Exhibit 4.11
Dated: December 27, 2002
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS,
AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.
No. 1 $500,000
FAMOUS FIXINS, INC.
10% CONVERTIBLE DEBENTURE
DUE DECEMBER 27, 2005
THIS DEBENTURE is issued by Famous Fixins, Inc., a New York Corporation, with
its principal place of business at 0000 Xxxxxx Xxxxxx, Xxxxx #000, Xxxxxxxxxx,
Xxxxxxxxxx 00000 (the "Company"), designated as its 10% Convertible Debenture,
due December 27, 2005, in the aggregate principal amount of Five Hundred
Thousand Dollars ($500,000) (the "Debenture").
FOR VALUE RECEIVED, the Company promises to pay to MERCATOR MOMENTUM FUND, L.P.
or its registered assigns (the "Holder"), the principal sum of $500,000, on
December 27, 2005 or such earlier date as the Debenture is required or permitted
to be repaid as provided hereunder (the "Maturity Date") and to pay interest to
the Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture at the rate of 10% per annum, with interest accruing commencing
on December 30, 2002 and payable on the first business day of each month while
the Debenture remains outstanding (each an "Interest Payment Date'"). Subject to
the terms and conditions herein, the Holder may elect to receive interest
hereunder in shares of Common Stock or cash. If interest is paid by the Company
in shares of its Common Stock, then the number of shares of Common Stock
issuable on account of such interest shall equal the cash amount of such
interest on such Interest Payment Date divided by the Conversion Price (as
defined below) on such date. Interest shall be calculated on the basis on a
360-day year and shall accrue daily commencing on the Original Issue Date (as
defined in Section 5) until payment in full of the principal sum, together with
all accrued and unpaid interest and other amounts, which may become due
hereunder, has been made. Interest hereunder will be paid to the Person (as
defined in Section 5) in whose name this Debenture is registered on the records
of the Company regarding registration and transfers of ebentures (the "Debenture
Register"). All overdue accrued and unpaid interest to be paid in cash hereunder
shall entail a late fee at the rate of 10% per annum ("Late Fee") (or such lower
maximum amount of interest
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permitted to be charged under applicable law) which will accrue daily, from the
date such interest is due hereunder through and including the date of payment,
payable in cash or, at the option of the Holder, in shares of Common Stock. If
such Late Fee is paid by the Company in shares of its Common Stock, then the
number of shares of Common Stock issuable on account of such Late Fee shall
equal the cash amount of such Late Fee on such Late Fee payment date divided by
the Conversion Price on such date.
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
SECTION 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 5) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 5) in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
SECTION 3. EVENTS OF DEFAULT.
(a) 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 (including any Late
Fees) on or liquidated damages in respect of the 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) failure to file the Underlying Shares Registration Statement within 60 Days
with the Commission;
(iii) the Company shall fail to observe or perform any other covenant, agreement
or warranty contained in, or otherwise commit any breach of any of the
Transaction Documents (as defined in Section 5), and such failure or breach
shall not have been remedied within five days after the date on which notice of
such failure or breach shall have been given;
(iv) the Company or any of its subsidiaries shall commence, or there shall be
commenced against the Company or any such subsidiary a case under any applicable
bankruptcy or insolvency laws as now or hereafter in effect or any successor
thereto, or the Company commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to the Company or any subsidiary thereof or there is
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commenced against the Company or any subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period of 61
days; or the Company or any subsidiary thereof is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its
property which continues undischarged or unstayed for a period of 61 days; or
the Company or any subsidiary thereof makes a general assignment for the benefit
of creditors; or the Company shall fail to pay, or shall state that it is unable
to pay, or shall be unable to pay, its debts generally as they become due; or
the Company or any subsidiary thereof shall call a meeting of its creditors with
a view to arranging a composition, adjustment or restructuring of its debts; or
the Company or any subsidiary thereof shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company or any
subsidiary thereof for the purpose of effecting any of the foregoing;
(v) the Company shall default in any of its obligations under any other
debenture or any mortgage, credit agreement or other facility, (which default is
not waived or otherwise acquiesced to in writing within 30 of written notice of
such default), indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced
any indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company in an amount exceeding $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;
(vi) the Common Stock shall not be quoted for trading or listed for trading on
the OTC Bulletin Board ("OTC'), Nasdaq SmallCap Market, New York Stock Exchange,
American Stock Exchange or the Nasdaq National Market (each, a "Subsequent
Market") and shall not again be quoted or listed for trading thereon within five
Trading Days;
(vii) the Company shall be a party to any Change of Control Transaction (as
defined in Section 5), shall agree to sell or dispose all or in excess of 33% of
its assets in one or more transactions (whether or not such sale would
constitute a Change of Control Transaction), or shall redeem or repurchase more
than a de minimis number of shares of Common Stock or other equity securities of
the Company (other than redemptions of Underlying Shares (as defined in Section
5));
(viii) an Underlying Shares Registration Statement (as defined in Section 5)
shall not have been declared effective by the Commission (as defined in Section
5) on or prior to the 120th day after the Original Issue Date. The Company shall
use all available resources to have the Registration Statement declared
effective by the SEC on or prior to the 120th day after the Original Issue Date;
(ix) if, during the Effectiveness Period (as defined in the Registration Rights
Agreement (as defined in Section 5)), the effectiveness of the Underlying Shares
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell Registrable Securities (as defined in the Registration
Rights Agreement) under the Underlying Shares Registration Statement, in either
case, for more than five consecutive Trading Days or an aggregate of eight
Trading Days (which need not be consecutive Trading Days);
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(x) an Event (as defined in the Registration Rights Agreement) shall not have
been cured to the satisfaction of the Holder prior to the expiration of thirty
days from the Event Date (as defined in the Registration Rights Agreement)
relating thereto (other than an Event resulting from a failure of an Underlying
Shares Registration Statement to be declared effective by the Commission on or,
prior to the 120th day after the Original Issue Date, which shall be covered by
Section 3(a)(vii));
(xi) the Company shall fail for any reason to deliver common stock certificates
to a Holder prior to the third Trading Day after a Conversion Date pursuant to
and in accordance with Section 4(b) or the Company shall provide notice to the
Holder, including by way of public announcement, at any time, of its intention
not to comply with requests for conversions of any Debentures in accordance with
the terms hereof; or
(xii) the Company shall fail for any reason to deliver the payment in cash
pursuant to a Buy-In (as defined herein) within three days after notice is
claimed delivered hereunder.
(b) During the time that any portion of this Debenture is outstanding,
if any Event of Default occurs and is continuing, 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, that if the Company
informs the Holder that it will be unable to pay the amounts due in cash, the
Holder may request payment of such amounts in stock. If an Event of Default
occurs and remains uncured, the price at which the Debenture may be converted
into shares of Common Stock shall be reduced from 80% of the Conversion Price to
60% 30 days after the occurrence of the Event of Default, from 60% to 50% 60
days after the occurrence of the Event of Default, and from 50% to 40% 90 days
after the occurrence of the Event of Default. The Holder need not provide and
the Company hereby waives any presentment, demand, protest or other notice of
any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be rescinded
and annulled by Xxxxxx at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
SECTION 4. CONVERSION.
(a) (i) CONVERSION AT OPTION OF HOLDER.
(A) 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 (subject to the limitations on conversion set
forth in Section 4(a)(ii) hereof). The number of shares of Common Stock issuable
upon a conversion hereunder equals the sum of (i) the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be converted
by (y) the Conversion Price (see (c)(i) of this Section 4), and (ii) the amount
equal to (1) the product of (x) the outstanding principal amount of this
Debenture to be converted and (y) the product of (1) the quotient obtained by
dividing .10 by 360 and (2) the number of days for which such principal amount
was outstanding, divided by (II) the Conversion Price on the Conversion Date,
provided, that if the Holder shall have elected to receive the interest due on a
Conversion Date in cash, subsection (ii) shall not be used in the calculation of
the number of shares of Common Stock issuable upon a conversion hereunder.
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(B) Notwithstanding anything to the contrary contained herein, if on any
Conversion Date: (1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay 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; (3) the Company has failed to timely satisfy its
conversion; or (4) the issuance of such shares of Common Stock would result in a
violation of Section 4(a)(ii), then, at the option of the Holder, the Company,
in lieu of delivering shares of Common Stock pursuant to Section 4(a)(i), shall
deliver, within three Trading Days of each applicable Conversion Date, an amount
in cash equal to the product of the outstanding principal amount of the
Debentures to be converted plus any interest due therein divided by the
Conversion Price and multiplied by the highest closing price of the stock from
date of the conversion notice till the date that such cash payment is made.
(C) The Holder shall effect conversions by simultaneously delivering to the
Company a completed notice in the form attached hereto as Exhibit A (a
"Conversion Notice"), including a completed Conversion Schedule in the form of
Schedule I to the Conversion Notice (on each Conversion Date, the "Conversion
Schedule"). The Conversion Schedule shall set forth the remaining principal
amount of this Debenture and all accrued and unpaid interest thereon subsequent
to the conversion at issue. 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 be required to
physically surrender this Debenture to the Company in order to effect
conversions. Subject to Section 4(b), each Conversion Notice, once given, shall
be irrevocable. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture plus all accrued and unpaid
interest thereon in an amount equal to the applicable conversion, which shall be
evidenced by entries set forth in the Conversion Schedule. The Holder and the
Company shall maintain records showing the principal amount converted and the
date of such conversions. In the event of any dispute or discrepancy, the
records of the Holder shall be controlling and determinative in the absence of
manifest error.
(ii) CERTAIN CONVERSION RESTRICTIONS.
(A) A Holder may not convert the Debenture or receive
shares of Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, the Debenture held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Company the
number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 9.999% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of the 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 the Debenture
that, without regard to any other shares that the Holder or its affiliates
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may beneficially own, would result in the issuance in excess of the permitted
amount hereunder, the Company shall notify the Holder of this fact and shall
honor the conversion for the maximum principal amount permitted to be converted
on such Conversion Date in accordance with the periods described in Section 4(b)
and, at the option of the Holder, either retain any principal amount tendered
for conversion in excess of the permitted amount hereunder for future
conversions or return such excess principal amount to the Holder. The provisions
of this Section may be waived by a Holder (but only as to itself and not to any
other Holder) upon not less than 65 days prior notice to the Company. Other
Holders shall be unaffected by any such waiver.
(b) (i) On the Original Issue Date, the Company shall provide an
authorization for the completion of an Issuance Resolution (Exhibit B) and
deliver such resolution to both the Holder and the Company's transfer agent.
(ii) Nothing herein shall limit a Holder's right to pursue actual damages or
declare an Event of Default pursuant to Section 3 herein for the Company's
failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
The exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
Further, if the Company shall not have delivered any cash due in respect of
conversion of the Debenture or as payment of interest thereon by the third
Trading Day after the Conversion Date, the Holder may, by notice to the Company,
require the Company to issue shares of Common Stock pursuant to Section 4(c),
except that for such purpose the Conversion Price applicable thereto shall be
the lesser of the Conversion Price on the Conversion Date and the Conversion
Price on the date of such Holder demand. Any such shares will be subject to the
provisions of this Section.
(iii) In addition to any other rights available to the Holder, if the Company
fails to deliver to the Holder such certificate or certificates pursuant to
Section 4(b)(i) by the third Trading Day after the Conversion Date, and if after
such third Trading Day the Holder purchases (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such Holder of
the Underlying Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Company shall (A) pay in cash to the Holder
(in addition to any remedies available to or elected by the Holder) the amount
by which (x) the Holder's total purchase price (including brokerage commissions,
if any) for the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder anticipated
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 Company timely complied with its delivery requirements under Section
4(b)(i). For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with respect to which the market price of the
Underlying Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the
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contrary, if a Holder requires the Company to make payment in respect of a
Buy-In for the failure to timely deliver certificates hereunder and the Company
timely pays in full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 4(b)(ii) in respect of the certificates
resulting in such Buy-In.
(c) (i) The conversion price (the "Conversion Price") in effect on any
Conversion Date shall be 85% of the average of the lowest three inter-day
trading prices (which need not occur on consecutive Trading Days) during the 20
Trading Days immediately preceding the applicable Conversion Date (which may
include Trading Days prior to the Original Issue Date), provided, that such 20
Trading Day period shall be extended for the number of Trading Days during such
period in which (A) trading in the Common Stock is suspended by, or not traded
on, the OTC or a Subsequent Market on which the Common Stock is then listed, or
(B) after the date, the Underlying Shares Registration Statement is declared
effective by the Commission, the Prospectus included in the Underlying Shares
Registration Statement may not be used by the Holder for the resale of
Underlying Shares.
(ii) If the Company, at any time while the Debenture is outstanding shall (a)
pay a stock dividend or otherwise make a distribution or distributions on shares
of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock, (b) subdivide outstanding shares of Common Stock into
a larger number of shares, (c) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (d) issue
by reclassification of shares of the Common Stock any shares of capital stock of
the Company, then the Initial Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
(iii) 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 the
Holder) entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value at the record date
mentioned below, then the Conversion Price shall be multiplied by a fraction, of
which the denominator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants (plus the number of additional shares of Common Stock offered
for subscription or purchase), and of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants, plus the number of shares which
the aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
rights, options or warrants. However, upon the expiration of any such right,
option or warrant to purchase shares of the Common Stock the issuance of which
resulted in an adjustment in the Conversion Price pursuant to this Section, if
any such right, option or warrant shall expire and shall not have been
exercised, the Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other
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adjustments in the Conversion Price made pursuant to the provisions of this
Section after the issuance of such rights or warrants) had the adjustment of the
Conversion Price made upon the issuance of such rights, options or warrants been
made on the basis of offering for subscription or purchase only that number of
shares of the Common Stock actually purchased upon the exercise of such rights,
options or warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable with respect to
Common Stock Equivalents (as defined below), at any time while the 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 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 Conversion Price, such issuance shall be deemed to have
occurred for less than the Conversion Price), then, at the sole option of the
Holder, the Conversion Price shall be adjusted to mirror the conversion,
exchange or purchase price for such Common Stock or Common Stock Equivalents
(including any reset provisions thereof) at issue. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued. The Company
shall notify the Holder and the Escrow Agent in writing, no later than the
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 Company's stock option or stock
purchase plans.
(v) If the Company, at any time while the 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 Conversion Price at which the Debenture
shall thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value determined
as of the record date mentioned above, and of which the numerator shall be such
Per Share Market Value on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the 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
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hereunder in respect of this Debenture only into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
the Common Stock following such reclassification or share exchange, and the
Holder of the Debenture shall be entitled upon such event to receive such amount
of securities, cash or property as the shares of the Common Stock of the Company
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled, or (B) require the Company to prepay
the outstanding principal amount of the Debenture, plus all interest and other
amounts due and payable thereon, at a price determined in accordance with
Section 3(b). The entire prepayment price shall be paid in cash. This provision
shall similarly apply to successive reclassifications or share exchanges.
(vii) The Company shall maintain a share reserve of not less than 200% of the
shares of Common Stock issuable upon conversion of the Debenture; and within
three Business Days following the receipt by the Company of a Holder's notice
that such minimum number of Underlying Shares is not so reserved, the Company
shall promptly reserve a sufficient number of shares of Common Stock to comply
with such requirement.
(viii) All calculations under this Section 4 shall be made to the nearest cent
or the nearest 1/100th of a share, as the case may be. No adjustments in either
the Conversion Price or the Initial Conversion Price shall be required if such
adjustment is less than $0.01, provided, however, that any adjustments which by
reason of this Section are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(ix) Whenever either the Initial Conversion Price or the Conversion Price is
adjusted pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly
mail to the Holder a notice setting forth the Initial Conversion Price or
Conversion Price (as applicable) after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(x) If (A) the Company shall declare a dividend (or any other distribution) on
the Common Stock; (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the Company shall authorize
the granting to all holders of the Common Stock rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of any rights; (D)
the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Company is a party, any sale or transfer of all or substantially all
of the assets of the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property; (E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then, in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of the Debenture, and shall cause to be mailed to the Holder at its
last address as it shall appear upon the stock books of the Company, at least 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
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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 the 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 Company with or into
another Person, or (2) sale by the Company of more than one-half of the assets
of the Company in one or a series of related transactions, a Holder shall have
the right to (A) exercise any rights under Section 3(b), (B) convert the
aggregate principal amount of the 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 the 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 the 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 the
Debenture set forth herein and the agreements pursuant to which the 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) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of the Debenture and payment of interest
on the Debenture, each as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holder, not
less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
forth in the Debenture) be issuable (taking into account the adjustments and
restrictions of Section4(b)) upon the conversion of the outstanding principal
amount of the Debenture and payment of interest hereunder. The Company covenants
that all shares of Common Stock that shall be so issuable shall, upon issue, be
duly and validly authorized, issued and fully paid, nonassessable and, if the
Underlying Shares Registration Statement has been declared effective under the
Securities Act, registered for public sale in accordance with such Underlying
Shares Registration Statement.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash
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payment, the Holder shall be entitled to receive, in lieu of the final fraction
of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debenture shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debenture so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holder hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the Company, at 0000 Xxxxxx
Xxxxxx, Xxxxx #000, Xxxxxxxxxx, Xxxxxxxxxx 00000, or such other address or
facsimile number as the Company may specify for such purposes by notice to the
Holders delivered in accordance with this Section, with a copy to (other than
for Conversion Notices) Xxxxxxxxx & Associates, 00000 Xxxxxxxxx, Xxxxx 000,
Xxxxxx, XX 00000 Telephone No.: 000.000.0000, Facsimile No.: 949.851.9262 Attn:
Xxxx Xxxxxxxxx. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to each Holder at
the facsimile telephone number or address of such Holder appearing on the books
of the Company, or if no such facsimile telephone number or address appears, at
the principal place of business of the Holder. Any notice or other communication
or deliveries hereunder shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
5:00 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:00 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) four days after deposit in the United States mail, (iv) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (v) upon actual receipt by the party to whom such notice is
required to be given.
SECTION 5. 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
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capital stock of the Company, by contract or otherwise) of in excess of 33% of
the voting securities of the Company, (b) a replacement at one time or over time
of more than one-half of the members of the Company's board of directors which
is not approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving as
members of the board of directors on any date whose nomination to the board of
directors was approved by a majority of the members of the board of directors
who are members on the date hereof), (c) the merger, consolidation or sale of
50% or more of the assets of the Company in one or a series of related
transactions with or into another entity that is not wholly-owned by the
Company, or (d) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (a), (b) or (c).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $0.001 par value per share, of
the Company and stock of any other class into which such shares may hereafter be
changed or reclassified.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Original Issue Date" shall mean the date of the first issuance of the
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.
"Purchase Agreement" means this Secured Convertible Debenture in
combination with the Term Sheet, dated December 27, 2002 to which the Company
and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Trading Day" means (a) a day on which the shares of Common Stock are
traded on the OTC or on such Subsequent Market on which the shares of Common
Stock are then listed or quoted, or (b) if the shares of Common Stock are not
listed on a Subsequent Market, a day on which the shares of Common Stock are
traded in the over-the-counter market, as reported by the OTC, or (c) if the
shares of Common Stock are not quoted on the OTC, a day on which the shares of
Common Stock are quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, that in the event that
the shares of Common Stock are not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except a Business Day.
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"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the 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 obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as the Debenture is
outstanding, the Company shall not and shall cause it 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. The Company may only voluntarily prepay the outstanding principal
amount on the Debentures.
Section 7. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 8. If this Debenture is mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Company.
Section 9. No indebtedness of the Company is senior to this Debenture
in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. The Company will not and will not
permit any of its subsidiaries to, directly or indirectly, enter into, create,
incur, assume or suffer to exist any indebtedness of any kind, on or with
respect to any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits there from that is senior in any
respect to the Company's obligations under the Debenture.
Section 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably submit
to the exclusive jurisdiction of the state and federal
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courts sitting in the City of Los Angeles, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waive, and agree not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waive personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby. If either
party shall commence an action or proceeding to enforce any provisions of a
Transaction Document, then the prevailing party in such action or proceeding
shall be reimbursed by the other party for its' attorneys fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.
SECTION 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
SECTION 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on the Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
SECTION 13. 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.
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SECTION 14. The payment obligations under this Debenture and the
obligations of the Company to the Holder arising upon the conversion of all or
any of the Debenture in accordance with the provisions hereof are secured
pursuant to the Security Agreement (as defined in the Purchase Agreement).
SECTION 15. The contents of this DEBENTURE shall be kept in complete
confidence by the Holder, the Company, and each of the affiliates, directors,
officers, employees and agents of the Company, and dissemination of the contents
of this DEBENTURE or knowledge of its existence and related information shall
only be to those persons as absolutely necessary, or as required by any
governmental agencies, including the Commission, pursuant to the Registration of
the Debenture.
IN WITNESS WHEREOF, the Company has caused this 10% Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date first
above indicated.
By: The Company
Famous Fixins, Inc.
/s/ Xxxxxxx Xxxxxxx
By:-----------------------------
Name: Xxxxxxx Xxxxxxx
Title: Chief Executive Officer
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $0.001 par value per share (the "Common Stock"), of Famous Fixins,
Inc.. (the "Company") according to the conditions hereof, as of the date written
below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
Conversion calculations: _____________________
Date to Effect Conversion
---------------------------------------
Principal Amount of Debentures to be Converted
Payment of Interest in Kind ??Yes
? No
If yes, $ _______ of Interest Accrued on
Account of Conversion at Issue
---------------------------------------------
Number of shares of Common Stock to be Issued
---------------------------------------------
Applicable Conversion Price
---------------------------------------------
Signature
---------------------------------------------
Name
---------------------------------------------
Address
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Schedule 1
CONVERSION SCHEDULE
FAMOUS FIXINS, INC.
10% Secured Convertible Debenture due December 27, 2005, in the aggregate
principal amount of $500,000 issued by FAMOUS FIXINS, INC. This Conversion
Schedule reflects conversions made under Section 4(a)(i) of the above referenced
Debenture.
Dated:
======================== ====================== ====================== ====================== ======================
Aggregate Principal
Amount Remaining
Date of Conversion Subsequent to
(or for first entry, Amount of Conversion Conversion Company Attest
Original Issue Date) (or original
Principal Amount)
------------------------ ---------------------- ---------------------- ---------------------- ----------------------
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