuant
to a written opinion letter to such effect, addressed and acceptable to the
Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading
Market and all of the shares issuable pursuant to the Transaction Documents are
listed or quoted for trading on such 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), (e) 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, (f) there is no existing Event of Default or no existing event which,
with the passage of time or the giving of notice, would constitute an Event of
Default, (g) the issuance of the shares in question (or, in the case of a
Quarterly Redemption, the shares issuable upon conversion in full of the
Quarterly Redemption Amount to the Holder would not violate the limitations set
forth in Section 4(c) herein, (h) there has been no public announcement of a
pending or proposed Fundamental Transaction or Change of Control Transaction
that has not been consummated, (i) the Holder is not in possession of any
information provided by the Company that constitutes, or may constitute,
material non-public information and (j) for each Trading Day in a period of 20
consecutive Trading Days prior to the applicable date in question, the daily
dollar trading volume for the Common Stock on the principal Trading Market
exceeds $75,000 per Trading Day.
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“Event of
Default” shall have the meaning set forth in Section 8(a).
“Fundamental
Transaction” shall have the meaning set forth in Section 5(e).
“Mandatory
Default Amount” means the sum of (a) the greater of (i) the
outstanding principal amount of this Debenture, divided by the Conversion Price
on the date the Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default) or otherwise due or (B) paid
in full, whichever has a lower Conversion Price, multiplied by the VWAP on the
date the Mandatory Default Amount is either (x) demanded or otherwise due or (y)
paid in full, whichever has a higher VWAP, or (ii) 120% of the outstanding
principal amount of this Debenture plus (b) all other amounts, costs, expenses
and liquidated damages due in respect of this Debenture, including, without
limitation, any accrued and unpaid default interest.
“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).
“Original
Issue Date” means the date of the first issuance of the Debentures, regardless
of any transfers of any Debenture and regardless of the number of instruments
which may be issued to evidence such Debentures.
“Permitted
Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) the
Indebtedness existing on the Original Issue Date and set forth on Schedule
3.1(aa) attached to the Purchase Agreement, (c) lease obligations and purchase
money indebtedness of up to $250,000, in the aggregate, incurred in connection
with the acquisition of capital assets and lease obligations with respect to
newly acquired or leased assets, (d) the Senior Debt, (e) the Administrator
Debenture issued to the Administrator, and (f) Magenta employee notes in the
amount of approximately $87,000.
“Permitted
Lien” means 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 the Company’s business, such as carriers’,
warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other
similar Liens arising in the ordinary course of the Company’s business, and
which (x) 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) are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing for the foreseeable future the
forfeiture or sale of the property or asset subject to such Lien; (c) Liens
incurred in connection with Permitted Indebtedness under clauses (a) and (d)
thereunder; and (d) Liens incurred in connection with Permitted Indebtedness
under clause (c) thereunder, provided that such Liens are not secured by assets
of the Company or its Subsidiaries other than the assets so acquired or
leased.
“Purchase
Agreement” means the Securities Purchase Agreement, dated as of July __, 2009,
among the Company and the original Holders, as amended, modified or supplemented
from time to time in accordance with its terms.
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“Quarterly
Conversion Period” shall have the meaning set forth in Section 6(a)
hereof.
“Quarterly
Conversion Price” shall have the meaning set forth in Section 6(a)
hereof.
“Quarterly
Redemption” means the redemption of this Debenture pursuant to Section 6(a)
hereof.
“Quarterly
Redemption Amount” means, as to a Quarterly Redemption, $[___________],(1) plus
liquidated damages and any other amounts then owing to the Holder in respect of
this Debenture. The “Aggregate Quarterly Redemption Amount” hereunder
means $____________.(2)
“Quarterly
Redemption Date” means January 1, April 1, July 1 and October 1, commencing
immediately upon July 1, 2009 and terminating upon the full redemption of the
Aggregate Quarterly Redemption Amount plus liquidated damages and any other
amounts then owing to the Holder in respect of this Debenture.
“Quarterly
Redemption Notice” shall have the meaning set forth in Section 6(a)
hereof.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Senior
Debt” shall have the meaning set forth in the Xxxxxx Intercreditor
Agreement.
“Share
Delivery Date” shall have the meaning set forth in Section
4(d)(ii).
“67%
Majority” shall mean holders of at least 67% of the outstanding principal amount
of the Debentures.
“Subsidiary”
shall have the meaning set forth in the Purchase Agreement.
“Trading
Day” means a day on which the New York Stock Exchange is open for
business.
“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 American Stock
Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange or the OTC Bulletin
Board.
“Transaction
Documents” shall have the meaning set forth in the Purchase
Agreement.
“VPP
Intercreditor Agreement” means the Xxxxxx VPP Purchasers Intercreditor
Agreement, dated as of July __, 2009, among the Company, its subsidiaries, ACF
CGS, LLC as agent for itself and other senior lenders, the Collateral Agent and
the Purchasers of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
1
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((A*B)-A)/10,
where A = the initial Subscription Amount and B =
1.65.
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2
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(A*B)-A.
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“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 for trading as reported by Bloomberg L.P. (based
on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)); (b) if the OTC Bulletin Board is not a Trading Market, 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
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (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 and
Prepayment.
The
Company acknowledges and agrees that this Debenture was issued at an original
issue discount. Other than default interest, no interest payments shall be made
on this Debenture. 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 payable 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 for transfer to the Company
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 Authorized Share Approval
until this Debenture is no longer outstanding, this Debenture shall be
convertible, in whole or in part, into shares of Common Stock at the option of
the Holder, at any time and from time to time (subject to the conversion
limitations set forth in Section 4(c) hereof). The Holder shall
effect conversions by delivering to the Company a Notice of Conversion, the form
of which is attached hereto as Annex A (each, a “Notice of Conversion”),
specifying therein the principal amount of this Debenture to be converted and
the date on which such conversion shall be effected (such date, the “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 deemed
delivered 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.
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(s) converted and the date of such
conversion(s). The Company may deliver an objection to any Notice of
Conversion within 2 Business Days of delivery of such Notice of
Conversion. 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.
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(b) Conversion
Price. The conversion price in effect on any Conversion Date
shall be equal to $0.24, subject to adjustment herein (the “Conversion
Price”).
(c) Conversion
Limitations. The Company shall not effect any conversion of this
Debenture, and a Holder shall not have the right to convert any portion of this
Debenture, to the extent that after giving effect to the conversion set forth on
the applicable Notice of Conversion, the Holder (together with the Holder’s
Affiliates, and any other person or entity acting as a group together with the
Holder or any of the Holder’s Affiliates) would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below). 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
such determination is being made, but shall exclude the number of shares of
Common Stock which are issuable upon (A) conversion of the remaining,
unconverted principal amount of this Debenture beneficially owned by the Holder
or any of its Affiliates and (B) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company subject to
a limitation on conversion or exercise analogous to the limitation contained
herein (including, without limitation, any other Debentures or the Warrants)
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),
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 4(c) applies, the
determination of whether this Debenture is convertible (in relation to other
securities owned by the Holder together with any Affiliates) and of which
principal amount of this Debenture is convertible shall be in the sole
discretion of the Holder, and the submission of a Notice of Conversion shall be
deemed to be the Holder’s determination of whether this Debenture may be
converted (in relation to other securities owned by the Holder together with any
Affiliates) and which principal amount of this Debenture is convertible, in each
case subject to the Beneficial Ownership Limitation. 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), in determining
the number of outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as stated in the most recent of the
following: (A) the Company’s most recent periodic or annual report, as the case
may be; (B) a more recent public announcement by the Company; or (C) a more
recent 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 a Holder, the Company shall within two Trading Days confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Debenture, by the Holder or its
Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99%
of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon conversion of
this Debenture held by the Holder. The Holder, upon not less than 61
days’ prior notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 4(c), provided that the
Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon conversion of this Debenture held by the
Holder and the Beneficial Ownership Limitation provisions of this Section 4(c)
shall continue to apply. Any such increase or decrease will not be
effective until the 61st day after such notice is delivered to the
Company. The Beneficial Ownership Limitation provisions of this
paragraph shall be construed and 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
Beneficial Ownership Limitation contained herein or to make changes or
supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of
this Debenture.
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(d) Mechanics of
Conversion.
(i) Conversion Shares Issuable
Upon Conversion of Principal Amount. The number of Conversion
Shares 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.
(ii) Delivery of Certificate Upon
Conversion. Not later than three Trading Days after each
Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause
to be delivered, to the Holder a certificate or certificates representing the
Conversion Shares which, on or after the earlier of (i) the six month
anniversary of the Original Issue Date or (ii) the Effective Date, shall be free
of restrictive legends and trading restrictions (other than those which may then
be required by the Purchase Agreement) representing the number of Conversion
Shares being acquired upon the conversion of this Debenture.
(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 the Conversion Date, the Holder
shall be entitled to elect by written notice to the Company at any time on or
before its receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder any
original Debenture delivered to the Company and the Holder shall promptly return
to the Company the Common Stock certificates representing the principal amount
of this Debenture unsuccessfully tendered for conversion to the
Company.
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(iv) Obligation Absolute; Partial
Liquidated Damages. 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, that 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 anyone 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 to Holder, 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 outstanding principal amount of this Debenture, which is subject
to the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to the Holder to the extent it obtains judgment. In the
absence of such injunction, the Company shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion. If the Company
fails for any reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date
(the “Share Delivery Deadline”), the Company shall pay to the Holder, in cash,
as liquidated damages and not as a penalty, for each $1,000 of principal amount
being converted, $10 per Trading Day (increasing to $20 per Trading Day on the
fifth (5th) Trading Day after such liquidated damages begin to accrue) for each
Trading Day after such fifth (5th) Trading Day until such certificates are
delivered. Nothing herein shall limit a Holder’s right to pursue
actual damages or declare an Event of Default pursuant to Section 8 hereof for
the Company’s failure to deliver Conversion Shares within the period specified
herein and the Holder shall have the right to pursue all remedies available to
it hereunder, 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. Notwithstanding anything to the contrary contained herein, if at
any time prior to the Senior Creditor Repayment (as defined in the Xxxxxx
Intercreditor Agreement) the Company is prohibited from paying, and the Holder
is prohibited from receiving, cash payments of liquidated damages pursuant to
this Section, at the option of the Holder upon written notice to the Company,
such amounts otherwise payable in cash pursuant to this Section shall either
accrue, or be payable in the form of shares of Common Stock. The
price at which shares of Common Stock issuable in lieu of the cash payment of
liquidated damages hereunder shall be equal to the lesser of (x) 90% of the
average of the 10 consecutive VWAPs immediately prior to the date of the
applicable Share Delivery Deadline, (y) 90% of the average of the 10 consecutive
VWAPs immediately prior to the date such shares are actually issued or (z) the
then applicable Conversion Price.
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(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 by the
Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share
Delivery Date the Holder is required by its brokerage firm to purchase (in an
open market transaction or otherwise), or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Conversion Shares which the Holder was entitled to receive upon
the conversion relating to such Share Delivery Date (a “Buy-In”), then the
Company shall (A) pay in cash to the Holder (in addition to any other remedies
available to or elected by the Holder) the amount by which (x) the Holder’s
total purchase price (including any brokerage commissions) for the Common Stock
so purchased exceeds (y) the product of (1) the aggregate number of shares of
Common Stock that the Holder was entitled to receive from the conversion at
issue multiplied by (2) the actual sale price at which the sell order giving
rise to such purchase obligation was executed (including any brokerage
commissions) 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 if the Company had 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 (including any brokerage
commissions) 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 and, upon request of the Company, evidence of the amount of such
loss. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
shares of Common Stock upon conversion of this Debenture as required pursuant to
the terms hereof.
(vi) Reservation of Shares
Issuable Upon Conversion. After the Authorized Share Approval,
the Company covenants that it will at all times reserve and keep available out
of its authorized and unissued shares of Common Stock for the sole purpose of
issuance upon conversion of this Debenture and payment of redemption amounts on
this Debenture, each 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 aggregate 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 and payment of redemption amounts
hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be registered for public sale in
accordance with such Registration Statement.
(vii) Fractional
Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of this Debenture. As to
any fraction of a share which Holder would otherwise be entitled to purchase
upon such conversion, the Company shall at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Conversion Price or round up to the next whole
share.
10
(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 certificates, 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: (i) pays a stock dividend or otherwise makes a distribution or
distributions payable in shares of Common Stock on shares of Common Stock or any
Common Stock Equivalents (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company upon conversion of, or payment of a
redemption amount on, the Debentures), (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, (iii) combines (including by way of
a reverse stock split) outstanding shares of Common Stock into a smaller number
of shares or (iv) issues, in the event of a 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 any treasury shares of the Company)
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, at any time while this Debenture is
outstanding, the Company or any Subsidiary, as applicable, sells or
grants any option to purchase or sells or grants any right to reprice, or
otherwise disposes of or issues (or announces any sale, grant or any option to
purchase or other disposition), any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock at an effective price per
share that is lower than the then Conversion Price (such lower price, the “Base
Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if
the holder of the Common Stock or Common Stock Equivalents so issued shall at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower 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 to equal the Base
Conversion Price. 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. If the Company enters into a Variable Rate
Transaction, despite the prohibition set forth in the Purchase Agreement, the
Company shall be deemed to have issued Common Stock or Common Stock Equivalents
at the lowest possible conversion price at which such securities may be
converted or exercised. The Company shall notify the Holder in writing, no later
than 1 Business Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 5(b), indicating therein the applicable
issuance price, or 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, the Holder is entitled to receive a number
of Conversion Shares based upon the Base Conversion Price on or after the date
of such Dilutive Issuance, regardless of whether the Holder accurately refers to
the Base Conversion Price in the Notice of Conversion.
11
(c) Subsequent Rights
Offerings. If the Company, at any time while the Debenture is
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 that is lower than the VWAP on the record date
referenced 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
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
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 (assuming delivery to the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such
VWAP. 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.
(d) Pro Rata
Distributions. If the Company, at any time while this
Debenture is outstanding, distributes to all holders of Common Stock (and not to
the Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security
(other than the Common Stock, which shall be subject to Section 5(b)), 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 1
outstanding share of the Common Stock as determined by the Board of Directors of
the Company in good faith. In either case the adjustments shall be
described in a statement delivered to the Holder describing the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to 1 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.
12
(e) Fundamental
Transaction. If, at any time while this Debenture is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one transaction or a series of related
transactions, (iii) 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 (iv) 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 1 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 1 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 Section 5(e)
and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
(f) 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 any treasury shares of the Company) issued and
outstanding.
(g) Notice to the
Holder.
(i) Adjustment to Conversion
Price. Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 5, the Company shall promptly deliver 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.
(ii) Notice to Allow Conversion
by Holder. If (A) the Company shall declare a dividend (or any
other distribution in whatever form) 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 of rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be delivered to the Holder at its last address as it shall appear upon
the Debenture Register, at least twenty (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 deliver such notice or any defect therein or in the delivery 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 on the date of such notice through the
effective date of the event triggering such notice.
13
Section
6. Quarterly
Redemption.
(a) Quarterly
Redemption. On each Quarterly Redemption Date, the Company
shall redeem the Quarterly Redemption Amount (the “Quarterly Redemption”). The
Quarterly Redemption Amount payable on each Quarterly Redemption Date shall be
paid in cash; provided, however, as to any Quarterly Redemption and upon 30
Trading Days’ prior written irrevocable notice (the “Quarterly Redemption
Notice”), in lieu of a cash redemption payment the Company may elect to pay all
or part of a Quarterly Redemption Amount in Conversion Shares based on a
conversion price equal to the lesser of (i) the then Conversion Price and (ii)
90% of the average of the VWAPs for the 10 consecutive Trading Days ending on
the Trading Day that is immediately prior to the applicable Quarterly 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 Quarterly Redemption Date, the “Quarterly Conversion
Price” and such 10 Trading Day period, the “Quarterly Conversion Period”);
provided, further, that the Company may not pay the Quarterly Redemption Amount
in Conversion Shares unless (y) from the date the Holder receives the duly
delivered Quarterly Redemption Notice through and until the date such Quarterly
Redemption is paid in full, the Equity Conditions have been satisfied, unless
waived in writing by the Holder, and (z) as to such Quarterly Redemption, prior
to such Quarterly Conversion Period (but not more than 5 Trading Days prior to
the commencement of the Quarterly Conversion 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 Quarterly Redemption Amount
equal to the quotient of (x) the applicable Quarterly Redemption Amount divided
by (y) the lesser of (A) the Conversion Price and (B) 90% of the average of the
10 VWAPs during the period ending on the 3rd Trading Day immediately prior to
the date of the Quarterly Redemption Notice (the “Pre-Redemption Conversion
Shares”). The Holder may convert, pursuant to Section 4(a), any
principal amount of this Debenture subject to a Quarterly Redemption at any time
prior to the date that the Quarterly Redemption Amount, plus liquidated damages
and any other amounts then owing to the Holder are due and paid in
full. The Holder shall have the right to designate how any
conversions effected during the applicable Quarterly Conversion Period until the
date the Quarterly Redemption Amount is paid in full shall be applied (i.e.,
against the principal amount of this Debenture scheduled to be redeemed on such
Quarterly Redemption Date, against future Quarterly Redemption Amounts or
against the principal amount of this Debenture then outstanding that is not
subject to a Quarterly Redemption); provided, if no such written
designation is made in the applicable Notice of Conversion, the Company shall
request that the Holder provide such written designation prior to the applicable
Quarterly Redemption Date; provided, further, that in the event no such written
designation is ever received from the Holder prior to such applicable Quarterly
Redemption Date, any such conversion shall be applied against the principal
amount of this Debenture then outstanding. The Company covenants and
agrees that it will honor all Notices of Conversion tendered up until such
amounts are paid in full. The Company’s determination to pay a
Quarterly Redemption in cash, shares of Common Stock or a combination thereof
shall be applied ratably to all of the holders of the then outstanding
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 Quarterly
Redemption Amount in shares of Common Stock, and, if a Registration Statement is
then effective, the Company shall file a prospectus supplement pursuant to Rule
424 disclosing such election. If at any time prior to the
Senior Creditor Repayment (as defined in the Xxxxxx Intercreditor Agreement) the
Company is permitted to make cash payments of a Quarterly Redemption Amount,
such permissible cash payments pursuant to this Section shall be made
ratably to all of the holders of the then outstanding Debentures and all of the
holders of the then outstanding debentures issued pursuant to the March Purchase
Agreement and of the November Purchase Agreement based on their (or their
predecessor’s) initial purchases of debentures pursuant to the Purchase
Agreement and the March Purchase Agreement and November Purchase Agreement,
respectively, and notwithstanding anything herein to the contrary, prior to the
Senior Creditor Repayment, (x) with respect to the Quarterly Redemption Amount
payable in cash as permitted pursuant to Section 2(c)(iii) of the Xxxxxx
Intercreditor Agreement that is due on January 1, 2010, such Quarterly
Redemption payment shall be due and paid on the same date the Company pays the
Xxxxxx Purchasers pursuant to Section 2(c)(v) of the Xxxxxx Loan Agreement and
(y) with respect to any Quarterly Redemption Amount payable in cash as permitted
pursuant to Section 2(c)(iv) of the Xxxxxx Intercreditor Agreement, such
Quarterly Redemption payment shall be due and paid on each January 30, April 30,
July 30 and October 30 (instead of January 1, April 1, July 1 and October 1,
respectively). Notwithstanding anything to the contrary contained herein, if at
any time prior to the Senior Creditor Repayment (as defined in the VPP
Intercreditor Agreement) the Company is prohibited from paying, and the Holder
is prohibited from receiving, cash payments of a Quarterly Redemption Amount
pursuant to this Section, the Company shall be required to elect to make such
payment in shares of Common Stock in accordance with the terms
hereof. If the Company does not meet the Equity Conditions in
connection with such Quarterly Redemption Amount described in the preceding
sentence, at the option of the Holder upon written notice to the Company, the
Holder shall either waive such Equity Conditions or such amounts otherwise
payable in cash shall continue to remain outstanding. For the
avoidance of doubt, in the event that the Holder does not elect to take Common
Stock if the Equity Conditions are not met as to a particular Quarterly
Redemption Date as described in the preceding sentence, then the Quarterly
Redemption called for with respect to such Quarterly Redemption Date shall be
due on maturity of this Debenture and failure to pay the same on the applicable
Quarterly Redemption Date shall not constitute an Event of Default
hereunder.
14
(b) Redemption
Procedure. The payment of a Quarterly Redemption shall be
payable on the Quarterly Redemption Date. If any portion of the
payment pursuant to a Quarterly Redemption shall not be paid by the Company by
the applicable due date, interest shall accrue thereon at an interest rate equal
to the lesser of 12% per annum or the maximum rate permitted by applicable law
until such amount is paid in full; provided, however, that no such interest
shall be charged if the Company is unable to make any portion of such payment
solely as a result of a restriction set forth in the VPP Intercreditor
Agreement. Notwithstanding anything herein contained to the contrary,
if any portion of the Quarterly Redemption Amount remains unpaid after such
date, the Holder may elect, by written notice to the Company given at any time
thereafter, to invalidate such Quarterly Redemption, ab initio, and, the Company
shall have no further right to exercise such Quarterly
Redemption. 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 the delivery of a Notice of
Conversion to the Company.
15
Section
7. Negative
Covenants.
As long
as any portion of this Debenture remains outstanding, unless the holders of at
least 67% in principal amount of the then outstanding Debentures shall have
otherwise given prior written consent, the Company shall not, and shall not
permit any of its subsidiaries (whether or not a Subsidiary on the Original
Issue Date) 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 charter documents, including, without limitation, its certificate of
incorporation and bylaws, in any manner that materially and adversely affects
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 (i) the Conversion Shares or Warrant Shares as permitted or required
under the Transaction Documents and (ii) repurchases of Common Stock or Common
Stock Equivalents of departing officers and directors of the Company, provided
that such repurchases shall not exceed an aggregate of $100,000 for all officers
and directors during the term of this Debenture;
(e) other
than the Senior Debt and July Debentures, repay, repurchase or offer to repay,
repurchase or otherwise acquire any Indebtedness, other than the Other
Debentures if on a pro-rata basis, other than regularly scheduled principal and
interest payments as such terms are in effect as of the Original Issue Date,
provided that such payments shall not be permitted if, at such time, or after
giving effect to such payment, any Event of Default exists or
occurs;
(f) pay
cash dividends or distributions on any equity securities of the
Company;
(g) enter
into any transaction with any Affiliate of the Company which would be required
to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or
(h) enter
into any agreement with respect to any of the foregoing.
16
Section
8. Events of
Default.
(a) “Event
of Default” means, wherever used herein, any of the following events (whatever
the reason for such event and whether such event 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)
default interest, liquidated damages and other amounts owing to a Holder on 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 a default interest or other default under clause
(B) above, is not cured within 5 Trading Days or waived by a 67% Majority of the
Holders;
(ii) the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures (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 (x) below) which failure is not waived by a
67% Majoirty of the Holders, or cured, if possible to cure, within the earlier
to occur of (A) 7 Trading Days after notice of such failure sent by the Holder
or by any other Holder to the Company and (B) 10 Trading Days after the Company
has become or should have become aware of such failure;
(iii) a
default or event of default (subject to any grace or cure period provided in the
applicable agreement, document or instrument) shall occur under (A) any of the
Transaction Documents and not cured or waived by a 67% Majority of the Holders,
or (B) there shall be an acceleration of the indebtedness due by the Company
with respect to the Senior Debt or any refinancing thereof;
(iv) any
representation or warranty made in this Debenture, any other Transaction
Documents, any written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Holder or any other
Holder shall be untrue or incorrect in any material respect as of the date when
made or deemed made;
(v) the
Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w)
of Regulation S-X) shall be subject to a Bankruptcy
Event;
(vi) except
as noted below, the Company or any Subsidiary shall default on 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
that (a) involves an obligation greater than $150,000, whether such indebtedness
now exists or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable and where such obligation is not paid off or
reinstated for its original term within 10 days following such acceleration,
unless waived by a 67% Majority of the Holders;
17
(vii) the
Common Stock shall not be eligible for listing or quotation for trading on a
Trading Market and shall not be eligible to resume listing or quotation for
trading thereon within five Trading Days;
(viii) the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or in excess of 40% of its
assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);
(ix) the
Company does not meet the current public information requirements under Rule 144
in respect of the Underlying Shares;
(x)
the Company shall fail for any reason to deliver
certificates to a Holder prior to the seventh Trading Day after a Conversion
Date pursuant to Section 4(d) or the Company shall provide at any time notice to
the Holder, including by way of public announcement, of the Company’s intention
to not honor requests for conversions of any Debentures in accordance with the
terms hereof; or
(xi) any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any subsidiary or any of their respective property or other
assets for more than $100,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar days,
unless waived by a 67% Majority of the Holders.
(b) Remedies Upon Event of
Default. Subject to the Xxxxxx Intercreditor Agreement, if any
Event of Default occurs, the outstanding principal amount of this Debenture,
plus liquidated damages and other amounts owing in respect thereof through the
date of acceleration, shall become, at the Holder’s election, immediately due
and payable in cash at the Mandatory Default Amount. Commencing 5
days after the occurrence of any Event of Default that results in the eventual
acceleration of this Debenture, interest on this Debenture shall accrue at an
interest rate equal to the lesser of 12% per annum or the maximum rate permitted
under applicable law. Accrued and unpaid default interest shall be
paid by the Company in cash in arrears on the first day of each calendar
month. Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Debenture to or as directed by the
Company. In connection with such acceleration described herein, 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 acceleration may be rescinded and annulled by Holder at any
time prior to payment hereunder and the Holder shall have all rights as a holder
of the Debenture until such time, if any, as the Holder receives full payment
pursuant to this Section 8(b). No such rescission or annulment shall
affect any subsequent Event of Default or impair any right consequent
thereon.
18
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, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, or such other facsimile number or address as the Company may
specify for such purpose by notice to the Holder delivered in accordance with
this Section 9(a). 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, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address of
the Holder appearing on the books of the Company, or if no such facsimile 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 number specified on the signature page prior to 5:30 p.m. (New York
City time), (ii) the date immediately following the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified on the signature page between 5:30 p.m. (New York City time) and 11:59
p.m. (New York City time) on any 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, liquidated damages and
default interest, as applicable, 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, reasonably satisfactory to the
Company.
(d) Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflict of laws
thereof. Each party agrees that all legal proceedings concerning the
interpretation, 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 such New York Courts,
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 other manner permitted by applicable 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 in the investigation, preparation and
prosecution of such action or proceeding.
19
(e) Waiver. Any
waiver by the Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon
strict adherence to any term of this Debenture on one or more occasions shall
not be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this
Debenture. Any waiver by the Company or the Holder 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 default interest or other amount deemed interest due hereunder
violates the applicable law governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum rate of interest
permitted under applicable law. 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 default interest on this
Debenture as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this
indenture, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that
it will not, by resort to any such law, hinder, delay or 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.
(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 any surviving entity in a Fundamental Transaction
shall (i) assume, prior to such Fundamental Transaction, 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) and (ii) 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 amount and the interest rate of this Debenture and having
similar ranking to this Debenture, which shall be 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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(j) Secured
Obligation. The obligations of the Company under this
Debenture are secured by all assets of the Company and each Subsidiary pursuant
to the Security Agreement, dated as of July ___, 2009 between the Company, the
Subsidiaries of the Company and the Secured Parties (as defined
therein).
(k) Amendments. This
Debenture may be modified or amended or the provisions hereof waived with
the written consent of the Company and Holders holding Debentures at
least equal to 67% of the aggregate principal amount then outstanding under all
Debentures.
*********************
[SIGNATURE
PAGES FOLLOW]
21
IN
WITNESS WHEREOF, the Company has caused this VPP Debenture to be duly executed
by a duly authorized officer as of the date first above indicated.
CAPITAL
GROWTH SYSTEMS, INC.
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||
By:
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Xxxxxxx X. Xxxxx
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Chief Executive Officer
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Facsimile:
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(000)
000-0000
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(for
delivery of Notices)
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22