THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND IS
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.
7 % CONVERTIBLE DEBENTURE
Company: Seaway Valley Capital Corporation
Company Address: 00-00 Xxxx Xxxxxx, 0xx Xxxxx, Xxxxxxxxxx, Xxx Xxxx 00000
Closing Date: December __, 2007
Maturity Date: December __, 2010
Principal Amount: $1,500,000
Seaway Valley Capital Corporation, a Delaware corporation, and any
successor or resulting corporation by way of merger, consolidation, sale or
exchange of all or substantially all of the assets or otherwise (the "Company"),
for value received, hereby promises to pay to the Holder (as such term is
hereinafter defined), or such other Person (as such term is hereinafter defined)
upon order of the Holder, on the Maturity Date (as such term is hereinafter
defined), the Principal Amount (as such term is hereinafter defined), as such
sum may be adjusted pursuant to Article 3, and to pay interest thereon with such
interest commencing to accrue as of the date hereof and payable monthly
beginning on the date hereof and such interest shall be paid within three days
of the beginning of each month that such interest is due, 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), at the rate of seven percent
(7.0%) per annum (the "Debenture Interest Rate"). All interest payable on the
Principal Amount of this Debenture shall be calculated on the basis of a 360-day
year for the actual number of days elapsed. Payment of interest on this
Debenture shall be in cash or, at the option of the Holder, in shares of Common
Stock of the Company valued at the then applicable Conversion Price (as defined
herein). This Debenture may not be prepaid without the written consent of the
Holder.
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used in
this Debenture have the following respective meanings:
(i) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
(ii) "Bankruptcy Code" means the United States Bankruptcy Code of 1986, as
amended (11 U.S.C. xx.xx. 101 et. seq.).
(iii) "Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of California are authorized or
obligated to close.
(iv) "Capital Shares" means the Common Stock and any other shares of any
other class or series of capital stock, whether now or hereafter
authorized and however designated, which have the right to participate
in the distribution of earnings and assets (upon dissolution,
liquidation or winding-up) of the Company.
(v) "Closing Date" means the closing date set forth in the first paragraph
of this Debenture.
(vi) "Common Shares" or "Common Stock" means shares of the Company's Common
Stock.
(vii) "Common Stock Issued at Conversion", when used with reference to the
securities deliverable upon conversion of this Debenture, means all
Common Shares now or hereafter Outstanding and securities of any other
class or series into which this Debenture hereafter shall have been
changed or substituted, whether now or hereafter created and however
designated.
(viii) "Conversion" or "conversion" means the repayment by the Company of
the Principal Amount of this Debenture (and, to the extent the Holder
elects as permitted by Section 3.1, accrued and unpaid interest
thereon) by the delivery of Common Stock on the terms provided in
Section 3.2, and "convert," "converted," "convertible" and like words
shall have a corresponding meaning.
(ix) "Conversion Date" means any day on which all or any portion of the
Principal Amount of this Debenture is converted in accordance with the
provisions hereof.
(x) "Conversion Notice" means a written notice of conversion substantially
in the form annexed hereto as Exhibit A.
(xi) "Conversion Price" on any date of determination means the applicable
price for the conversion of this Debenture into Common Shares on such
day as set forth in Section 3.1(a).
(xii) "Current Market Price" on any date of determination means the closing
price of a Common Share on such day as reported in the "pink sheets"
through the Interdealer Trading Quotation System; provided, if such
security is not traded on the over the counter market via the pink
sheets, then the closing price on the NASDAQ OTCBB Exchange; provided
further, that, if such security is not listed or admitted to trading
on the NASDAQ OTCBB, as reported on the principal national security
exchange or quotation system on which such security is quoted or
listed or admitted to trading, or, if not quoted or listed or admitted
to trading on any national securities exchange or quotation system,
the closing bid price of such security on the over-the-counter market
on the day in question as reported by Bloomberg LP or a similar
generally accepted reporting service, as the case may be.
(xiii) "Debenture" or "Debentures" means this Convertible Debenture of the
Company or such other convertible debenture(s) exchanged therefor as
provided in Section 2.1.
(xiv) "Discount Multiplier" has the meaning set forth in Section 3.1(a).
(xv) "Event of Default" has the meaning set forth in Section 6.1.
(xvi) "Holder" means Golden Gate Investors, Inc., any successor thereto, or
any Person to whom this Debenture is subsequently transferred in
accordance with the provisions hereof.
(xvii) "Interest Payment Due Date" has the meaning set forth in the opening
paragraph of this Debenture. (xviii) "Market Disruption Event" means
any event that results in a material suspension or limitation of
trading of the Common Shares.
(xix) "Maturity Date" means the maturity date set forth in the first
paragraph of this Debenture. (xx) "Maximum Rate" has the meaning set
forth in Section 6.4.
(xxi) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares") means, on any date of determination,
all issued and outstanding Shares, and includes all such Shares
issuable in respect of outstanding scrip or any certificates
representing fractional interests in such Shares; provided, however,
that any such Shares directly or indirectly owned or held by or for
the account of the Company or any Subsidiary of the Company shall not
be deemed "Outstanding" for purposes hereof.
(xxii) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any
government or political subdivision or any agency or instrumentality
thereof.
(xxiii) "Principal Amount" means, for any date of calculation, the
principal sum set forth in the first paragraph of this Debenture (but
only such principal amount as to which the Holder has (a) actually
advanced, and (b) not theretofore furnished a Conversion Notice in
compliance with Section 3.2).
(xxiv) "SEC" means the United States Securities and Exchange Commission.
(xxv) "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as in effect at
the time.
(xxvi) "Securities Purchase Agreement" means that certain Securities
Purchase Agreement of even date herewith by and among the Company and
Holder, as the same may be amended from time to time.
(xxvii) "Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority
of the board of directors or other persons performing similar
functions are owned directly or indirectly by the Company.
(xxviii) "Trading Day" means any day on which (i) purchases and sales of
securities on the principal national security exchange or quotation
system on which the Common Shares are traded are reported thereon, or,
if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, as reported by Bloomberg LP
or a similar generally accepted reporting service, as the case may be,
(ii) at least one bid for the trading of Common Shares is reported and
(iii) no Market Disruption Event occurs.
(xxix) "Volume Weighted Average Price" per Common Share means the volume
weighted average price of the Common Shares during any Trading Day as
reported in the "pink sheets" through the Interdealer Trading
Quotation System; provided, if such security is not traded on the over
the counter market via the pink sheets, then the volume weighted
average price on the NASDAQ OTCBB; provided further, that, if such
security is not listed or admitted to trading on the NASDAQ OTCBB, as
reported on the principal national security exchange or quotation
system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the volume weighted
average price of the Common Shares during any Trading Day on the
over-the-counter market as reported by Bloomberg LP or a similar
generally accepted reporting service, as the case may be.
All references to "cash" or "$" herein means currency of the United States
of America.
ARTICLE 2
EXCHANGES, TRANSFER AND REPAYMENT
SECTION 2.1 Registration of Transfer of Debentures. This Debenture, when
presented for registration of transfer, shall (if so required by the Company) be
duly endorsed, or be accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company duly executed, by the Holder duly
authorized in writing. SECTION 2.2 Loss, Theft, Destruction of Debenture. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Debenture and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security reasonably satisfactory to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Debenture, the Company shall make, issue and deliver, in
lieu of such lost, stolen, destroyed or mutilated Debenture, a new Debenture of
like tenor and unpaid Principal Xxxxxx dated as of the date hereof (which shall
accrue interest from the most recent Interest Payment Due Date on which an
interest payment was made in full). This Debenture shall be held and owned upon
the express condition that the provisions of this Section 2.2 are exclusive with
respect to the replacement of a mutilated, destroyed, lost or stolen Debenture
and shall preclude any and all other rights and remedies notwithstanding any law
or statute existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without the surrender
thereof.
SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the Person in
whose name this Debenture shall be registered upon the registry books of the
Company to be, and may treat it as, the absolute owner of this Debenture
(whether or not this Debenture shall be overdue) for the purpose of receiving
payment of or on account of the Principal Amount of this Debenture, for the
conversion of this Debenture and for all other purposes, and the Company shall
not be affected by any notice to the contrary. All such payments and such
conversions shall be valid and effectual to satisfy and discharge the liability
upon this Debenture to the extent of the sum or sums so paid or the conversion
or conversions so made.
SECTION 2.4 Repayment at Maturity. At the Maturity Date, the Company shall
repay the outstanding Principal Amount of this Debenture in whole in cash,
together with all accrued and unpaid interest thereon, in cash, to the Maturity
Date.
ARTICLE 3
CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Price; Valuation Event.
At the option of the Holder, this Debenture may be converted, either in whole or
in part, up to the full Principal Amount hereof into Common Shares (calculated
as to each such conversion to the nearest 1/100th of a share), at any time and
from time to time on any Business Day, subject to compliance with Section 3.2.
The number of Common Shares into which this Debenture may be converted is equal
to the dollar amount of the Debenture being converted divided by the Conversion
Price. The "Conversion Price" shall be equal to the lesser of (i) $0.10, or (ii)
85% of the average of the 3 lowest Volume Weighted Average Prices during the 20
Trading Days prior to Holder's election to convert (the percentage figure being
a "Discount Multiplier"). The Company reserves the right to increase the number
of Trading Days in clause (ii) above, as it deems appropriate.
If the Holder elects to convert a portion of the Debenture and, on the day that
the election is made, the Volume Weighted Average Price is below $0.005, the
Company shall have the right to prepay that portion of the Debenture that Holder
elected to convert, plus any accrued and unpaid interest, at 150% of such
amount. In the event that the Company elects to prepay that portion of the
Debenture, Holder shall have the right to withdraw its Conversion Notice.
SECTION 3.2 Exercise of Conversion Privilege. (a) Conversion of this
Debenture may be exercised on any Business Day by the Holder by telecopying an
executed and completed Conversion Notice to the Company. Each date on which a
Conversion Notice is telecopied to the Company in accordance with the provisions
of this Section 3.2 shall constitute a Conversion Date. The Company shall
convert this Debenture and issue the Common Stock Issued at Conversion in the
manner provided below in this Section 3.2, and all voting and other rights
associated with the beneficial ownership of the Common Stock Issued at
Conversion shall vest with the Holder, effective as of the Conversion Date at
the time specified in the Conversion Notice. The Conversion Notice also shall
state the name or names (with addresses) of the persons who are to become the
holders of the Common Stock Issued at Conversion in connection with such
conversion. As promptly as practicable after the receipt of the Conversion
Notice as aforesaid, but in any event not more than two (2) Business Days after
the Company's receipt of such Conversion Notice, the Company shall (i) issue the
Common Stock Issued at Conversion in accordance with the provisions of this
Article 3 and (ii) cause to be mailed for delivery by overnight courier (x) a
certificate or certificate(s) representing the number of Common Shares to which
the Holder is entitled by virtue of such conversion and (y) cash, as provided in
Section 3.3, in respect of any fraction of a Common Share deliverable upon such
conversion. Such conversion shall be deemed to have been effected at the time at
which the Conversion Notice indicates, and at such time the rights of the Holder
of this Debenture, as such (except if and to the extent that any Principal
Amount thereof remains unconverted), shall cease and the Person and Persons in
whose name or names the Common Stock Issued at Conversion shall be issuable
shall be deemed to have become the holder or holders of record of the Common
Shares represented thereby, and all voting and other rights associated with the
beneficial ownership of such Common Shares shall at such time vest with such
Person or Persons. The Conversion Notice shall constitute a contract between the
Holder and the Company, whereby the Holder shall be deemed to subscribe for the
number of Common Shares which it will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription (and for any
cash adjustment to which it is entitled pursuant to Section 3.4), to surrender
this Debenture and to release the Company from all liability thereon (except if
and to the extent that any Principal Amount thereof remains unconverted). No
cash payment aggregating less than $1.00 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time after the date of this Debenture, (i) the Company
challenges, disputes or denies the right of the Holder hereof to effect the
conversion of this Debenture into Common Shares or otherwise dishonors or
rejects any Conversion Notice delivered in accordance with this Section 3.2 or
(ii) any third party who is not and has never been an Affiliate of the Holder
commences any lawsuit or legal proceeding or otherwise asserts any claim before
any court or public or governmental authority which seeks to challenge, deny,
enjoin, limit, modify, delay or dispute the right of the Holder hereof to effect
the conversion of this Debenture into Common Shares, then the Holder shall have
the right, but not the obligation, by written notice to the Company, to require
the Company to promptly redeem this Debenture for cash at one hundred fifty
percent (150%) of the Principal Amount thereof, together with all accrued and
unpaid interest thereon to the date of redemption. Under any of the
circumstances set forth above, the Company shall be responsible for the payment
of all costs and expenses of the Holder, including reasonable legal fees and
expenses, as and when incurred in defending itself in any such action or
pursuing its rights hereunder (in addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under the Bankruptcy Code. In the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C. ss. 362 in respect of the Holder's conversion privilege. The Company
hereby waives to the fullest extent permitted any rights to relief it may have
under 11 U.S.C. ss. 362 in respect of the conversion of this Debenture. The
Company agrees, without cost or expense to the Holder, to take or consent to any
and all action necessary to effectuate relief under 11 U.S.C. ss. 362.
SECTION 3.3 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be delivered upon conversion of this
Debenture. Instead of any fractional Common Shares which otherwise would be
delivered upon conversion of this Debenture, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
multiplied by the Current Market Price on the Conversion Date. No cash payment
of less than $1.00 shall be required to be given unless specifically requested
by the Holder.
SECTION 3.4 Adjustments. The Conversion Price and the number of shares
deliverable upon conversion of this Debenture are subject to adjustment from
time to time as follows:
(i) Reclassification, Etc. In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or
into another Person (where the Company is not the survivor or where
there is a change in or distribution with respect to the Common Stock
of the Company), sell, convey, transfer or otherwise dispose of all or
substantially all its property, assets or business to another Person,
or effectuate a transaction or series of related transactions in which
more than fifty percent (50%) of the voting power of the Company is
disposed of (each, a "Fundamental Corporate Change") and, pursuant to
the terms of such Fundamental Corporate Change, shares of common stock
of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property") are to be received by or distributed to
the holders of Common Stock of the Company, then the Holder of this
Debenture shall have the right thereafter, at its sole option, to (x)
require the Company to prepay this Debenture for cash at one hundred
fifty percent (150%) of the Principal Amount thereof, together with
all accrued and unpaid interest thereon to the date of prepayment, (y)
receive the number of shares of common stock of the successor or
acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property as is receivable upon or as a result
of such Fundamental Corporate Change by a holder of the number of
shares of Common Stock into which the outstanding portion of this
Debenture may be converted at the Conversion Price applicable
immediately prior to such Fundamental Corporate Change or (z) require
the Company, or such successor, resulting or purchasing corporation,
as the case may be, to, without benefit of any additional
consideration therefor, execute and deliver to the Holder a debenture
with substantial identical rights, privileges, powers, restrictions
and other terms as this Debenture in an amount equal to the amount
outstanding under this Debenture immediately prior to such Fundamental
Corporate Change. For purposes hereof, "common stock of the successor
or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any
other class of stock of such corporation and which is not subject to
prepayment and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such
stock. The foregoing provisions shall similarly apply to successive
Fundamental Corporate Changes.
SECTION 3.5 Certain Conversion Limits.
The Company shall not effect any conversion of this Debenture, and a Holder
shall not have the right to convert any portion of this Debenture, to the extent
that after giving effect to the conversion, as set forth on the applicable
Conversion Notice, such Holder (together with such Xxxxxx's Affiliates, and any
other person or entity acting as a group together with such Holder or any of
such Holder's Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by such Holder and its
Affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Debenture with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which are issuable
upon (A) conversion of the remaining, unconverted principal amount of this
Debenture beneficially owned by such Holder or any of its Affiliates and (B)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without limitation, any
other Debentures or warrants to purchase shares of the Company's Common Stock)
beneficially owned by such Holder or any of its Affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 3.5, 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 3.5 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 principal amount of this
Debenture is convertible shall be in the sole discretion of such Holder, and the
submission of a Conversion Notice 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 together with any Affiliates) and which
principal amount of this Debenture is 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
Conversion Notice that such Conversion Notice 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 3.5, in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock provided to the Holder in writing by the
Company after Holder makes such request or in the event that the Company files,
any of the following with the Securities and Exchange Commission, 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) a more recent notice by the Company or the Company's transfer
agent setting forth the number of shares of Common Stock outstanding. Upon the
written or oral request of a Holder, the Company shall within two Trading Days
confirm orally and in writing to such Holder the number of shares of Common
Stock then outstanding on the records of the Company as of the date of the
request. 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. 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 3.5 may be waived by such Holder, at the election of such Holder, upon
not less than 61 days' prior notice to the Company, to, at the sole discretion
of the Holder, either change the Beneficial Ownership Limitation to (i) 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 the
Debenture held by the Holder and the provisions of this Section 3.5 shall
continue to apply, or (ii) remove any Beneficial Ownership Limitation under this
Debenture. The provisions of this paragraph shall be construed and implemented
in a manner otherwise than in strict conformity with the terms of this Section
3.5 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. If any court of competent jurisdiction shall determine that
the foregoing limitation is ineffective to prevent a Holder from being deemed
the beneficial owner of more than 9.99% of the then outstanding shares of Common
Stock, then the Company shall prepay such portion of this Debenture as shall
cause such Holder not to be deemed the beneficial owner of more than 9.99% of
the then outstanding shares of Common Stock. Upon such determination by a court
of competent jurisdiction, the Holder shall have no interest in or rights under
such portion of the Debenture. Any and all interest paid on or prior to the date
of such determination shall be deemed interest paid on the remaining portion of
this Debenture held by the Holder. Such prepayment shall be for cash at a
prepayment price of one hundred fifty percent (150%) of the Principal Amount
thereof, together with all accrued and unpaid interest thereon to the date of
prepayment. The limitations contained in this paragraph shall apply to a
successor holder of this Debenture.
SECTION 3.6 Surrender of Debentures. Upon any redemption of this Debenture
pursuant to Sections 3.2, 3.5 or 6.2, or upon maturity pursuant to Section 2.4,
the Holder shall either deliver this Debenture by hand to the Company at its
principal executive offices or surrender the same to the Company at such address
by nationally recognized overnight courier. Payment of the redemption price or
the amount due on maturity specified in Section 2.4, shall be made by the
Company to the Holder against receipt of this Debenture (as provided in this
Section 3.5) by wire transfer of immediately available funds to such account(s)
as the Holder shall specify by written notice to the Company. If payment of such
redemption price is not made in full by the redemption date, or the amount due
on maturity is not paid in full by the Maturity Date, the Holder shall again
have the right to convert this Debenture as provided in Article 3 hereof or to
declare an Event of Default.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Debenture. This Debenture constitutes a legal, valid
and binding obligation of the Company, enforceable in accordance with its terms
subject, as to enforceability, to general principles of equity and to principles
of bankruptcy, insolvency, reorganization and other similar laws of general
applicability relating to or affecting creditors' rights and remedies generally.
SECTION 4.2 Restrictions on Transfer. This Debenture, and any Common Shares
deliverable upon the conversion hereof, have not been registered under the
Securities Act. The Holder by accepting this Debenture agrees that this
Debenture and the shares of Common Stock to be acquired as interest on and upon
conversion of this Debenture may not be assigned or otherwise transferred unless
and until (i) the Company has received the opinion of counsel for the Holder
that this Debenture or such shares may be sold pursuant to an exemption from
registration under the Securities Act, provided that the Company will not
require opinions of counsel for transactions involving transfers to Affiliates
of the Holder or pursuant to Rule 144 promulgated by the SEC under the
Securities Act, except in unusual circumstances, or (ii) a registration
statement relating to this Debenture or such shares has been filed by the
Company and declared effective by the SEC.
Each certificate for shares of Common Stock deliverable hereunder shall
bear a legend as follows unless and until such securities have been sold
pursuant to an effective registration statement under the Securities Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"). The securities may not be offered for sale, sold or
otherwise transferred except (i) pursuant to an effective registration
statement under the Securities Act or (ii) pursuant to an exemption
from registration under the Securities Act in respect of which the
issuer of this certificate has received an opinion of counsel
satisfactory to the issuer of this certificate to such effect. Copies
of the agreement covering both the purchase of the securities and
restrictions on their transfer may be obtained at no cost by written
request made by the holder of record of this certificate to the
Secretary of the issuer of this certificate at the principal executive
offices of the issuer of this certificate."
ARTICLE 5 COVENANTS SECTION 5.1 Conversion. The Company shall cause the
transfer agent, not later than two (2) Business Days after the Company's receipt
of a Conversion Notice, to issue and deliver to the Holder the requisite shares
of Common Stock Issued at Conversion.
SECTION 5.2 Notice of Default. If any one or more events occur which
constitute or which, with notice, lapse of time, or both, would constitute an
Event of Default, the Company shall forthwith give notice to the Holder,
specifying the nature and status of the Event of Default or such other event(s),
as the case may be.
SECTION 5.3 Payment of Obligations. So long as this Debenture shall be
outstanding, the Company shall pay, extend, or discharge at or before maturity,
all its respective material obligations and liabilities, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings.
SECTION 5.4 Compliance with Laws. So long as this Debenture shall be
outstanding, the Company shall comply with all applicable laws, ordinances,
rules, regulations and requirements of governmental authorities, except for such
noncompliance which would not have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company and the Subsidiaries.
SECTION 5.5 Inspection of Property, Books and Records. So long as this
Debenture shall be outstanding, the Company shall keep proper books of record
and account in which full, true and correct entries shall be made of all
material dealings and transactions in relation to its business and activities
and shall permit representatives of the Holder at the Holder's expense to visit
and inspect any of its respective properties, to examine and make abstracts from
any of its respective books and records, not reasonably deemed confidential by
the Company, and to discuss its respective affairs, finances and accounts with
its respective officers and independent public accountants, all at such
reasonable times and as often as may reasonably be desired.
SECTION 5.6 Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
this Debenture, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of this Debenture; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of this Debenture, in addition to such other
remedies as shall be available to the holder of this Debenture, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval to file an
amendment to the charter of the Company.
ARTICLE 6
EVENTS OF DEFAULT; REMEDIES
SECTION 6.1 Events of Default. "Event of Default" wherever used herein
means any one of the following events:
(i) the Company shall default in the payment of principal of or
interest on this Debenture as and when the same shall be due and payable
and, in the case of an interest payment default, such default shall
continue for five (5) Business Days after the date such interest payment
was due, or the Company shall fail to perform or observe any other
covenant, agreement, term, provision, undertaking or commitment under this
Debenture or the Securities Purchase Agreement and such default shall
continue for a period of ten (10) Business Days after the delivery to the
Company of written notice that the Company is in default hereunder or
thereunder;
(ii) any of the representations, warranties, or covenants made by the
Company herein, in the Securities Purchase Agreement or in any certificate
or financial or other written statements heretofore or hereafter furnished
by or on behalf of the Company in connection with the execution and
delivery of this Debenture or the Securities Purchase Agreement shall be
false or misleading in a material respect on the Closing Date;
(iii) under the laws of any jurisdiction not otherwise covered by
clauses (iv) and (v) below, the Company or any Subsidiary (A) becomes
insolvent or generally not able to pay its debts as they become due, (B)
admits in writing its inability to pay its debts generally or makes a
general assignment for the benefit of creditors, (C) institutes or has
instituted against it any proceeding seeking (x) to adjudicate it a
bankrupt or insolvent, (y) liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors including any plan of compromise or arrangement or other
corporate proceeding involving or affecting its creditors or (z) the entry
of an order for relief or the appointment of a receiver, trustee or other
similar person for it or for any substantial part of its properties and
assets, and in the case of any such official proceeding instituted against
it (but not instituted by it), either the proceeding remains undismissed or
unstayed for a period of sixty (60) calendar days, or any of the actions
sought in such proceeding (including the entry of an order for relief
against it or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its properties and
assets) occurs or (D) takes any corporate action to authorize any of the
above actions;
(iv) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company under the Bankruptcy Code or any other applicable Federal or
state law, or appointing a receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Company or of any
substantial part of its property, or ordering the winding-up or liquidation
of its affairs, and any such decree or order continues and is unstayed and
in effect for a period of sixty (60) calendar days;
(v) the institution by the Company or any Subsidiary of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or
relief under the Bankruptcy Code or any other applicable federal or state
law, or the consent by it to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee or sequestrator
(or other similar official) of the Company or of any substantial part of
its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as and when they become due, or the taking of corporate
action by the Company in furtherance of any such action;
(vi) a final judgment or final judgments for the payment of money
shall have been entered by any court or courts of competent jurisdiction
against the Company and remains undischarged for a period (during which
execution shall be effectively stayed) of thirty (30) days, provided that
the aggregate amount of all such judgments at any time outstanding (to the
extent not paid or to be paid, as evidenced by a written communication to
that effect from the applicable insurer, by insurance) exceeds One Hundred
Thousand Dollars ($100,000);
(vii) it becomes unlawful for the Company to perform or comply with
its obligations under this Debenture or the Securities Purchase Agreement
in any respect;
(viii) the Common Shares shall no longer be traded in the over the
counter market via the "pink sheets" or not otherwise be listed for trading
on the NASDAQ OTCBB (the "Trading Market" or, to the extent the Company
becomes eligible to list its Common Stock on any other national security
exchange or quotation system, upon official notice of listing on any such
exchange or system, as the case may be, it shall be the "Trading Market")
or suspended from trading on the Trading Market, and shall not be
reinstated, relisted or such suspension lifted, as the case may be, within
five (5) days;
(ix) the Company shall fail to timely file all reports required to be
filed by it with the Commission (as defined in the Securities Purchase
Agreement) pursuant to Section 13 or 15(d) of the Exchange Act (as defined
in the Securities Purchase Agreement), or otherwise required by the
Exchange Act;
(x) the Company shall default (giving effect to any applicable grace
period) in the payment of principal or interest as and when the same shall
become due and payable, under any indebtedness, individually or in the
aggregate, of more than One Hundred Thousand Dollars ($100,000); or (xi)
the Common Stock shall trade on the Trading Market at a price per share
that is $0.005 per share or lower at any time during the term of this
Debenture (as adjusted for any stock splits, stock dividends, combinations,
subdivisions, recapitalizations or the like).
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. If an Event
of Default occurs and is continuing, provided however, that once an Event of
Default occurs as described in clause (xi) of Section 6.1, such Event of Default
will not be cured by the subsequent trading of the Common Stock at a price
greater than that specified in such clause, then and in every such case the
Holder may, in Xxxxxx's sole and absolute discretion, by a notice in writing to
the Company, rescind any outstanding Conversion Notice and declare that any or
all amounts owing or otherwise outstanding under this Debenture are immediately
due and payable and upon any such declaration this Debenture or such portion
thereof, as applicable, shall become immediately due and payable in cash at a
price of one hundred fifty percent (150%) of the Principal Amount thereof,
together with all accrued and unpaid interest thereon to the date of payment;
provided, however, in the case of any Event of Default described in clause (xi)
of Section 6.1 such amount shall become immediately due and payable in cash at a
price of one hundred ten percent (110%) of the Principal Amount thereof,
together with all accrued and unpaid interest thereon to the date of payment;
provided further, in the case of any Event of Default described in clauses
(iii), (iv), (v) or (vii) of Section 6.1, all amounts owing or otherwise
outstanding under this Debenture automatically shall become immediately due and
payable without the necessity of any notice or declaration as aforesaid. In the
event that the Company is obligated to pay any amount to the Holder in
connection with an acceleration of the maturity of this Debenture as set forth
herein, the Company shall first apply against such amount an amount equal to the
outstanding amount owed by the Holder to the Company under the Promissory Note,
if any, and the amount otherwise owed by the Company to the Holder in connection
with an acceleration of the maturity of this Debenture shall be reduced by the
outstanding amount owed by the Holder to the Company under the Promissory Note,
with the Promissory Note deemed paid by Holder to the extent of and with respect
to such amount, and if the amount due from the Company to the Holder in
connection with an acceleration of the maturity of this Debenture is equal to or
greater than the outstanding amount owed under the Promissory Note, the Company
shall cancel and deem the Promissory Note as paid in full in connection with the
application of the amount owed by the Holder to the Company under Promissory
Note against the amount otherwise owed by the Company to the Holder hereunder.
The Company shall immediately pay in cash to the Holder any remaining amount
owed by the Company to the Holder in connection with the acceleration of the
maturity of this Debenture as described herein, after the application of the
outstanding amount owed under the Promissory Note, if any, to such obligation.
SECTION 6.3 Late Payment Penalty. If any portion of the principal of or
interest on this Debenture shall not be paid within ten (10) days of when it is
due, the Discount Multiplier under this Debenture shall decrease by one
percentage point (1%) for all conversions of this Debenture thereafter.
SECTION 6.4 Maximum Interest Rate. Notwithstanding anything herein to the
contrary, if at any time the applicable interest rate as provided for herein
shall exceed the maximum lawful rate which may be contracted for, charged, taken
or received by the Holder in accordance with any applicable law (the "Maximum
Rate"), the rate of interest applicable to this Debenture shall be limited to
the Maximum Rate. To the greatest extent permitted under applicable law, the
Company hereby waives and agrees not to allege or claim that any provisions of
this Debenture could give rise to or result in any actual or potential violation
of any applicable usury laws.
SECTION 6.5 Remedies Not Waived. No course of dealing between the Company
and the Holder or any delay in exercising any rights hereunder shall operate as
a waiver by the Holder.
SECTION 6.6 Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Debenture will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Debenture, that the
Holder shall be entitled to all other available remedies at law or in equity,
and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Debenture and
to enforce specifically the terms and provisions thereof, without the necessity
of showing economic loss and without any bond or other security being required.
SECTION 6.7 Payment of Certain Amounts. Whenever pursuant to this Debenture
the Company is required to pay an amount in excess of the Principal Amount plus
accrued and unpaid interest, the Company and the Holder agree that the actual
damages to the Holder from the receipt of cash payment on this Debenture may be
difficult to determine and the amount to be so paid by the Company represents
stipulated damages and not a penalty and is intended to compensate the Holder in
part for loss of the opportunity to convert this Debenture and to earn a return
from the sale of shares of Common Stock acquired upon conversion of this
Debenture at a price in excess of that price paid for such shares pursuant to
this Debenture. The Company and the Holder hereby agree that such amount of
stipulated damages is not disproportionate to the possible loss to the Holder
from the receipt of a cash payment without the opportunity to convert this
Debenture into shares of Common Stock.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Notice of Certain Events. In the case of the occurrence of any
event described in Section 3.4 of this Debenture, the Company shall cause to be
mailed to the Holder of this Debenture at its last address as it appears in the
Company's security registry, at least twenty (20) days prior to the applicable
record, effective or expiration date hereinafter specified (or, if such twenty
(20) days' notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice thereof, including, if
applicable, a statement of (y) the date on which a record is to be taken for the
purpose of such dividend, distribution, issuance or granting of rights, options
or warrants, or if a record is not to be taken, the date as of which the holders
of record of Common Stock to be entitled to such dividend, distribution,
issuance or granting of rights, options or warrants are to be determined or (z)
the date on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of record of Common Stock will be
entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
SECTION 7.2 Register. The Company shall keep at its principal office a
register in which the Company shall provide for the registration of this
Debenture. Upon any transfer of this Debenture in accordance with Articles 2 and
4 hereof, the Company shall register such transfer on the Debenture register.
SECTION 7.3 Withholding. To the extent required by applicable law, the
Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction
over the Company from any payments made pursuant to this Debenture. SECTION 7.4
Transmittal of Notices. Except as may be otherwise provided herein, any notice
or other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally, or sent by telecopier machine or by a
nationally recognized overnight courier service, and shall be deemed given when
so delivered personally, or by telecopier machine or overnight courier service
as follows:
(1) If to the Company, to:
Seaway Valley Capital Corporation
00-00 Xxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
(2) If to the Holder, to:
Golden Gate Investors, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each of the Holder or the Company may change the foregoing address by notice
given pursuant to this Section 7.4.
SECTION 7.5 Attorneys' Fees. Should any party hereto employ an attorney for
the purpose of enforcing or construing this Debenture, or any judgment based on
this Debenture, in any legal proceeding whatsoever, including insolvency,
bankruptcy, arbitration, declaratory relief or other litigation, the prevailing
party shall be entitled to receive from the other party or parties thereto
reimbursement for all reasonable attorneys' fees and all reasonable costs,
including but not limited to service of process, filing fees, court and court
reporter costs, investigative costs, expert witness fees, and the cost of any
bonds, whether taxable or not, and that such reimbursement shall be included in
any judgment or final order issued in that proceeding. The "prevailing party"
means the party determined by the court to most nearly prevail and not
necessarily the one in whose favor a judgment is rendered.
SECTION 7.6 Governing Law. This Debenture shall be governed by, and
construed in accordance with, the laws of the State of California (without
giving effect to conflicts of laws principles). With respect to any suit, action
or proceedings relating to this Debenture, the Company irrevocably submits to
the exclusive jurisdiction of the courts of the State of California sitting in
San Diego and the United States District Court located in the City of San Diego
and hereby waives, to the fullest extent permitted by applicable law, any claim
that any such suit, action or proceeding has been brought in an inconvenient
forum. Subject to applicable law, the Company agrees that final judgment against
it in any legal action or proceeding arising out of or relating to this
Debenture shall be conclusive and may be enforced in any other jurisdiction
within or outside the United States by suit on the judgment, a certified copy of
which judgment shall be conclusive evidence thereof and the amount of its
indebtedness, or by such other means provided by law.
SECTION 7.7 Waiver of Jury Trial. To the fullest extent permitted by law,
each of the parties hereto hereby knowingly, voluntarily and intentionally
waives its respective rights to a jury trial of any claim or cause of action
based upon or arising out of this Debenture or any other document or any
dealings between them relating to the subject matter of this Debenture and other
documents. Each party hereto (i) certifies that neither of their respective
representatives, agents or attorneys has represented, expressly or otherwise,
that such party would not, in the event of litigation, seek to enforce the
foregoing waivers and (ii) acknowledges that it has been induced to enter into
this Debenture by, among other things, the mutual waivers and certifications
herein.
SECTION 7.8 Headings. The headings of the Articles and Sections of this
Debenture are inserted for convenience only and do not constitute a part of this
Debenture.
SECTION 7.9 Payment Dates. Whenever any payment hereunder shall be due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day.
SECTION 7.10 Binding Effect. Each Holder by accepting this Xxxxxxxxx agrees
to be bound by and comply with the terms and provisions of this Debenture.
SECTION 7.11 No Stockholder Rights. Except as otherwise provided herein,
this Debenture shall not entitle the Holder to any of the rights of a
stockholder of the Company, including, without limitation, the right to vote, to
receive dividends and other distributions, or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company, unless
and to the extent converted into shares of Common Stock in accordance with the
terms hereof.
SECTION 7.12 Facsimile Execution. Facsimile execution of this Debenture
shall be deemed original.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed by
its duly authorized officer on the date of this Debenture.
Seaway Valley Capital Corporation
By:
----------------------------------------------------
Name: Xxxxxx X. Xxxxxxxxxx
Title: President & CEO
A-1
EXHIBIT A
DEBENTURE CONVERSION NOTICE
TO: Seaway Valley Capital Corporation
00-00 Xxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
The undersigned owner of the Convertible Debenture due December __, 2010
(the "Debenture") issued by Seaway Valley Capital Corporation (the "Company")
hereby irrevocably exercises its option to convert $__________ Principal Amount
of the Debenture into shares of Common Stock in accordance with the terms of the
Debenture. The undersigned hereby instructs the Company to convert the portion
of the Debenture specified above into shares of Common Stock Issued at
Conversion in accordance with the provisions of Article 3 of the Debenture. The
undersigned directs that the Common Stock and certificates therefor deliverable
upon conversion, the Debenture reissued in the Principal Amount not being
surrendered for conversion hereby, [the check or shares of Common Stock in
payment of the accrued and unpaid interest thereon to the date of this Notice,]
together with any check in payment for fractional Common Stock, be registered in
the name of and/or delivered to the undersigned unless a different name has been
indicated below. All capitalized terms used and not defined herein have the
respective meanings assigned to them in the Debenture. The conversion pursuant
hereto shall be deemed to have been effected at the date and time specified
below, and at such time the rights of the undersigned as a Holder of the
Principal Amount of the Debenture set forth above shall cease and the Person or
Persons in whose name or names the Common Stock Issued at Conversion shall be
registered shall be deemed to have become the holder or holders of record of the
Common Shares represented thereby and all voting and other rights associated
with the beneficial ownership of such Common Shares shall at such time vest with
such Person or Persons.
Date and time: __________________
__________________________________
By: ______________________________
Title: ___________________________
Fill in for registration of Debenture: Please print name and address (including
ZIP code number):
_____________________________
______________________________
______________________________
