Dated: February 27, 2007
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS.
No. GSCR-3-1 $1,125,000
GS CARBON CORP.
Secured Convertible Debenture
Due: February, 2009
This Secured Convertible Debenture (the "Debenture") is issued by GS CARBON
CORP., a Delaware corporation (the "Obligor"), to CORNELL CAPITAL PARTNERS, LP
(the "Holder"), pursuant to that certain Securities Purchase Agreement (the
"Securities Purchase Agreement") of even date herewith.
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder or its
successors and assigns the principal sum of One Million One Hundred Twenty Five
Thousand Dollars ($1,125,000) together with accrued but unpaid interest on or
before February 2009 (the "Maturity Date") in accordance with the following
terms:
Interest. Interest shall accrue on the outstanding principal balance hereof
at an annual rate equal to ten percent (10%). Interest shall be calculated on
the basis of a 365-day year and the actual number of days elapsed, to the extent
permitted by applicable law. Interest hereunder will be paid to the Holder or
its assignee in whose name this Debenture is registered on the records of the
Obligor regarding registration and transfers of Debentures at the option of the
Obligor in cash, or converted into Common Stock at applicable Conversion Price
on the Trading Day immediately prior to the date paid provided that such shares
are freely tradable by the Holder.
Right of Redemption. The Obligor at its option shall have the right, with
three (3) business days advance written notice (the "Redemption Notice"), to
redeem a portion or all amounts outstanding under this Debenture prior to the
Maturity Date provided that the Closing Bid Price of the of the Obligor's Common
Stock, as reported by Bloomberg, LP, is less than the Fixed Conversion Price at
the time of the Redemption Notice. The Obligor shall pay an amount equal to the
principal amount being redeemed plus a redemption premium ("Redemption Premium")
equal to twenty percent (20%) of the principal amount being redeemed, and
accrued interest, (collectively referred to as the "Redemption Amount"). The
Obligor shall deliver to the Holder the Redemption Amount on the third (3rd)
business day after the Redemption Notice.
Notwithstanding the foregoing in the event that the Obligor has elected to
redeem a portion of the outstanding principal amount and accrued interest under
this Debenture the Holder shall be permitted to convert all or any portion of
this Debenture during such three business day period.
Security Agreements. The Debenture is secured by (i) a security interest in
all of the assets of the Obligor and of each of its subsidiaries as evidenced by
the security agreement of even date herewith (the "Security Agreement") and (ii)
certain shares of common stock owned by certain officers of the Obligor (the
"Pledged Shares") as evidenced by the pledge and escrow agreement of even date
herewith (the "Pledge Agreement" and together with the Security Agreement
collectively the "Security Documents").
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
Section 2. Events of Default.
(a) An "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant
to any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
(i) Any default in the payment of the principal of, interest on or
other charges in respect of this Debenture, free of any claim of
subordination, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise);
(ii) The Obligor or any subsidiary of the Obligor shall commence, or
there shall be commenced against the Obligor or any subsidiary of
the Obligor under any applicable bankruptcy or insolvency laws as
now or hereafter in effect or any successor thereto, or the
Obligor or any subsidiary of the Obligor 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 Obligor or any subsidiary of the Obligor
or there is commenced against the Obligor or any subsidiary of
the Obligor any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 61 days; or the Obligor
or any subsidiary of the Obligor is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any
such case or proceeding is entered; or the Obligor or any
subsidiary of the Obligor suffers any appointment of any
custodian, private or court appointed receiver or the like for it
or any substantial part of its property which continues
undischarged or unstayed for a period of sixty one (61) days; or
the Obligor or any subsidiary of the Obligor makes a general
assignment for the benefit of creditors; or the Obligor or any
subsidiary of the Obligor 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 Obligor or any subsidiary of
the Obligor shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its
debts; or the Obligor or any subsidiary of the Obligor 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 Obligor or any
subsidiary of the Obligor for the purpose of effecting any of the
foregoing;
(iii) The Obligor or any subsidiary of the Obligor 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 Obligor or any subsidiary
of the Obligor in an amount exceeding $100,000, whether such
indebtedness now exists or shall hereafter be created and such
default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would
otherwise become due and payable;
(iv) If the Common Stock is quoted or listed for trading on any of the
following and it ceases to be so quoted or listed for trading and
shall not again be quoted or listed for trading on any Primary
Market within five (5) Trading Days of such delisting: (a) the
American Stock Exchange, (b) New York Stock Exchange, (c) the
Nasdaq Global Market, (d) the Nasdaq Capital Market, or (e) the
Nasdaq OTC Bulletin Board ("OTCBB") (each, a "Primary Market");
(v) The Obligor or any subsidiary of the Obligor shall be a party to
any Change of Control Transaction (as defined in Section 5);
(vi) The Obligor shall fail to file the Underlying Shares Registration
Statement (as defined in Section 5) with the Commission (as
defined in Section 5), or the Underlying Shares Registration
Statement shall not have been declared effective by the
Commission, in each case within the time periods set forth in the
Investor Registration Rights Agreement ("Registration Rights
Agreement") of even date herewith between the Obligor and the
Holder;
(vii) If the effectiveness of the Underlying Shares Registration
Statement lapses for any reason or the Holder shall not be
permitted to resell the shares of Common Stock underlying this
Debenture under the Underlying Shares Registration Statement, in
either case, for more than five (5) consecutive Trading Days or
an aggregate of eight Trading Days (which need not be consecutive
Trading Days);
(viii) The Obligor shall fail for any reason to deliver Common Stock
certificates to a Holder prior to the fifth (5th) Trading Day
after a Conversion Date or the Obligor shall provide notice to
the Holder, including by way of public announcement, at any time,
of its intention not to comply with requests for conversions of
this Debenture in accordance with the terms hereof;
(ix) The Obligor shall fail for any reason to deliver the payment in
cash pursuant to a Buy-In (as defined herein) within three (3)
days after notice is claimed delivered hereunder;
(x) The Obligor shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any
breach or default of any provision of this Debenture (except as
may be covered by Section 2(a)(i) through 2(a)(ix) hereof) or any
Transaction Document (as defined in Section 5) which is not cured
with in the time prescribed;
(b) During the time that any portion of this Debenture is outstanding, if
any Event of Default has occurred, the full principal amount of this
Debenture, together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become at the Holder's
election, immediately due and payable in cash, provided however, the
Holder may request (but shall have no obligation to request) payment
of such amounts in Common Stock of the Obligor. In addition to any
other remedies, the Holder shall have the right (but not the
obligation) to convert this Debenture at any time after (x) an Event
of Default or (y) the Maturity Date at the Conversion Price then
in-effect. The Holder need not provide and the Obligor hereby waives
any presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Xxxxxx at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon. Upon an Event
of Default, notwithstanding any other provision of this Debenture or
any Transaction Document, the Holder shall have no obligation to
comply with or adhere to any limitations, if any, on the conversion of
this Debenture or the sale of the Underlying Shares.
Section 3. Conversion.
(a) Conversion at Option of Holder.
(i) This Debenture shall be convertible into shares of Common Stock
at the option of the Holder, in whole or in part at any time and
from time to time, after the Original Issue Date (as defined in
Section 5) (subject to the limitations on conversion set forth in
Section 3(b) hereof). The number of shares of Common Stock
issuable upon a conversion hereunder equals the quotient obtained
by dividing (x) the outstanding amount of this Debenture to be
converted by (y) the Conversion Price (as defined in Section
3(c)(i)). The Obligor shall deliver Common Stock certificates to
the Holder prior to the Fifth (5th) Trading Day after a
Conversion Date.
(ii) Notwithstanding anything to the contrary contained herein, if on
any Conversion Date: (1) the number of shares of Common Stock at
the time authorized, unissued and unreserved for all purposes, or
held as treasury stock, is insufficient to pay principal and
interest hereunder in shares of Common Stock; (2) the Common
Stock is not listed or quoted for trading on the OTC or on a
Subsequent Market; or (3) the Obligor has failed to timely
satisfy its conversion, then, at the option of the Holder, the
Obligor, in lieu of delivering shares of Common Stock pursuant to
Section 3(a)(i), shall deliver, within three (3) Trading Days of
each applicable Conversion Date, an amount in cash equal to the
product of the outstanding principal amount to be converted plus
any interest due therein divided by the Conversion Price, chosen
by the Holder, and multiplied by the highest closing price of the
stock from date of the conversion notice till the date that such
cash payment is made.
Further, if the Obligor shall not have delivered any cash due in
respect of conversion of this Debenture or as payment of interest
thereon by the fifth (5th) Trading Day after the Conversion Date,
the Holder may, by notice to the Obligor, require the Obligor to
issue shares of Common Stock pursuant to Section 3(c), except
that for such purpose the Conversion Price applicable thereto
shall be the lesser of the Conversion Price on the Conversion
Date and the Conversion Price on the date of such Holder demand.
Any such shares will be subject to the provisions of this
Section.
(iii) The Holder shall effect conversions by delivering to the Obligor
a completed notice in the form attached hereto as Exhibit A (a
"Conversion Notice"). The date on which a Conversion Notice is
delivered is the "Conversion Date." Unless the Holder is
converting the entire principal amount outstanding under this
Debenture, the Holder is not required to physically surrender
this Debenture to the Obligor in order to effect conversions.
Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture plus all accrued
and unpaid interest thereon in an amount equal to the applicable
conversion. The Holder and the Obligor 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.
(b) Certain Conversion Restrictions.
(i) Beneficial Ownership. The Obligor shall not effect any
conversions of this Debenture and the Holder shall not have the
right to convert any portion of this Debenture or receive shares
of Common Stock as payment of interest hereunder to the extent
that after giving effect to such conversion or receipt of such
interest payment, the Holder, together with any affiliate
thereof, would beneficially own (as determined in accordance with
Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 4.99% of the number of shares of Common
Stock outstanding immediately after giving effect to such
conversion or receipt of shares as payment of interest. Since the
Holder will not be obligated to report to the Obligor 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 4.99% of the then
outstanding shares of Common Stock without regard to any other
shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this
Section will limit any particular conversion hereunder and to the
extent that the Holder determines that the limitation contained
in this Section applies, the determination of which portion of
the principal amount of this Debenture is convertible shall be
the responsibility and obligation of the Holder. If the Holder
has delivered a Conversion Notice for a principal amount of this
Debenture that, without regard to any other shares that the
Holder or its affiliates may beneficially own, would result in
the issuance in excess of the permitted amount hereunder, the
Obligor 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 Section 4(a)
and, any principal amount tendered for conversion in excess of
the permitted amount hereunder shall remain outstanding under
this Debenture. The provisions of this Section may be waived by a
Holder (but only as to itself and not to any other Holder) upon
not less than 65 days prior notice to the Obligor. Other Holders
shall be unaffected by any such waiver.
(c) Conversion Price and Adjustments to Conversion Price.
(i) The conversion price in effect on any Conversion Date shall be
equal to the lesser of (a) $0.05 (the "Fixed Conversion Price")
or (b) ninety percent (90%) of the lowest closing Bid Price of
the Common Stock during the thirty (30) trading days immediately
preceding the Conversion Date as quoted by Bloomberg, LP (the
"Market Conversion Price"). The Fixed Conversion Price and the
Market Conversion Price are collectively referred to as the
"Conversion Price." The Conversion Price may be adjusted pursuant
to the other terms of this Debenture.
(ii) If the Obligor, at any time while this Debenture is outstanding,
shall (a) pay a stock dividend or otherwise make a distribution
or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of
Common Stock, (b) subdivide outstanding shares of Common Stock
into a larger number of shares, (c) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a
smaller number of shares, or (d) issue by reclassification of
shares of the Common Stock any shares of capital stock of the
Obligor, then the Fixed Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section shall 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.
(iii) If the Obligor, at any time while this Debenture is outstanding,
shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than
the Fixed Conversion Price, then the Fixed Conversion Price shall
be multiplied by a fraction, of which the denominator shall be
the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such
rights or warrants (plus the number of additional shares of
Common Stock offered for subscription or purchase), and of which
the numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants, plus the number of shares
which the aggregate offering price of the total number of shares
so offered would purchase at the Fixed Conversion Price. Such
adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record
date for the determination of stockholders entitled to receive
such rights, options or warrants. However, upon the expiration of
any such right, option or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in
the Fixed Conversion Price pursuant to this Section, if any such
right, option or warrant shall expire and shall not have been
exercised, the Fixed Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been
(but reflecting any other adjustments in the Fixed Conversion
Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the
Fixed Conversion Price made upon the issuance of such rights,
options or warrants been made on the basis of offering for
subscription or purchase only that number of shares of the Common
Stock actually purchased upon the exercise of such rights,
options or warrants actually exercised.
(iv) If the Obligor or any subsidiary thereof, as applicable, at any
time while this Debenture is outstanding, shall issue shares of
Common Stock or rights, warrants, options or other securities or
debt that are convertible into or exchangeable for shares of
Common Stock ("Common Stock Equivalents") entitling any Person to
acquire shares of Common Stock, at a price per share less than
the Fixed Conversion Price (if the holder of the Common Stock or
Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which is issued in
connection with such issuance, be entitled to receive shares of
Common Stock at a price per share which is less than the Fixed
Conversion Price, such issuance shall be deemed to have occurred
for less than the Fixed Conversion Price), then, at the sole
option of the Holder, the Fixed 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 Obligor shall notify the Holder in writing, no later
than one (1) business day following the issuance of any Common
Stock or Common Stock Equivalent subject to this Section,
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 issuances and exercises of options to
purchase shares of Common Stock issued for compensatory purposes
pursuant to any of the Obligor's stock option or stock purchase
plans.
(v) If the Obligor, at any time while this Debenture is outstanding,
shall distribute to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each
such case the Fixed Conversion Price at which this Debenture
shall thereafter be convertible shall be determined by
multiplying the Fixed Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the
denominator shall be the Closing Bid Price determined as of the
record date mentioned above, and of which the numerator shall be
such Closing Bid Price on such record date less the then fair
market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one
outstanding share of the Common Stock as determined by the Board
of Directors in good faith. In either case the adjustments shall
be described in a statement provided to the Holder of the portion
of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date
mentioned above.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holder
shall have the right thereafter to, at its 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 into the shares of stock and other
securities, cash and property receivable upon or deemed to be
held by holders of the Common Stock following such
reclassification or share exchange, and the Holder of this
Debenture shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the
Common Stock of the Obligor 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 Obligor to prepay the outstanding principal
amount of this Debenture, plus all interest and other amounts due
and payable thereon. The entire prepayment price shall be paid in
cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vii) The Obligor shall at all times reserve and keep available out of
its authorized Common Stock the full number of shares of Common
Stock issuable upon conversion of all outstanding amounts under
this Debenture; and within three (3) Business Days following the
receipt by the Obligor of a Holder's notice that such minimum
number of Underlying Shares is not so reserved, the Obligor shall
promptly reserve a sufficient number of shares of Common Stock to
comply with such requirement.
(viii) All calculations under this Section 3 shall be rounded up to
the nearest $0.0001 or whole share.
(ix) Whenever the Conversion Price is adjusted pursuant to Section 3
hereof, the Obligor shall promptly mail to the Holder a notice
setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment.
(x) If (A) the Obligor shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Obligor shall declare
a special nonrecurring cash dividend on or a redemption of the
Common Stock; (C) the Obligor 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 Obligor shall
be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Obligor is a
party, any sale or transfer of all or substantially all of the
assets of the Obligor, of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or
property; or (E) the Obligor shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs
of the Obligor; then, in each case, the Obligor shall cause to be
filed at each office or agency maintained for the purpose of
conversion of this Debenture, and shall cause to be mailed to the
Holder at its last address as it shall appear upon the stock
books of the Obligor, 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 mail such notice or any
defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such
notice. The Holder is entitled to convert this Debenture during
the 20-day calendar period commencing the date of such notice to
the effective date of the event triggering such notice.
(xi) In case of any (1) merger or consolidation of the Obligor or any
subsidiary of the Obligor with or into another Person, or (2)
sale by the Obligor or any subsidiary of the Obligor of more than
one-half of the assets of the Obligor in one or a series of
related transactions, a Holder shall have the right to (A)
exercise any rights under Section 2(b), (B) convert the aggregate
amount of this Debenture then outstanding into the shares of
stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and such Holder shall be entitled
upon such event or series of related events to receive such
amount of securities, cash and property as the shares of Common
Stock into which such aggregate principal amount of this
Debenture could have been converted immediately prior to such
merger, consolidation or sales would have been entitled, or (C)
in the case of a merger or consolidation, require the surviving
entity to issue to the Holder a convertible Debenture with a
principal amount equal to the aggregate principal amount of this
Debenture then held by such Holder, plus all accrued and unpaid
interest and other amounts owing thereon, which such newly issued
convertible Debenture shall have terms identical (including with
respect to conversion) to the terms of this Debenture, and shall
be entitled to all of the rights and privileges of the Holder of
this Debenture set forth herein and the agreements pursuant to
which this Debentures were issued. In the case of clause (C), the
conversion price applicable for the newly issued shares of
convertible preferred stock or convertible Debentures shall be
based upon the amount of securities, cash and property that each
share of Common Stock would receive in such transaction and the
Conversion Price in effect immediately prior to the effectiveness
or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to
continue to give the Holder the right to receive the securities,
cash and property set forth in this Section upon any conversion
or redemption following such event. This provision shall
similarly apply to successive such events.
(d) Other Provisions.
(i) The Obligor covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of this Debenture
and payment of interest on this Debenture, each as herein provided,
free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder, not less than such number of
shares of the Common Stock as shall (subject to any additional
requirements of the Obligor as to reservation of such shares set forth
in this Debenture) be issuable (taking into account the adjustments
and restrictions of Sections 2(b) and 3(c)) upon the conversion of the
outstanding principal amount of this Debenture and payment of interest
hereunder. The Obligor covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the
Underlying Shares Registration Statement has been declared effective
under the Securities Act, registered for public sale in accordance
with such Underlying Shares Registration Statement.
(ii) Upon a conversion hereunder the Obligor shall not be required to issue
stock certificates representing fractions of shares of the Common
Stock, but may if otherwise permitted, make a cash payment in respect
of any final fraction of a share based on the Closing Bid Price at
such time. If the Obligor elects not, or is unable, to make such a
cash payment, the Holder shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
(iii) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the
Holder thereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificate,
provided that the Obligor shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon conversion in a name other than
that of the Holder of such Debenture so converted and the Obligor
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 Obligor the amount of such tax or shall have established
to the satisfaction of the Obligor that such tax has been paid.
(iv) Nothing herein shall limit a Holder's right to pursue actual damages
or declare an Event of Default pursuant to Section 2 herein for the
Obligor 's failure to deliver certificates representing shares of
Common Stock upon conversion within the period specified herein and
such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief, in each case without
the need to post a bond or provide other security. The exercise of any
such rights shall not prohibit the Holder from seeking to enforce
damages pursuant to any other Section hereof or under applicable law.
(v) In addition to any other rights available to the Holder, if the
Obligor fails to deliver to the Holder such certificate or
certificates pursuant to Section 3(a)(i) by the fifth (5th) Trading
Day after the Conversion Date, and if after such fifth (5th) Trading
Day the Holder purchases (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by such Holder of
the Underlying Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Obligor shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so
purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the 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 a Debenture in the
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 Obligor timely complied with
its delivery requirements under Section 3(a)(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 Obligor shall be
required to pay the Holder $1,000. The Holder shall provide the
Obligor written notice indicating the amounts payable to the Holder in
respect of the Buy-In.
Section 4. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms hereof must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) trading day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company, to: GS Carbon Corp.
Xxx Xxxx Xxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxxxxx. Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Sonageri & Fallon
000 Xxxxxxxxxx Xxx
Xxxxxxxxxx, Xxx Xxxxxx
Attention: Xxxxx Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Holder: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
With a copy to: Xxxx Xxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 5. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.
"Change of Control Transaction" means the occurrence of (a) an acquisition
after the date hereof by an individual or legal entity or "group" (as described
in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Obligor,
by contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Obligor (except that the acquisition of voting securities by
the Holder shall not constitute a Change of Control Transaction for purposes
hereof), (b) a replacement at one time or over time of more than one-half of the
members of the board of directors of the Obligor which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of
the assets of the Obligor or any subsidiary of the Obligor in one or a series of
related transactions with or into another entity, or (d) the execution by the
Obligor of an agreement to which the Obligor is a party or by which it is bound,
providing for any of the events set forth above in (a), (b) or (c).
"Closing Bid Price" means the price per share in the last reported trade of
the Common Stock on the OTCBB or on the exchange which the Common Stock is then
listed as quoted by Bloomberg, LP.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.0001, of the Obligor and
stock of any other class into which such shares may hereafter be changed or
reclassified.
"Conversion Date" shall mean the date upon which the Holder gives the
Obligor notice of their intention to effectuate a conversion of this Debenture
into shares of the Company's Common Stock as outlined herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Original Issue Date" shall mean the date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Trading Day" means a day on which the shares of Common Stock are quoted on
the OTCBB or quoted or traded on such Subsequent Market on which the shares of
Common Stock are then quoted or listed; provided, that in the event that the
shares of Common Stock are not listed or quoted, then Trading Day shall mean a
Business Day.
"Transaction Documents" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Security Documents, the Irrevocable Transfer
Agent Instructions, and the Registration Rights Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
"Underlying Shares Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement,
covering among other things the resale of the Underlying Shares and naming the
Holder as a "selling stockholder" thereunder.
Section 6. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Obligor, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Obligor. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Obligor shall not and shall cause their subsidiaries not to,
without the consent of the Holder, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock or other equity securities other than as to
the Underlying Shares to the extent permitted or required under the Transaction
Documents; or (iii) enter into any agreement with respect to any of the
foregoing.
Section 7. This Debenture shall not entitle the Holder to any of the rights
of a stockholder of the Obligor, 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 Obligor,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
Section 8. If this Debenture is mutilated, lost, stolen or destroyed, the
Obligor shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Obligor.
Section 9. No indebtedness of the Obligor is senior to this Debenture in
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution or otherwise. Without the Holder's consent, the Obligor will not
and will not permit any of their subsidiaries to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any indebtedness of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits there from that is senior in
any respect to the obligations of the Obligor under this Debenture.
Section 10. This Debenture shall be governed by and construed in accordance
with the laws of the State of New Jersey, without giving effect to conflicts of
laws thereof. Each of the parties consents to the jurisdiction of the Superior
Courts of the State of New Jersey sitting in Xxxxxx County, New Jersey and the
U.S. District Court for the District of New Jersey sitting in Newark, New Jersey
in connection with any dispute arising under this Debenture and hereby waives,
to the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens to the bringing of any such proceeding in such
jurisdictions.
Section 11. If the Obligor fails to strictly comply with the terms of this
Debenture, then the Obligor shall reimburse the Holder promptly for all fees,
costs and expenses, including, without limitation, attorneys' fees and expenses
incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the
Holder's rights, remedies and obligations, (ii) collecting any sums which become
due to the Holder, (iii) defending or prosecuting any proceeding or any
counterclaim to any proceeding or appeal; or (iv) the protection, preservation
or enforcement of any rights or remedies of the Holder.
Section 12. Any waiver by the Holder of a breach of any provision of
this Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver must be in writing.
Section 13. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Obligor 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 Obligor from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Obligor (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
Section 14. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
Section 15. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
[REMAINDER OF PAGE INTENTIONLLY LEFT BLANK]
IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
GS CARBON CORP.
By: /s/ Xxxxx Xxxxxxxx
--------------------------------
Name: Xxxxx Xxxxxxxx
Title: Chief Executive Officer
EXHIBIT "A"
CONVERSION NOTICE
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal
amount of Debenture No. GSCR-3-1 into Shares of Common Stock of GS Carbon Corp.,
according to the conditions stated therein, as of the Conversion Date written
below.
Conversion Date:
Conversion Amount to be converted: $
Conversion Price: $
Number of shares of Common Stock to be
issued:
Amount of Debenture Unconverted: $
Please issue the shares of Common Stock in the following name and to the
following address: Issue to:
Authorized Signature:
Name:
Title:
Broker DTC Participant Code:
Account Number:
