Exhibit 4.1
EXHIBIT A
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: February __, 2006
Original Conversion Price (subject to adjustment herein): $0.17
$---------------
7% SECURED CONVERTIBLE DEBENTURE
DUE FEBRUARY __, 2009
THIS 7% SECURED CONVERTIBLE DEBENTURE is one of a series of duly
authorized and issued 7% Convertible Debentures of Secured Services, Inc., a
Delaware corporation, having a principal place of business at 00000 Xxxxxxxx
Xxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx 20191 (the "COMPANY"), designated as its
7% Secured Convertible Debenture, due February___, 2009 (the "DEBENTURE(S)").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "HOLDER"), or shall have
paid pursuant to the terms hereunder, the principal sum of $_______________ by
February ___, 2009, or such earlier date as the Debentures are required or
permitted to be repaid as provided hereunder (the "MATURITY DATE"), and to pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture in accordance with the provisions hereof.
This Debenture is subject to the following additional provisions:
SECTION 1. DEFINITIONS. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
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"ALTERNATE CONSIDERATION" shall have the meaning set
forth in Section 5(d).
"BASE CONVERSION PRICE" shall have the meaning set forth
in Section 5(b).
"BUSINESS DAY" means any day except Saturday, Sunday and
any day which shall be a federal legal holiday in the United States
or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"BUY-IN" shall have the meaning set forth in Section
4(d)(v).
"CHANGE OF CONTROL TRANSACTION" means the occurrence
after the date hereof of any of (i) an acquisition after the date
hereof by an individual or legal entity or "group" (as described in
Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective
control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 40%
of the voting securities of the Company, or (ii) the Company merges
into or consolidates with any other Person, or any Person merges
into or consolidates with the Company and, after giving effect to
such transaction, the stockholders of the Company immediately prior
to such transaction own less than 60% of the aggregate voting power
of the Company or the successor entity of such transaction, or (iii)
the Company sells or transfers its assets, as an entirety or
substantially as an entirety, to another Person and the stockholders
of the Company immediately prior to such transaction own less than
60% of the aggregate voting power of the acquiring entity
immediately after the transaction, (iv) a replacement at one time or
within a three year period of more than one-half of the members of
the Company's board of directors which is not approved by a majority
of those individuals who are members of the board of directors on
the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board
of directors was approved by a majority of the members of the board
of directors who are members on the date hereof), or (v) the
execution by the Company of an agreement to which the Company is a
party or by which it is bound, providing for any of the events set
forth above in (i) through (iv).
"COMMON STOCK" means the common stock, par value $.0001
per share, of the Company and stock of any other class of securities
into which such securities may hereafter have been reclassified or
changed into.
"CONVERSION DATE" shall have the meaning set forth in
Section 4(a).
"CONVERSION PRICE" shall have the meaning set forth in
Section 4(b).
"CONVERSION SHARES" means the shares of Common Stock
issuable upon conversion of this Debenture or as payment of interest
in accordance with the terms.
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"DEBENTURE REGISTER" shall have the meaning set forth in
Section 2(c).
"DILUTIVE ISSUANCE" shall have the meaning set forth in
Section 5(b).
"DILUTIVE ISSUANCE NOTICE" shall have the meaning set
forth in Section 5(b).
"EFFECTIVENESS PERIOD" shall have the meaning given to
such term in the Registration Rights Agreement.
"EQUITY CONDITIONS" shall mean, during the period in
question, (i) the Company shall have duly honored all conversions
and redemptions scheduled to occur or occurring by virtue of one or
more Notice of Conversions of the Holder, if any, (ii) all
liquidated damages and other amounts owing to the Holder in respect
of this Debenture shall have been paid; (iii) there is an effective
Registration Statement pursuant to which the Holder is permitted to
utilize the prospectus thereunder to resell all of the shares
issuable pursuant to the Transaction Documents (and the Company
believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (iv) the Common Stock is
trading on the Trading Market and all of the shares issuable
pursuant to the Transaction Documents are listed for trading on a
Trading Market (and the Company believes, in good faith, that
trading of the Common Stock on a Trading Market will continue
uninterrupted for the foreseeable future), (v) there is a sufficient
number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares issuable pursuant
to the Transaction Documents, (vi) there is then existing no Event
of Default or event which, with the passage of time or the giving of
notice, would constitute an Event of Default, (vii) the issuance of
the shares in question to the Holder would not violate the
limitations set forth in Section 4(c) and (viii) no public
announcement of a pending or proposed Fundamental Transaction,
Change of Control Transaction or acquisition transaction has
occurred that has not been consummated.
"EVENT OF DEFAULT" shall have the meaning set forth in
Section 8.
"EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder.
"FUNDAMENTAL TRANSACTION" shall have the meaning set
forth in Section 5(e).
"INTEREST CONVERSION RATE" means 90% of the lesser of
(a) the average of the 20 VWAPs immediately prior to the applicable
Interest Payment Date or (b) the average of the 20 VWAPs immediately
prior to the date the applicable interest payment shares are issued
and delivered if after the Interest Payment Date.
"INTEREST PAYMENT DATE" shall have the meaning set forth
in Section 2(a).
"LATE FEES" shall have the meaning set forth in Section
2(d).
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"MANDATORY PREPAYMENT AMOUNT" for any Debentures shall
equal the sum of (i) the greater of: (A) 130% of the principal
amount of Debentures to be prepaid, plus all accrued and unpaid
interest thereon, or (B) the principal amount of Debentures to be
prepaid, plus all other accrued and unpaid interest hereon, divided
by the Conversion Price on (x) the date the Mandatory Prepayment
Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by
the VWAP on (x) the date the Mandatory Prepayment Amount is demanded
or otherwise due or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is greater, and (ii) all other amounts,
costs, expenses and liquidated damages due in respect of such
Debentures.
"NEW YORK COURTS" shall have the meaning set forth in
Section 9(d).
"NOTICE OF CONVERSION" shall have the meaning set forth
in Section 4(a).
"ORIGINAL ISSUE DATE" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of
any Debenture and regardless of the number of instruments which may
be issued to evidence such Debenture.
"PERMITTED INDEBTEDNESS" shall mean (a) the Indebtedness
(as such term is defined in Section 3.1(aa) of the Purchase
Agreement) existing on the Original Issue Date and set forth on
SCHEDULE 3.1(aa) attached to the Purchase Agreement and (b)
Indebtedness incurred by the Company that does not mature or require
payments of principal prior to the four year anniversary of the
Original Issue Date and is made expressly subordinate in right of
payment to the Indebtedness evidenced by this Debenture, as
reflected in a written agreement acceptable to the Holder and
approved by the Holder in writing.
"PERMITTED LIEN" shall mean the individual and
collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or
Liens for taxes, assessments and other governmental charges or
levies being contested in good faith and by appropriate proceedings
for which adequate reserves (in the good faith judgment of the
management of the Company) have been established in accordance with
GAAP and (b) Liens imposed by law which were incurred in the
ordinary course of business, such as carriers', warehousemen's and
mechanics' Liens, statutory landlords' Liens, and other similar
Liens arising in the ordinary course of business, and (x) which do
not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use
thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) which are being contested in good
faith by appropriate proceedings, which proceedings have the effect
of preventing the forfeiture or sale of the property or asset
subject to such Lien.
"PERSON" means a corporation, an association, a
partnership, organization, a business, an individual, a government
or political subdivision thereof or a governmental agency.
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"PURCHASE AGREEMENT" means the Securities Purchase
Agreement, dated as of February __, 2006 to which the Company and
the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration
Rights Agreement, dated as of the date of the Purchase Agreement, to
which the Company and the original Holder are parties, as amended,
modified or supplemented from time to time in accordance with its
terms.
"REGISTRATION STATEMENT" means a registration statement
meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Conversion
Shares and naming the Holder as a "selling stockholder" thereunder.
"SECURITIES ACT" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"SUBSIDIARY" shall have the meaning given to such term
in the Purchase Agreement.
"TRADING MARKET" means the following markets or
exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the Nasdaq SmallCap Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National
Market or the OTC Bulletin Board.
"TRANSACTION DOCUMENTS" shall have the meaning set forth
in the Purchase Agreement.
"VWAP" means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common Stock
is then listed or quoted on a Trading Market, the daily volume
weighted average price of the Common Stock for such date (or the
nearest preceding date) on the Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02
p.m. Eastern Time); (b) if the OTC Bulletin Board is not a Trading
Market, the volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the OTC Bulletin Board;
(c) if the Common Stock is not then listed or quoted on the OTC
Bulletin Board and if prices for the Common Stock are then reported
in the "Pink Sheets" published by Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a
share of Common Stock as determined by an independent appraiser
selected in good faith by the Holder and reasonably acceptable to
the Company.
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SECTION 2. INTEREST.
a) PAYMENT OF INTEREST IN CASH OR KIND. The
Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture
at the rate of 7% per annum, payable quarterly on March 31, June 30,
September 30 and December 31, beginning on the first such date after
the Original Issue Date, on each Conversion Date (as to that
principal amount then being converted), and on the Maturity Date
(except that, if any such date is not a Business Day, then such
payment shall be due on the next succeeding Business Day) (each such
date, an "INTEREST PAYMENT DATE"), in cash or duly authorized,
validly issued, fully paid and non-assessable shares of Common Stock
at the Interest Conversion Rate (the amount to be paid in shares,
the "INTEREST SHARE AMOUNT"), or a combination thereof; PROVIDED,
HOWEVER, that (i) payment in shares of Common Stock may only occur
if during the 20 Trading Days immediately prior to the applicable
Interest Payment Date (the "INTEREST NOTICE PERIOD") and through and
including the date such shares of Common Stock are issued to the
Holder all of the Equity Conditions have been met (unless waived by
the Holder in writing), (ii) the Company shall have given the Holder
notice in accordance with the notice requirements set forth below
and (iii) as to such Interest Payment Date, prior to such Interest
Notice Period (but not more than 5 Trading Days prior to the
commencement of such Interest Notice Period), the Company shall have
delivered to the Holder's account with The Depository Trust Company
a number of shares of Common Stock to be applied against such
Interest Share Amount equal to the quotient of (x) the applicable
Interest Share Amount divided by (y) the then Conversion Price (the
"INTEREST CONVERSION SHARES").
b) COMPANY'S ELECTION TO PAY INTEREST IN KIND.
Subject to the terms and conditions herein, the decision whether to
pay interest hereunder in cash or shares of Common Stock shall be at
the discretion of the Company. Prior to the commencement of any
Interest Notice Period, the Company shall deliver to the Holder a
written notice of its election to pay interest hereunder on the
applicable Interest Payment Date either in cash, shares of Common
Stock or a combination thereof and the Interest Share Amount as to
the applicable Interest Payment Date, provided that the Company may
indicate in such notice that the election contained in such notice
shall apply to future Interest Payment Dates until revised by a
subsequent notice. During any Interest Notice Period, the Company's
election (whether specific to an Interest Payment Date or
continuous) shall be irrevocable as to such Interest Payment Date.
Subject to the aforementioned conditions, failure to timely provide
such written notice shall be deemed an election by the Company to
pay the interest on such Interest Payment Date in cash. At any time
the Company delivers a notice to the Holder of its election to pay
the interest in shares of Common Stock, the Company shall timely
file a prospectus supplement pursuant to Rule 424 disclosing such
election. The aggregate number of shares of Common Stock otherwise
issuable to the Holder on an Interest Payment Date shall be reduced
by the number of Interest Conversion Shares previously issued to the
Holder in connection with such Interest Payment Date.
c) INTEREST CALCULATIONS. Interest shall be
calculated on the basis of a 360-day year and shall accrue daily
commencing on the Original Issue Date until payment in full of the
principal sum, together with all accrued and unpaid interest,
liquidated damages
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and other amounts which may become due hereunder, has been made.
Payment of interest in shares of Common Stock (other than the
Interest Conversion Shares issued prior to an Interest Notice
Period) shall otherwise occur pursuant to Section 4(d)(ii) herein
and, solely for purposes of the payment of interest in shares, the
Interest Payment Date shall be deemed the Conversion Date. Interest
shall cease to accrue with respect to any principal amount
converted, provided that the Company actually delivers the
Conversion Shares within the time period required by Section
4(d)(ii). Interest hereunder will be paid to the Person in whose
name this Debenture is registered on the records of the Company
regarding registration and transfers of this Debenture (the
"DEBENTURE REGISTER"). Except as otherwise provided herein, if at
any time the Company pays interest partially in cash and partially
in shares of Common Stock to the holders of the Debentures, then
such payment shall be distributed ratably among the holders of the
then-outstanding Debentures based on their (or their predecessor's)
initial purchases of Debentures pursuant to the Purchase Agreement.
d) LATE FEE. All overdue accrued and unpaid
interest to be paid hereunder shall entail a late fee at an interest
rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law ("LATE FEES") which shall accrue daily
from the date such interest is due hereunder through and including
the date of payment in full. Notwithstanding anything to the
contrary contained herein, if on any Interest Payment Date the
Company has elected to pay accrued interest in the form of Common
Stock but the Company is not able to pay accrued interest in Common
Stock because it fails to satisfy the conditions for payment in
Common Stock set forth above, then, at the option of the Holder, the
Company, in lieu of delivering either shares of Common Stock
pursuant to this Section 2 or paying the regularly scheduled
interest payment in cash, shall deliver, within three Trading Days
of each applicable Interest Payment Date, an amount in cash equal to
the product of (x) the number of shares of Common Stock otherwise
deliverable to the Holder in connection with the payment of interest
due on such Interest Payment Date multiplied by (y) the highest VWAP
during the period commencing on the Interest Payment Date and ending
on the Trading Day prior to the date such payment is made. If any
Interest Conversion Shares are issued to the Holder in connection
with an Interest Payment Date and are not applied against an
Interest Share Amount, then the Holder shall promptly return such
excess shares to the Company.
e) PREPAYMENT. Except as otherwise set forth in
this Debenture, the Company may not prepay any portion of the
principal amount of this Debenture without the prior written consent
of the Holder.
SECTION 3. REGISTRATION OF TRANSFERS AND EXCHANGES.
a) DIFFERENT DENOMINATIONS. This Debenture is
exchangeable for an equal aggregate principal amount of Debentures
of different authorized denominations, as requested by the Holder
surrendering the same. No service charge will be made for such
registration of transfer or exchange.
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b) INVESTMENT REPRESENTATIONS. This Debenture
has been issued subject to certain investment representations of the
original Holder set forth in the Purchase Agreement and may be
transferred or exchanged only in compliance with the Purchase
Agreement and applicable federal and state securities laws and
regulations.
c) RELIANCE ON DEBENTURE REGISTER. Prior to due
presentment to the Company for transfer of this Debenture, the
Company and any agent of the Company may treat the Person in whose
name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Debenture
is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
SECTION 4. CONVERSION.
a) VOLUNTARY CONVERSION. At any time after the
Original Issue Date until this Debenture is no longer outstanding,
this Debenture shall be convertible into shares of Common Stock at
the option of the Holder, in whole or in part at any time and from
time to time (subject to the limitations on conversion set forth in
Section 4(c) hereof). The Holder shall effect conversions by
delivering to the Company the form of Notice of Conversion attached
hereto as ANNEX A (a "NOTICE OF CONVERSION"), specifying therein the
principal amount of this Debenture to be converted and the date on
which such conversion is to be effected (a "CONVERSION DATE"). If no
Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is
provided hereunder. To effect conversions hereunder, the Holder
shall not be required to physically surrender this Debenture to the
Company unless the entire principal amount of this Debenture plus
all accrued and unpaid interest thereon has been so converted.
Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture in an amount equal to
the applicable conversion. The Holder and the Company shall maintain
records showing the principal amount converted and the date of such
conversions. The Company shall deliver any objection to any Notice
of Conversion within 1 Business Day of receipt of such notice. In
the event of any dispute or discrepancy, the records of the Holder
shall be controlling and determinative in the absence of manifest
error. The Holder and any assignee, by acceptance of this Debenture,
acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the
unpaid and unconverted principal amount of this Debenture may be
less than the amount stated on the face hereof.
b) CONVERSION PRICE. The conversion price in
effect on any Conversion Date shall be equal to $0.17 (subject to
adjustment herein)(the "CONVERSION PRICE").
c) CONVERSION LIMITATIONS.
i. The Company shall not effect any
conversion of this Debenture, and a Holder shall not
have the right to convert any portion of this Debenture
to the extent that after giving effect to such
conversion, such Holder (together with
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such Holder's affiliates, and any other person or entity
acting as a group together with such Holder or any of
such Holder's affiliates), as set forth on the
applicable Notice of Conversion, would beneficially own
in excess of the Beneficial Ownership Limitation (as
defined below). For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned
by such Holder and its affiliates shall include the
number of shares of Common Stock issuable upon
conversion of this Debenture with respect to which the
determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would
be issuable upon (A) conversion of the remaining,
nonconverted principal amount of this Debenture
beneficially owned by such Holder or any of its
affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other
securities of the Company (including, without
limitation, any other Debentures or the Warrants)
subject to a limitation on conversion or exercise
analogous to the limitation contained herein
beneficially owned by such Holder or any of its
affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 4(c), beneficial
ownership shall be calculated in accordance with Section
13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. To the extent that the
limitation contained in this Section 4(c) applies, the
determination of whether this Debenture is convertible
(in relation to other securities owned by such Holder
together with any affiliates) and of which amounts of
this Debenture are convertible shall be in the sole
discretion of such Holder, and the submission of a
Notice of Conversion shall be deemed to be such Holder's
determination of whether this Debenture may be converted
(in relation to other securities owned by such Holder)
and which amounts of this Debenture are convertible, in
each case subject to such aggregate percentage
limitations. To ensure compliance with this restriction,
each Holder will be deemed to represent to the Company
each time it delivers a Notice of Conversion that such
Notice of Conversion has not violated the restrictions
set forth in this paragraph and the Company shall have
no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any
group status as contemplated above shall be determined
in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder. For
purposes of this Section 4(c), in determining the number
of outstanding shares of Common Stock, a Holder may rely
on the number of outstanding shares of Common Stock as
reflected in the most recent of the following: (A) the
Company's most recent Form 10-QSB or Form 10-KSB, as the
case may be, (B) a more recent public announcement by
the Company or (C) any other notice by the Company or
the Company's transfer agent setting forth the number of
shares of Common Stock outstanding. Upon the written or
oral request of a Holder, the Company shall within two
Trading Days confirm orally and in writing to such
Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of
the Company, including this Debenture, by such Holder or
its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
9
The "Beneficial Ownership Limitation" shall be 4.99% of
the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of
shares of Common Stock issuable upon conversion of this
Debenture held by the Holder. The Beneficial Ownership
Limitation provisions of this Section 4(c) may be waived
by such Holder, at the election of such Holder, upon not
less than 61 days' prior notice to the Company to change
the Beneficial Ownership Limitation to 9.99% of the
number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of
shares of Common Stock upon conversion of this Debenture
held by the Holder, and the provisions of this Section
4(c) shall continue to apply. Upon such a change by a
Holder of the Beneficial Ownership Limitation from such
4.99% limitation to such 9.99% limitation, the
Beneficial Ownership Limitation may not be waived by
such Holder. The provisions of this paragraph shall be
implemented in a manner otherwise than in strict
conformity with the terms of this Section 4(c) to
correct this paragraph (or any portion hereof) which may
be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to
make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations
contained in this paragraph shall apply to a successor
holder of this Debenture.
ii. Until the Company has obtained
Authorized Share Approval, the Company may not issue
upon conversion of this Debenture a number of shares of
Common Stock which, when aggregated with any shares of
Common Stock issued prior to such Conversion Date (A)
pursuant to any Debentures issued pursuant to the
Purchase Agreement and (B) pursuant to any Warrants
issued pursuant to the Purchase Agreement, would exceed
1,000,000 shares of Common Stock ("ISSUABLE MAXIMUM").
Each Holder shall be entitled to a portion of the
Issuable Maximum equal to the quotient obtained by
dividing (x) the aggregate principal amount of the
Debenture(s) issued and sold to such Holder on the
Original Issue Date by (y) the aggregate principal
amount of all Debentures issued and sold by the Company
on the Original Issue Date. If any Holder shall no
longer hold the Debenture(s), then such Holder's
remaining portion of the Issuable Maximum shall be
allocated pro-rata among the remaining Holders. If on
any Conversion Date: (1) the applicable Conversion Price
then in effect is such that the shares issuable upon
conversion in full of all then outstanding Debentures
would exceed the Issuable Maximum, and (2) the Company
has not previously obtained Authorized Share Approval,
then the Company shall issue to the Holder requesting a
conversion a number of shares of Common Stock equal to
such Holder's pro-rata portion (which shall be
calculated pursuant to the terms hereof) of the Issuable
Maximum and, with respect to the remainder of the
aggregate principal amount of the Debentures (including
any interest) then held by such Holder for which a
conversion in accordance with the applicable Conversion
Price would result in an issuance of shares of Common
Stock in excess of such Holder's pro-rata portion (which
shall be calculated pursuant to the terms hereof) of the
Issuable Maximum (the "EXCESS PRINCIPAL"), the Company
shall be prohibited from converting such Excess
Principal, and shall notify the Holder of
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the reason therefore. This Debenture shall thereafter be
unconvertible to such extent until and unless Authorized
Share Approval is subsequently obtained, but this
Debenture shall otherwise remain in full force and
effect.
d) MECHANICS OF CONVERSION
i. CONVERSION SHARES ISSUABLE UPON
CONVERSION OF PRINCIPAL AMOUNT. The number of shares of
Common Stock issuable upon a conversion hereunder shall
be determined by the quotient obtained by dividing (x)
the outstanding principal amount of this Debenture to be
converted by (y) the Conversion Price. i.
ii. DELIVERY OF CERTIFICATE UPON
CONVERSION. Not later than three Trading Days after any
Conversion Date, the Company will deliver or cause to be
delivered to the Holder (A) a certificate or
certificates representing the Conversion Shares which
shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase
Agreement) representing the number of shares of Common
Stock being acquired upon the conversion of Debentures
(including, if so timely elected by the Company, shares
of Common Stock representing the payment of accrued
interest) and (B) a bank check in the amount of accrued
and unpaid interest (if the Company is required to pay
accrued interest in cash). The Company shall, if
available and if allowed under applicable securities
laws, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company
under this Section electronically through the Depository
Trust Corporation or another established clearing
corporation performing similar functions.
iii. FAILURE TO DELIVER CERTIFICATES.
If in the case of any Notice of Conversion such
certificate or certificates are not delivered to or as
directed by the applicable Holder by the fifth Trading
Day after a Conversion Date, the Holder shall be
entitled by written notice to the Company at any time on
or before its receipt of such certificate or
certificates thereafter, to rescind such conversion, in
which event the Company shall immediately return the
certificates representing the principal amount of this
Debenture tendered for conversion.
iv. OBLIGATION ABSOLUTE; PARTIAL
LIQUIDATED DAMAGES. If the Company fails for any reason
to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the third
Trading Day after the Conversion Date, the Company shall
pay to such Holder, in cash, as liquidated damages and
not as a penalty, for each $2,000 of principal amount
being converted, $10 per Trading Day (increasing to $20
per Trading Day after 5 Trading Days after such damages
11
begin to accrue) for each Trading Day after such fifth
Trading Day until such certificates are delivered. The
Company's obligations to issue and deliver the
Conversion Shares upon conversion of this Debenture in
accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of
any judgment against any Person or any action to enforce
the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any
obligation to the Company or any violation or alleged
violation of law by the Holder or any other person, and
irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the
Holder in connection with the issuance of such
Conversion Shares; PROVIDED, HOWEVER, such delivery
shall not operate as a waiver by the Company of any such
action the Company may have against the Holder. In the
event the Holder of this Debenture shall elect to
convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on
any claim that the Holder or any one associated or
affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason,
unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part
of this Debenture shall have been sought and obtained
and the Company posts a surety bond for the benefit of
the Holder in the amount of 150% of the principal amount
of this Debenture outstanding, which is subject to the
injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and
the proceeds of which shall be payable to such Holder to
the extent it obtains judgment. In the absence of an
injunction precluding the same, the Company shall issue
Conversion Shares or, if applicable, cash, upon a
properly noticed conversion. Nothing herein shall limit
a Xxxxxx's right to pursue actual damages or declare an
Event of Default pursuant to Section 8 herein for the
Company's failure to deliver Conversion Shares within
the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law
or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the
Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.
v. COMPENSATION FOR BUY-IN ON
FAILURE TO TIMELY DELIVER CERTIFICATES UPON CONVERSION.
In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the
Holder such certificate or certificates pursuant to
Section 4(d)(ii) by the fifth Trading Day after the
Conversion Date, and if after such fifth Trading Day the
Holder is required by its brokerage firm to purchase (in
an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by such Holder of the
Conversion Shares 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
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purchase price (including brokerage commissions, if any)
for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common
Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the actual sale
price of the Common Stock at the time of the sale
(including brokerage commissions, if any) giving rise to
such purchase obligation and (B) at the option of the
Holder, either reissue (if surrendered) this Debenture
in a principal amount equal to the principal amount of
the attempted conversion or deliver to the Holder the
number of shares of Common Stock that would have been
issued had the Company timely complied with its delivery
requirements under Section 4(d)(ii). For example, if the
Holder purchases Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an
attempted conversion of this Debenture with respect to
which the actual sale price of the Conversion Shares at
the time of the sale (including brokerage commissions,
if any) giving rise to such purchase obligation was a
total of $10,000 under clause (A) of the immediately
preceding sentence, the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the
Holder in respect of the Buy-In. Notwithstanding
anything contained herein to the contrary, if a Holder
requires the Company to make payment in respect of a
Buy-In for the failure to timely deliver certificates
hereunder and the Company timely pays in full such
payment, the Company shall not be required to pay such
Holder liquidated damages under Section 4(d)(iv) in
respect of the certificates resulting in such Buy-In.
vi. RESERVATION OF SHARES ISSUABLE
UPON CONVERSION. The Company covenants that it will at
all times reserve and keep available out of its
authorized and unissued shares of Common Stock solely
for the purpose of issuance upon conversion of this
Debenture 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 (and the other holders of the
Debentures), 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 Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of
Section 5) upon the conversion of the outstanding
principal amount of this Debenture and payment of
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 Registration
Statement is then effective under the Securities Act,
registered for public sale in accordance with such
Registration Statement.
vii. FRACTIONAL SHARES. Upon a
conversion hereunder the Company shall not be required
to issue stock certificates representing fractions of
shares of the Common Stock, but may if otherwise
permitted, make a cash payment in
13
respect of any final fraction of a share based on the
VWAP at such time. If the Company elects not, or is
unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
viii. TRANSFER TAXES. The issuance of
certificates for shares of the Common Stock on
conversion of this Debenture shall be made without
charge to the Holder hereof for any documentary stamp or
similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of
this Debenture so converted and the Company shall not be
required to issue or deliver such certificates unless or
until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
SECTION 5. CERTAIN ADJUSTMENTS.
a) STOCK DIVIDENDS AND STOCK SPLITS. If the
Company, at any time while this Debenture is outstanding: (A) pays a
stock dividend or otherwise makes a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock (which, for avoidance
of doubt, shall not include any shares of Common Stock issued by the
Company pursuant to this Debenture, including as interest thereon),
(B) subdivides outstanding shares of Common Stock into a larger
number of shares, (C) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of
shares, or (D) issues by reclassification of shares of the Common
Stock any shares of capital stock of the Company, then the
Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made
pursuant to this Section shall become effective immediately after
the record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.
b) SUBSEQUENT EQUITY SALES. If the Company or
any Subsidiary thereof, as applicable, at any time while this
Debenture is outstanding, shall offer, sell, grant any option to
purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer,
sale, grant or any option to purchase or other disposition) any
Common Stock or Common Stock Equivalents entitling any Person to
acquire shares of Common Stock, at an effective price per share less
than the then Conversion Price (such lower price, the "BASE
CONVERSION PRICE" and such issuances
14
collectively, a "DILUTIVE ISSUANCE"), as adjusted hereunder (if the
holder of the Common Stock or Common Stock Equivalents so issued
shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights
per share which is issued in connection with such issuance, be
entitled to receive shares of Common Stock at an effective price per
share which is less than the Conversion Price, such issuance shall
be deemed to have occurred for less than the Conversion Price on
such date of the Dilutive Issuance), then the Conversion Price shall
be reduced to equal the Base Conversion Price. Such adjustment shall
be made whenever such Common Stock or Common Stock Equivalents are
issued. Notwithstanding the foregoing, no adjustment will be made
under this Section 5(b) in respect of an Exempt Issuance. The
Company shall notify the Holder in writing, no later than the
Business Day following the issuance of any Common Stock or Common
Stock Equivalents subject to this section, indicating therein the
applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms (such notice the
"DILUTIVE ISSUANCE NOTICE"). For purposes of clarification, whether
or not the Company provides a Dilutive Issuance Notice pursuant to
this Section 5(b), upon the occurrence of any Dilutive Issuance,
after the date of such Dilutive Issuance the Holder is entitled to
receive a number of Conversion Shares based upon the Base Conversion
Price regardless of whether the Holder accurately refers to the Base
Conversion Price in the Notice of Conversion.
c) PRO RATA DISTRIBUTIONS. If the Company, at
any time while this Debenture is outstanding, shall distribute to
all holders of Common Stock (and not to the holders of the
Debenture) evidences of its indebtedness or assets (including cash
and cash dividends) or rights or warrants to subscribe for or
purchase any security, then in each such case the Conversion Price
shall be adjusted by multiplying such Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP
on such record date less the then fair market value at such record
date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock
as determined by the Board of Directors in good faith. In either
case the adjustments shall be described in a statement provided to
the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after
the record date mentioned above.
d) SUBSEQUENT RIGHTS OFFERINGS. If the Company,
at any time while the Debenture is outstanding, shall issue rights,
options or warrants to all holders of Common Stock (and not to
Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share that is lower than the VWAP on the
record date referenced below, then the Conversion Price shall be
multiplied by a fraction of which the denominator shall be the
number of shares of the Common Stock outstanding on the date
15
of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of
which the numerator shall be the number of shares of the Common
Stock outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the
total number of shares so offered (assuming delivery to the Company
in full of all consideration payable upon exercise of such rights,
options or warrants) would purchase at such VWAP. Such adjustment
shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such rights,
options or warrants.
e) FUNDAMENTAL TRANSACTION. If, at any time
while this Debenture is outstanding, (A) the Company effects any
merger or consolidation of the Company with or into another Person,
(B) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (C) any tender
offer or exchange offer (whether by the Company or another Person)
is completed pursuant to which holders of Common Stock are permitted
to tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a "FUNDAMENTAL
TRANSACTION"), then upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion
immediately prior to the occurrence of such Fundamental Transaction,
the same kind and amount of securities, cash or property as it would
have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of one share of Common Stock
(the "ALTERNATE CONSIDERATION"). For purposes of any such
conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value
of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities,
cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Debenture
following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the
Holder a new debenture consistent with the foregoing provisions and
evidencing the Holder's right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the
provisions of this paragraph (d) and insuring that this Debenture
(or any such replacement security) will be similarly adjusted upon
any subsequent transaction analogous to a Fundamental Transaction.
16
f) CALCULATIONS. All calculations under this
Section 5 shall be made to the nearest cent or the nearest 1/100th
of a share, as the case may be. For purposes of this Section 5, the
number of shares of Common Stock deemed to be issued and outstanding
as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares, if any) issued and
outstanding.
g) NOTICE TO THE HOLDER.
i. ADJUSTMENT TO CONVERSION PRICE.
Whenever the Conversion Price is adjusted pursuant to
any of this Section 5, the Company shall promptly mail
to each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the
Company issues a variable rate security, despite the
prohibition thereon in the Purchase Agreement, the
Company shall be deemed to have issued Common Stock or
Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities
may be converted or exercised in the case of a Variable
Rate Transaction (as defined in the Purchase Agreement).
ii. NOTICE TO ALLOW CONVERSION BY
HOLDER. If (A) the Company shall declare a dividend (or
any other distribution) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of
any rights; (D) the approval of any stockholders of the
Company shall be required in connection with any
reclassification of the Common Stock, any consolidation
or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of
the Company, of any compulsory share exchange whereby
the Common Stock is converted into other securities,
cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then, in each
case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of
this Debenture, and shall cause to be mailed to the
Holder at its last addresses as it shall appear upon the
stock books of the Company, at least 20 calendar days
prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants,
or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled
to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become
effective or close, and the date as of which it is
expected that holders of the Common Stock of record
shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale,
transfer or share exchange; PROVIDED,
17
that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the
validity of the corporate action required to be
specified in such notice. The Holder is entitled to
convert this Debenture during the 20-day period
commencing the date of such notice to the effective date
of the event triggering such notice.
SECTION 6. [RESERVED].
SECTION 7. NEGATIVE COVENANTS. So long as any portion of this
Debenture is outstanding, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:
a) other than Permitted Indebtedness, enter
into, create, incur, assume, guarantee or suffer to exist any
indebtedness for borrowed money of any kind, including but not
limited to, a guarantee, on or with respect to any of its property
or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom;
b) other than Permitted Liens, enter into,
create, incur, assume or suffer to exist any liens of any kind, on
or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits
therefrom;
c) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any
rights of the Holder;
d) repay, repurchase or offer to repay,
repurchase or otherwise acquire more than a DE MINIMIS number of
shares of its Common Stock or Common Stock Equivalents other than as
to the Conversion Shares to the extent permitted or required under
the Transaction Documents or as otherwise permitted by the
Transaction Documents;
e) enter into any agreement with respect to any
of the foregoing; or
f) pay cash dividends or distributions on any
equity securities of the Company.
SECTION 8. EVENTS OF DEFAULT.
a) "EVENT OF DEFAULT", wherever used herein,
means any one of the following events (whatever the reason and
whether it shall be voluntary or involuntary or effected by
operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or
governmental body):
i. any default in the payment of
(A) the principal amount of any Debenture, or (B)
interest (including Late Fees) on, or liquidated damages
in respect of, any Debenture, as and when the same shall
become due and payable (whether on a Conversion Date or
the Maturity Date or by acceleration or
18
otherwise) which default, solely in the case of an
interest payment or other default under clause (B)
above, is not cured, within 3 Trading Days;
ii. the Company shall fail to
observe or perform any other covenant or agreement
contained in this Debenture or any other Debenture
(other than a breach by the Company of its obligations
to deliver shares of Common Stock to the Holder upon
conversion which breach is addressed in clause (xi)
below) which failure is not cured, if possible to cure,
within the earlier to occur of (A) 5 Trading Days after
notice of such default sent by the Holder or by any
other Holder and (B)10 Trading Days after the Company
shall become or should have become aware of such
failure;
iii. a default or event of default
(subject to any grace or cure period provided for in the
applicable agreement, document or instrument) shall
occur under (A) any of the Transaction Documents other
than the Debentures, or (B) any other material
agreement, lease, document or instrument to which the
Company or any Subsidiary is bound;
iv. any representation or warranty
made herein, in any other Transaction Documents, in any
written statement pursuant hereto or thereto, or in any
other report, financial statement or certificate made or
delivered to the Holder or any other holder of
Debentures shall be untrue or incorrect in any material
respect as of the date when made or deemed made;
v. (i) the Company or any of its
Subsidiaries shall commence, 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 or any Subsidiary 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 (ii) there is commenced
against the Company or any Subsidiary thereof any such
bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 60 days; or (iii) the
Company or any Subsidiary thereof is adjudicated by a
court of competent jurisdiction insolvent or bankrupt;
or any order of relief or other order approving any such
case or proceeding is entered; or (iv) the Company or
any Subsidiary thereof suffers any appointment of any
custodian or the like for it or any substantial part of
its property which continues undischarged or unstayed
for a period of 60 days; or (v) the Company or any
Subsidiary thereof makes a general assignment for the
benefit of creditors; or (vi) the Company shall fail to
pay, or shall state that it is unable to pay, or shall
be unable to pay, its debts generally as they become
due; or (vii) the Company or any Subsidiary thereof
shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of
its debts; or (viii) the Company or any
19
Subsidiary thereof shall by any act or failure to act
expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or (ix) any
corporate or other action is taken by the Company or any
Subsidiary thereof for the purpose of effecting any of
the foregoing;
vi. the Company or any Subsidiary
shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be
secured or evidenced any indebtedness for borrowed money
or money due under any long term leasing or factoring
arrangement of the Company in an amount exceeding
$150,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in
such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise
become due and payable;
vii. the Common Stock shall not be
eligible for quotation on or quoted for trading on a
Trading Market and shall not again be eligible for and
quoted or listed for trading thereon within five Trading
Days;
viii. the Company shall be a party to
any Change of Control Transaction or Fundamental
Transaction, shall agree to sell or dispose of all or in
excess of 40% of its assets in one or more transactions
(whether or not such sale would constitute a Change of
Control Transaction) or shall redeem or repurchase more
than a de minimis number of its outstanding shares of
Common Stock or other equity securities of the Company
(other than redemptions of Conversion Shares and
repurchases of shares of Common Stock or other equity
securities of departing officers and directors of the
Company; provided such repurchases shall not exceed
$100,000, in the aggregate, for all officers and
directors during the term of this Debenture);
ix. a Registration Statement shall
not have been declared effective by the Commission on or
prior to the 180th calendar day after the Closing Date;
x. if, during the Effectiveness
Period (as defined in the Registration Rights
Agreement), the effectiveness of the Registration
Statement lapses for any reason or the Holder shall not
be permitted to resell Registrable Securities (as
defined in the Registration Rights Agreement) under the
Registration Statement, in either case, for more than 10
consecutive Trading Days or 15 non-consecutive Trading
Days during any 12 month period; PROVIDED, HOWEVER, that
in the event that the Company is negotiating a merger,
consolidation, acquisition or sale of all or
substantially all of its assets or a similar transaction
and in the written opinion of counsel to the Company,
the Registration Statement, would be required to be
amended to include information concerning such
transactions or the parties thereto that is not
available or may not be publicly disclosed at the time,
the
20
Company shall be permitted an additional 10 consecutive
Trading Days during any 12 month period relating to such
an event;
xi. the Company shall fail for any
reason to deliver certificates to a Holder prior to the
tenth Trading Day after a Conversion Date pursuant to
and in accordance with Section 4(d) or the Company shall
provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to
comply with requests for conversions of any Debentures
in accordance with the terms hereof; or
xii. The Company shall fail to obtain
Authorized Share Approval within 150 calendar days of
the Closing Date.
b) REMEDIES UPON EVENT OF DEFAULT. If any Event
of Default occurs, the full principal amount of this Debenture,
together with interest and other amounts owing in respect thereof,
to the date of acceleration shall become, at the Holder's election,
immediately due and payable in cash. The aggregate amount payable
upon an Event of Default shall be equal to the Mandatory Prepayment
Amount. Commencing 5 days after the occurrence of any Event of
Default that results in the eventual acceleration of this Debenture,
the interest rate on this Debenture shall accrue at the rate of 18%
per annum, or such lower maximum amount of interest permitted to be
charged under applicable law. All Debentures for which the full
Mandatory Prepayment Amount hereunder shall have been paid in
accordance herewith shall promptly be surrendered to or as directed
by the Company. The Holder need not provide and the Company hereby
waives any presentment, demand, protest or other notice of any kind,
and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Xxxxxx at any time
prior to payment hereunder and the Holder shall have all rights as a
Debenture holder until such time, if any, as the full payment under
this Section shall have been received by it. No such rescission or
annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.
SECTION 9. MISCELLANEOUS.
a) NOTICES. Any and all notices or other
communications or deliveries to be provided by the Holder hereunder,
including, without limitation, any Notice of Conversion, shall be in
writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service, addressed to the Company, at
the address set forth above, facsimile number (000) 000-0000, ATTN:
XXXX XXXXX, PRESIDENT AND CHIEF EXECUTIVE OFFICER or such other
address or facsimile number as the Company may specify for such
purposes by notice to the Holders delivered in accordance with this
Section. Any and all notices or other communications or deliveries
to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a
21
nationally recognized overnight courier service 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 5:30 p.m. (New York City
time), (ii) the date after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) the second Business Day following the
date of mailing, if sent by nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.
b) ABSOLUTE OBLIGATION. Except as expressly
provided herein, no provision of this Debenture shall alter or
impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate,
and in the coin or currency, herein prescribed. This Debenture is a
direct debt obligation of the Company. This Debenture ranks PARI
PASSU with all other Debentures now or hereafter issued under the
terms set forth herein.
c) LOST OR MUTILATED DEBENTURE. If this
Debenture shall be mutilated, lost, stolen or destroyed, the Company
shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new
Debenture for the principal amount of this Debenture so mutilated,
lost, stolen or destroyed but only upon receipt of evidence of such
loss, theft or destruction of such Debenture, and of the ownership
hereof, and indemnity, if requested, all reasonably satisfactory to
the Company.
d) GOVERNING LAW. All questions concerning the
construction, validity, enforcement and interpretation of this
Debenture shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without
regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by any of
the Transaction Documents (whether brought against a party hereto or
its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the
"NEW YORK COURTS"). Each party hereto hereby irrevocably submits to
the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or such
New York Courts are improper or inconvenient venue for such
proceeding.
22
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Debenture and
agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in
any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or
relating to this Debenture or the transactions contemplated hereby.
If either party shall commence an action or proceeding to enforce
any provisions of this Debenture, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its
attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.
e) WAIVER. Any waiver by the Company or the
Holder of a breach of any provision of this Debenture shall not
operate as or be construed to be a waiver of any other breach of
such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon
strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of
the right thereafter to insist upon strict adherence to that term or
any other term of this Debenture. Any waiver must be in writing.
f) SEVERABILITY. If any provision of this
Debenture is invalid, illegal or unenforceable, the balance of this
Debenture shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due
hereunder violates applicable laws governing usury, the applicable
rate of interest due hereunder shall automatically be lowered to
equal the maximum permitted rate of interest. The Company covenants
(to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on this Debenture
as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefits or advantage of
any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein
granted to the Holder, but will suffer and permit the execution of
every such as though no such law has been enacted.
g) NEXT BUSINESS DAY. Whenever any payment or
other obligation hereunder shall be due on a day other than a
Business Day, such payment shall be made on the next succeeding
Business Day.
23
h) HEADINGS. The headings contained herein are
for convenience only, do not constitute a part of this Debenture and
shall not be deemed to limit or affect any of the provisions hereof.
i) ASSUMPTION. Any successor to the Company or
surviving entity in a Fundamental Transaction shall (i) assume in
writing all of the obligations of the Company under this Debenture
and the other Transaction Documents pursuant to written agreements
in form and substance satisfactory to the Holder (such approval not
to be unreasonably withheld or delayed) prior to such Fundamental
Transaction and (ii) to issue to the Holder a new debenture of such
successor entity evidenced by a written instrument substantially
similar in form and substance to this Debenture, including, without
limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of the Debentures held by
the Holder and having similar ranking to this Debenture, and
satisfactory to the Holder (any such approval not to be unreasonably
withheld or delayed). The provisions of this Section 9(i) shall
apply similarly and equally to successive Fundamental Transactions
and shall be applied without regard to any limitations of this
Debenture.
*********************
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
SECURED SERVICES, INC.
By:___________________________________
Name:
Title:
25
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 7%
Convertible Debenture of Secured Services, Inc., a Delaware corporation (the
"COMPANY"), due on February __, 2009, into shares of common stock, par value
$0.0001 per share (the "COMMON STOCK"), of the Company according to the
conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the Exchange
Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account of
Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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SCHEDULE 1
CONVERSION SCHEDULE
The 7% Convertible Debentures due on February __, 2009, in the aggregate
principal amount of $____________ issued by Secured Services, Inc., a Delaware
corporation. This Conversion Schedule reflects conversions made under Section 4
of the above referenced Debenture.
Dated:
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Aggregate
Principal
Amount
Remaining
Date of Conversion Subsequent to Company Attest
(or for first entry, Amount of Conversion
Original Issue Date) Conversion (or original
Principal
Amount)
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