Exhibit 10.12
DATED: NOVEMBER 9, 2005
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
No. CCP-4 $1,991,217
ENCLAVES GROUP, INC.
AMENDED AND RESTATED SECURED CONVERTIBLE DEBENTURE
DUE JANUARY 15, 2007
This Amended and Restated Secured Convertible Debenture (the
"DEBENTURE") is issued on November 9, 2005 by ENCLAVES GROUP, INC. (f/k/a
Alliance Towers, Inc.), a Delaware corporation (the "OBLIGOR"), to CORNELL
CAPITAL PARTNERS, LP (the "HOLDER"), pursuant to that certain Securities
Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT") dated December 28, 2004
by and among Enclaves Group, Inc. ("ENCLAVES") and the Buyers listed on Schedule
I attached thereto, including the Holder. Enclaves issued to the Holder on
December 28, 2004 a secured debenture in the amount of Seven Hundred Fifty
Thousand Dollars ($750,000) (the "DECEMBER 2004 DEBENTURE"), on January 13,
2005, a secured debenture in the amount of One Million Dollars ($1,000,000) (the
"JANUARY 2005 DEBENTURE") and on May 16, 2005, a secured debenture in the amount
of One Million Seven Hundred Eighty One Thousand One Hundred Thirty Dollars
($1,781,130) (the "MAY 2005 DEBENTURE"), reflecting the consolidation of the
December 2004 Debenture and the January 2005 Debenture (including accrued
interest through May 16, 2005) (collectively, referred to as the "PRIOR
DEBENTURES"). Enclaves was subsequently acquired by the Obligor (f/k/a Alliance
Towers, Inc., a Florida corporation) on April 27, 2005 (the "ACQUISITION"). The
obligations of Enclaves under the Securities Purchase Agreement and the Prior
Debentures issued thereto have been assumed by the Obligor pursuant to the
Assignment and Assumption Agreement dated as of July 1, 2005 by and between
Enclaves and the Obligor and acknowledged by the Holder. This Debenture is being
re-issued to the Holder to amend and restate the May 2005 Debenture and to
reflect accrued and unpaid interest to the date hereof ($105,086.67 as and for
interest on the May 2005 Debenture through the date hereof) and to reflect
liquidated damages in the amount of $105,000 for a total principal sum of One
Million Nine Hundred Ninety One Thousand Two Hundred Seventeen Dollars
($1,991,217).
1
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder or
its successors and assigns the principal sum of One Million Nine Hundred Ninety
One Thousand Two Hundred Seventeen Dollars ($1,991,217), together with accrued
but unpaid interest on the following terms:
PAYMENTS. Interest on the outstanding principal balance hereof shall
begin to accrue from the date hereof and shall be due and payable monthly, in
arrears, as set forth below (each, an "INTEREST PAYMENT DATE"). Principal shall
be due and payable in 12 equal installments of $165,934.75 each, plus accrued
interest and a redemption premium equal to 12% ("REDEMPTION PREMIUM") of each
such installment or the highest rate permitted by applicable law, if lower. The
installments of principal shall be due and payable commencing January 15, 2006,
and subsequent installments shall be due and payable on the fifteenth day of
each calendar month thereafter ("PRINCIPAL PAYMENT DATE") until the outstanding
principal balance is paid in full; however, all amounts of outstanding principal
shall be paid in full no later than January 15, 2007 (the "MATURITY DATE"). All
payments in respect of the indebtedness evidenced hereby shall be made in
collected funds, and shall be applied to principal, accrued interest and charges
and expenses owing under or in connection with this Debenture in such order as
the Holder elects, except that payments shall be applied to accrued interest
before principal. Notwithstanding the foregoing, this Debenture shall become due
and immediately payable, including all accrued but unpaid interest, upon the
closing of a Funding Event (as defined in SECTION 4 hereof) or pursuant to an
Event of Default (as defined in SECTION 2 hereof).
INTEREST. Interest shall accrue on the outstanding principal balance
hereof at an annual rate equal to 12%. Interest shall be calculated on the basis
of a 360-day year and the actual number of days elapsed, to the extent permitted
by applicable law. Interest hereunder will be paid to the Holder or its assignee
(as defined in SECTION 4) in whose name this Debenture is registered on the
records of the Obligor regarding registration and transfers of Debentures (the
"DEBENTURE REGISTER").
RIGHT OF REDEMPTION. The Obligor at its option shall have the right,
with three (3) business days advance written notice, to redeem a portion or all
amounts outstanding under this Debenture prior to the Maturity Date or any
Principal Payment date. The Redemption Premium shall apply to all payments
whether on, before, or after any Principal Payment Date.
So long as any portion of this Debenture is held by the Holder or its
affiliates (as defined in Rule 144 promulgated under the Securities Act) the
Obligor shall not redeem this Debenture with the proceeds of the Amended and
Restated Standby Equity Distribution Agreement between the Obligor and the
Holder of even date herewith.
SECURITY AGREEMENT. This Debenture is secured by a Security Agreement
(the "SECURITY AGREEMENT") dated December 28, 2004 between the Obligor and
Cornell Capital Partners, LP ("Cornell"). In addition, this Debenture is secured
by the mortgages given to the Holder for the North Fort Myers, Florida and
Mesquite and Fort Worth, Texas properties as more fully described in the
Securities Purchase Agreement dated December 28, 2004.
CONSENT OF HOLDER TO SELL CAPITAL STOCK OR GRANT SECURITY INTERESTS.
Prior to the Obligor's Common Stock being listed on the Principal Market (as
defined in the Standby Equity Distribution Agreement dated December 28, 2004),
2
the Obligor shall not issue shares of Common Stock or Preferred Stock except as
provided by the merger and share exchange with Alliance Towers, Inc. and
described in the Obligor's 8-K filing dated May 2, 2005, or otherwise permitted
herein or under the Securities Purchase Agreement. Once the Obligor's Common
Stock is listed on the Principal Market, so long as any of the principal or
interest on this Debenture remains unpaid and unconverted, the Obligor shall
not, without the prior consent of the Holder, issue or sell (i) any capital
stock without consideration or for a consideration per share less than its fair
market value determined immediately prior to its issuance, (ii) issue or sell
any preferred stock, warrant, option, right, contract, call, or other security
or instrument granting the holder thereof the right to acquire Common Stock
without consideration or for a consideration per share less than such Common
Stock's fair market value or the preferred stock's conversion price determined
immediately prior to its issuance, (iii) enter into any security instrument
granting the holder a security interest in any of the assets of the Obligor,
except for any security instrument granting the holder a security interest in
any and all assets of the Obligor in connection with permanent or construction
financing obtained for the development of any real property, or for any security
instruments of a non-material nature or entered into in the ordinary course of
business, provided that in each case the Obligor gives the Holder prior notice
of such security interest, or (iv) file any registration statement on Form S-8.
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
SECTION 2. EVENTS OF DEFAULT.
(a) An "EVENT OF DEFAULT", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) Any default in the payment of the principal of, interest
on or other charges in respect of this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether on an
installment, a Principal Payment Date, an Interest Payment Date, a Conversion
Date or the Maturity Date or by acceleration or otherwise);
(ii) The Obligor shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Debenture (except as may be covered by SECTION
2(A)(I) hereof) or any Transaction Document (as defined in SECTION 4) which is
not cured with in the time prescribed;
(iii) The Obligor or any subsidiary of the Obligor shall
commence, or there shall be commenced against the Obligor or any subsidiary of
the Obligor under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Obligor or any subsidiary
of the Obligor commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
3
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to the Obligor or any subsidiary of the Obligor or there is
commenced against the Obligor or any subsidiary of the Obligor any such
bankruptcy, insolvency or other proceeding which remains undismissed for a
period of 61 days; or the Obligor or any subsidiary of the Obligor is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Obligor or any
subsidiary of the Obligor suffers any appointment of any custodian, private or
court appointed receiver or the like for it or any substantial part of its
property which continues undischarged or unstayed for a period of sixty one (61)
days; or the Obligor or any subsidiary of the Obligor makes a general assignment
for the benefit of creditors; or the Obligor or any subsidiary of the Obligor
shall fail to pay, or shall state that it is unable to pay, or shall be unable
to pay, its debts generally as they become due; or the Obligor or any subsidiary
of the Obligor shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or the Obligor or any
subsidiary of the Obligor shall by any act or failure to act expressly indicate
its consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the Obligor or any subsidiary of the
Obligor for the purpose of effecting any of the foregoing;
(iv) The Obligor or any subsidiary of the Obligor shall
default in any of its obligations under any other Debenture, including but not
limited to the Amended and Restated Secured Debenture issued by the Obligor to
Xxxxxxxxxx Equity Partners, Ltd. of even date herewith, the Secured Debenture
issued by the Obligor to Highgate House Funds, Ltd. of even date herewith, or
any mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement of the Obligor or any
subsidiary of the Obligor in an amount exceeding $100,000, whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable;
(v) The Common Stock shall cease to be quoted for trading or
listed for trading on the Nasdaq 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 (5) Trading Days of such delisting;
(vi) The Obligor or any subsidiary of the Obligor shall be a
party to any Change of Control Transaction (as defined in SECTION 4);
(vii) The Obligor shall fail to file the Underlying Shares
Registration Statement (as defined in SECTION 4) with the Commission (as defined
in SECTION 4), or the Underlying Shares Registration Statement shall not have
been declared effective by the Commission, in each case within the time periods
set forth in the Amended and Restated Investor Registration Rights Agreement of
even date herewith between the Obligor and Cornell;
(viii) If the effectiveness of the Underlying Shares
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell the shares of Common Stock underlying this Debenture under
4
the Underlying Shares Registration Statement, in either case, for more than five
(5) consecutive Trading Days or an aggregate of eight Trading Days (which need
not be consecutive Trading Days);
(ix) The Obligor shall fail for any reason to deliver Common
Stock certificates to a Holder prior to the fifth (5th) Trading Day after a
Conversion Date or the Obligor shall provide notice to the Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversions of this Debenture in accordance with the terms hereof;
(x) The Obligor shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within three (3) days
after notice is claimed delivered hereunder;
(xi) A material breach of the Guaranty Agreement with Homes
for America Holdings, Inc. dated December 28, 2004;
(xii) A material breach of the mortgages given to the Holder
for the Fort Xxxxx, Florida and Mesquite and Fort Worth, Texas properties or any
other mortgage given by the Obligor to the Holder before or after the date
hereof; or
(xiii) A material breach by the Obligor of its obligations
under the Securities Purchase Agreement and the Escrow Agreement, both dated
December 28, 2004, the Amended and Restated Security Agreement, the Amended and
Restated Investor Registration Rights Agreement, the Transfer Agent
Instructions, or any other agreement entered into on date hereof between the
Obligor and the Holder which is not cured by the Obligor within ten (10) days
after receipt of written notice thereof.
(b) During the time that any portion of this Debenture is outstanding,
if any Event of Default has occurred, the full principal amount of this
Debenture, together with interest and other amounts owing in respect thereof, to
the date of acceleration shall become at the Holder's election, immediately due
and payable in cash, PROVIDED HOWEVER, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Obligor.
If an Event of Default occurs and remains uncured, the Conversion Price shall be
reduced to ninety percent (90 %) of the Conversion Price defined herein. In
addition to any other remedies, the Holder shall have the right (but not the
obligation) to convert this Debenture at any time after (x) an Event of Default
or (y) the Maturity Date at the Conversion Price then in-effect. The Holder need
not provide and the Obligor hereby waives any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Xxxxxx at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon. Upon an Event of Default, notwithstanding any
other provision of this Debenture or any Transaction Document, the Holder shall
have no obligation to comply with or adhere to any limitations, if any, on the
conversion of this Debenture or the sale of the Underlying Shares.
5
SECTION 3. 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 (as defined in Section 4) (subject to the
limitations on conversion set forth in SECTION 3(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 amount of this
Debenture to be converted by (y) the Conversion Price (as defined in SECTION
3(C)(I)). The Obligor shall deliver Common Stock certificates to the Holder
prior to the Fifth (5th) Trading Day after a Conversion Date.
(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 Obligor has failed to timely satisfy its
conversion; or (4) the issuance of such shares of Common Stock would result in a
violation of SECTION 3(A)(II), then, at the option of the Holder, the Obligor,
in lieu of delivering shares of Common Stock pursuant to SECTION 3(A)(I)(A),
shall deliver, within three (3) Trading Days of each applicable Conversion Date,
an amount in cash equal to the product of the outstanding principal amount to be
converted plus any interest due therein divided by the Conversion Price and
multiplied by the highest closing price of the stock from date of the conversion
notice till the date that such cash payment is made.
Further, if the Obligor shall not have delivered any cash due in
respect of conversion of this Debenture or as payment of interest thereon by the
fifth (5th) Trading Day after the Conversion Date, the Holder may, by notice to
the Obligor, require the Obligor to issue shares of Common Stock pursuant to
SECTION 3(C), except that for such purpose the Conversion Price applicable
thereto shall be the lesser of the Conversion Price on the Conversion Date and
the Conversion Price on the date of such Holder demand. Any such shares will be
subject to the provisions of this Section.
(C) The Holder shall effect conversions by delivering to the
Obligor a completed notice in the form attached hereto as Exhibit A (a
"CONVERSION NOTICE"). The date on which a Conversion Notice is delivered is the
"CONVERSION DATE." Unless the Holder is converting the entire principal amount
outstanding under this Debenture, the Holder is not required to physically
surrender this Debenture to the Obligor in order to effect conversions.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture plus all accrued and unpaid interest thereon
in an amount equal to the applicable conversion. The Holder and the Obligor
shall maintain records showing the principal amount converted and the date of
such conversions. In the event of any dispute or discrepancy, the records of the
Holder shall be controlling and determinative in the absence of manifest error.
(ii) CERTAIN CONVERSION RESTRICTIONS.
(A) A Holder may not convert this 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
6
any affiliate thereof, beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules promulgated thereunder) in
excess of 4.9% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of interest on, this
Debenture held by such Holder after application of this Section. Since the
Holder will not be obligated to report to the Obligor the number of shares of
Common Stock it may hold at the time of a conversion hereunder, unless the
conversion at issue would result in the issuance of shares of Common Stock in
excess of 4.9% of the then outstanding shares of Common Stock without regard to
any other shares which may be beneficially owned by the Holder or an affiliate
thereof, the Holder shall have the authority and obligation to determine whether
the restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of this Debenture is convertible shall be the responsibility
and obligation of the Holder. If the Holder has delivered a Conversion Notice
for a principal amount of this Debenture that, without regard to any other
shares that the Holder or its affiliates may beneficially own, would result in
the issuance in excess of the permitted amount hereunder, the Obligor shall
notify the Holder of this fact and shall honor the conversion for the maximum
principal amount permitted to be converted on such Conversion Date in accordance
with the periods described in SECTION 3(A)(I)(A) 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 Obligor. Other Holders shall be unaffected by any
such waiver.
(B) The Holder may not convert this Debenture at any time
after receipt of an Advance Notice or during the Pricing Period applicable to
such Advance Notice, as such terms are defined in the Amended and Restated
Standby Equity Distribution Agreement of even date herewith by and between the
Obligor and the Holder.
(b) (i) Nothing herein shall limit a Holder's right to pursue actual
damages or declare an Event of Default pursuant to SECTION 2 herein for the
Obligor 's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
(ii) In addition to any other rights available to the Holder,
if the Obligor fails to deliver to the Holder such certificate or certificates
pursuant to SECTION 3(A)(I)(A) by the fifth Trading Day after the Conversion
Date, and if after such fifth (5th) Trading Day the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Underlying Shares which the Holder anticipated
receiving upon such conversion (a "BUY-IN"), then the Obligor shall (A) pay in
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common Stock that such Holder
7
anticipated receiving from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue a Debenture in
the principal amount equal to the principal amount of the attempted conversion
or deliver to the Holder the number of shares of Common Stock that would have
been issued had the Obligor timely complied with its delivery requirements under
SECTION 3(A)(I)(A). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with respect to which the market price of the
Underlying Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Obligor shall be required to pay
the Holder $1,000. The Holder shall provide the Obligor written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(c) (i) The conversion price (the "CONVERSION PRICE") in effect on any
Conversion Date shall be equal to one hundred percent (100 %) of the average
closing bid price of the Common Stock, as quoted by Bloomberg, LP for the five
(5) trading days immediately preceding the filing of the Underlying Shares
Registration Statement, which conversion price may be adjusted pursuant to the
other terms of this Debenture.
(ii) If the Obligor, at any time while this Debenture is
outstanding, shall (a) pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Obligor, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) If the Obligor, at any time while this Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Conversion Price, 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 the Conversion Price. Such adjustment shall be made whenever such rights or
warrants are issued, and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights,
options or warrants. However, upon the expiration of any such right, option or
8
warrant to purchase shares of the Common Stock the issuance of which resulted in
an adjustment in the Conversion Price pursuant to this Section, if any such
right, option or warrant shall expire and shall not have been exercised, the
Conversion Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Conversion Price
made pursuant to the provisions of this Section after the issuance of such
rights or warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights, options or warrants been made on the basis of offering
for subscription or purchase only that number of shares of the Common Stock
actually purchased upon the exercise of such rights, options or warrants
actually exercised.
(iv) If the Obligor or any subsidiary thereof, as applicable, at
any time while this Debenture is outstanding, shall issue shares of Common Stock
or rights, warrants, options or other securities or debt that are convertible
into or exchangeable for shares of Common Stock ("COMMON STOCK EQUIVALENTS")
entitling any Person to acquire shares of Common Stock, at a price per share
less than the 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 Obligor shall notify the Holder in writing, no later than one
(1) business day following the issuance of any Common Stock or Common Stock
Equivalent subject to this Section, indicating therein the applicable issuance
price, or of applicable reset price, exchange price, conversion price and other
pricing terms. No adjustment under this Section shall be made as a result of
issuances and exercises of options to purchase shares of Common Stock issued for
compensatory purposes pursuant to any of the Obligor's stock option or stock
purchase plans.
(v) If the Obligor, at any time while this Debenture is
outstanding, shall distribute to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price at which this 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 Closing Bid
Price determined as of the record date mentioned above, and of which the
numerator shall be such Closing Bid Price on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
9
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder shall have the right thereafter
to, at its option, (A) convert the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of the Common Stock
following such reclassification or share exchange, and the Holder of this
Debenture shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Obligor
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled, or (B) require the Obligor to prepay
the outstanding principal amount of this Debenture, plus all interest and other
amounts due and payable thereon. The entire prepayment price shall be paid in
cash. This provision shall similarly apply to successive reclassifications or
share exchanges.
(vii) The Obligor shall maintain a share reserve of not less than
500% of the shares of Common Stock issuable upon conversion of this Debenture;
and within three (3) Business Days following the receipt by the Obligor of a
Holder's notice that such minimum number of Underlying Shares is not so
reserved, the Obligor shall promptly reserve a sufficient number of shares of
Common Stock to comply with such requirement.
(viii) All calculations under this SECTION 3 shall be rounded up to
the nearest $0.001 of a share.
(ix) Whenever the Conversion is adjusted pursuant to SECTION 3
hereof, the Obligor shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(x) If (A) the Obligor shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Obligor shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Obligor shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Obligor
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Obligor is a party, any sale or
transfer of all or substantially all of the assets of the Obligor, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Obligor shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Obligor; then, in each case, the Obligor shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the Obligor, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
10
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day calendar period commencing the date of such notice to the effective date
of the event triggering such notice.
(xi) In case of any (1) merger or consolidation of the Obligor or
any subsidiary of the Obligor with or into another Person, or (2) sale by the
Obligor or any subsidiary of the Obligor of more than one-half of the assets of
the Obligor in one or a series of related transactions, a Holder shall have the
right to (A) exercise any rights under SECTION 2(B), (B) convert the aggregate
amount of this Debenture then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of this Debenture could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled, or (C) in the case of a merger or consolidation, require the surviving
entity to issue to the Holder a convertible Debenture with a principal amount
equal to the aggregate principal amount of this Debenture then held by such
Holder, plus all accrued and unpaid interest and other amounts owing thereon,
which such newly issued convertible Debenture shall have terms identical
(including with respect to conversion) to the terms of this Debenture, and shall
be entitled to all of the rights and privileges of the Holder of this Debenture
set forth herein and the agreements pursuant to which this Debentures were
issued. In the case of clause (C), the conversion price applicable for the newly
issued shares of convertible preferred stock or convertible Debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Conversion Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger, sale or consolidation shall include such terms so as
to continue to give the Holder the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such events.
(d) The Obligor covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Obligor as to reservation of such shares set
forth in this Debenture) be issuable (taking into account the adjustments and
restrictions of SECTIONS 2(B) AND 3(C)) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder. The
Obligor covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
11
(e) Upon a conversion hereunder the Obligor shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Closing Bid Price at such time. If the Obligor
elects not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Obligor shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debenture so converted and the Obligor
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Obligor
the amount of such tax or shall have established to the satisfaction of the
Obligor that such tax has been paid.
(g) Any notices, consents, waivers or other communications required or
permitted to be given under the terms hereof must be in writing and will be
deemed to have been delivered: (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) trading day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Obligor, to: Enclaves Group, Inc.
00 Xxxxxxxxx Xxxx, Xxxxx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Olshan Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
Park Avenue Tower
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Holder: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxxxx X. Press
Telephone: (000) 000-0000
12
With a copy to: Xxxx Xxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
SECTION 4. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of (a) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Obligor, by contract or otherwise) of in excess of fifty percent
(50%) of the voting securities of the Obligor (except that the acquisition of
voting securities by the Holder shall not constitute a Change of Control
Transaction for purposes hereof), (b) a replacement at one time or over time of
more than one-half of the members of the board of directors of the Obligor which
is not approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving as
members of the board of directors on any date whose nomination to the board of
directors was approved by a majority of the members of the board of directors
who are members on the date hereof), (c) the merger, consolidation or sale of
fifty percent (50%) or more of the assets of the Obligor or any subsidiary of
the Obligor in one or a series of related transactions with or into another
entity, or (d) the execution by the Obligor of an agreement to which the Obligor
is a party or by which it is bound, providing for any of the events set forth
above in (a), (b) or (c).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $0.001, of the Obligor
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.
13
"FUNDING EVENT" means any transaction or series of transactions closed
after the Original Issue Date in which the Obligor raises $10,000,000 or more
through the sale of their equity securities or securities exercisable or
convertible into equity securities.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.
"CLOSING BID PRICE" means the price per share in the last reported
trade of the Common Stock on the OTC or on the exchange which the Common Stock
is then listed as quoted by Bloomberg, LP.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"TRADING DAY" means a day on which the shares of Common Stock are
quoted on the OTC or quoted or traded on such Subsequent Market on which the
shares of Common Stock are then quoted or listed; provided, that in the event
that the shares of Common Stock are not listed or quoted, then Trading Day shall
mean a Business Day.
"TRANSACTION DOCUMENTS" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Escrow Agreement, the Guaranty Agreement by
and among Homes For America Holdings, Inc., Cornell Capital Partners, LP and
Xxxxxxxxxx Equity Partners, Ltd. and the Investor Registration Rights Agreement,
all dated December 28, 2004 and the mortgages given to the Holder for the North
Fort Myers, Florida and Mesquite, Texas properties as more fully described in
the Securities Purchase Agreement dated December 28, 2004 and the mortgage of
even date herewith given to the Holder for the Fort Worth, Texas property, and
the Amended and Restated Investor Registration Rights Agreement, the Transfer
Agent Instructions, the Amended and Restated Security Agreement and the Guaranty
given by Enclaves Group, Inc., a wholly owned subsidiary of the Obligor to the
Holder, all of which are date of even date herewith.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
SECTION 5. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Obligor, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Obligor. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Obligor shall not and shall cause their subsidiaries not to,
14
without the consent of the Holder, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock or other equity securities other than as to
the Underlying Shares to the extent permitted or required under the Transaction
Documents; or (iii) enter into any agreement with respect to any of the
foregoing.
SECTION 6. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Obligor, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Obligor, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
SECTION 7. If this Debenture is mutilated, lost, stolen or destroyed,
the Obligor shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Obligor.
SECTION 8. No indebtedness of the Obligor is senior to this Debenture
in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. Without the Holder's consent, the
Obligor will not and will not permit any of their subsidiaries to, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
there from that is senior in any respect to the obligations of the Obligor under
this Debenture.
SECTION 9. This Debenture shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect to
conflicts of laws thereof. Each of the parties consents to the jurisdiction of
the Superior Courts of the State of New Jersey sitting in Xxxxxx County, New
Jersey and the U.S. District Court for the District of New Jersey sitting in
Newark, New Jersey in connection with any dispute arising under this Debenture
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on FORUM NON CONVENIENS to the bringing of any
such proceeding in such jurisdictions.
SECTION 10. If the Obligor fails to strictly comply with the terms of
this Debenture, then the Obligor shall reimburse the Holder promptly for all
fees, costs and expenses, including, without limitation, attorneys' fees and
expenses incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the
Holder's rights, remedies and obligations, (ii) collecting any sums which become
due to the Holder, (iii) defending or prosecuting any proceeding or any
counterclaim to any proceeding or appeal; or (iv) the protection, preservation
or enforcement of any rights or remedies of the Holder.
15
SECTION 11. Any waiver by the Holder of a breach of any provision of
this Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver must be in writing.
SECTION 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 Obligor covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Obligor from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Obligor (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
SECTION 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.
SECTION 14. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
ENCLAVES GROUP, INC.
By: /s/ Xxxxxx X. Xxxxx
----------------------
Name: Xxxxxx X. Xxxxx
Title: President and CEO
16
EXHIBIT "A"
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE HOLDER IN ORDER TO CONVERT THE DEBENTURE)
TO:
The undersigned hereby irrevocably elects to convert $_______________
of the principal amount of the above Debenture into Shares of Common Stock of
Enclaves Group, Inc., according to the conditions stated therein, as of the
Conversion Date written below.
CONVERSION DATE: ___________________________________________
APPLICABLE CONVERSION PRICE: ___________________________________________
SIGNATURE: ___________________________________________
NAME: ___________________________________________
ADDRESS: ___________________________________________
AMOUNT TO BE CONVERTED: $__________________________________________
AMOUNT OF DEBENTURE UNCONVERTED: $__________________________________________
CONVERSION PRICE PER SHARE: $__________________________________________
NUMBER OF SHARES OF COMMON
STOCK TO BE ISSUED: ___________________________________________
PLEASE ISSUE THE SHARES OF
COMMON STOCK IN THE FOLLOWING
NAME AND TO THE FOLLOWING ADDRESS: ___________________________________________
ISSUE TO: ___________________________________________
AUTHORIZED SIGNATURE: ___________________________________________
NAME: ___________________________________________
TITLE: ___________________________________________
PHONE NUMBER: ___________________________________________
BROKER DTC PARTICIPANT CODE: ___________________________________________
ACCOUNT NUMBER: ___________________________________________
