12% SENIOR SECURED CONVERTIBLE DEBENTURE
Exhibit
4.1
THIS
SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”),
AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITY AS PERMITTED BY THE SECURITIES
PURCHASE
AGREEMENT PURSUANT TO WHICH THE SECURITIES WERE ISSUED.
Original Issue Date: September 21, 2006 |
|
No. 1 |
$1,000,000
|
12%
SENIOR SECURED CONVERTIBLE DEBENTURE
This
12%
Senior Secured Convertible Debenture (this “Debenture”)
is a
duly authorized and issued 12% Senior Secured Convertible Debenture of ZONE
MINING LIMITED, a Nevada corporation (“the
Company”)
having
its principal place of business located at 000 Xxxxxxxxxxxx Xxxx., Xxxxx 000,
Xxxx Xxxxxx, XX 00000, for the principal amount of ONE MILLION DOLLARS AND
NO
CENTS ($1,000,000), issued in connection with that certain Purchase Agreement
(as defined below) of even date herewith entered into by and among the Company
and the Holder.
FOR
VALUE
RECEIVED, the Company) hereby promises to pay to TRIDENT GROWTH FUND, L.P.,
a
Delaware limited partnership, having its principal place of business located
at
000 Xxxxxx, Xxxxxxx, Xxxxx 00000, or its registered assigns (the “Holder”),
the
principal sum of the lesser of (i) $1,000,000, or (ii) the amount actually
advanced by Holder to the Company hereunder, on the earlier of (a) September
21,
2007; or (b) upon the Public Offering Date (the “Maturity
Date”),
and
to pay interest to the Holder on the then outstanding principal amount of this
Debenture in accordance with the provisions hereof. This Debenture is subject
to
the following additional provisions:
Section
1. Definitions.
For the
purposes hereof, in addition to the terms defined elsewhere in this Debenture:
(a) capitalized terms not otherwise defined herein have the meanings given
to
such terms in the Purchase Agreement, and (b) the following terms shall have
the
following meanings:
1
“Bankruptcy
Event”
means
any of the following events: (a) the Company or any Subsidiary (as such term
is
defined in Rule 1.02(s) of Regulation S-X) thereof commences a case or other
proceeding under any bankruptcy, reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar
law
of any jurisdiction relating to the Company or any Subsidiary thereof; (b)
there
is commenced against the Company or any Subsidiary thereof any such case or
proceeding that is not dismissed within 60 days after commencement; (c) the
Company or any Subsidiary thereof is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or proceeding is entered;
(d) the Company or any Subsidiary thereof suffers any appointment of any
custodian or the like for it or any substantial part of its property that is
not
discharged or stayed within 60 days; (e) the Company or any Subsidiary thereof
makes a general assignment for the benefit of creditors; (f) the Company or
any
Subsidiary thereof calls a meeting of its creditors with a view to arranging
a
composition, adjustment or restructuring of its debts; (g) the Company or any
Subsidiary thereof, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or takes any
corporate or other action for the purpose of effecting any of the foregoing;
or
(h) an application for the appointment of a receiver or liquidator for the
Company or any of its material assets.
“Capital
Lease”
means
any lease of property (real, personal or mixed) which, in accordance with GAAP,
should be capitalized on the lessee’s balance sheet or for which the amount of
the asset and liability thereunder as if so capitalized should be disclosed
in a
note to such balance sheet.
“Cash
Flow”
means
an amount equal to (i) the Company’s Consolidated EBITDA, minus (ii) the
Company’s Consolidated non-financed Capital Expenditures.
“Consolidated
EBITDA”
means,
for any Person for any period:
(i) the
consolidated net income of such Person and its Consolidated Subsidiaries for
such period (after Income Taxes), calculated in accordance with GAAP, but
excluding:
(A) any
gain
arising from the sale of capital assets,
(B) any
gain
arising from any write-up of assets,
2
(C) earnings
of any other Person, substantially all of the assets of which have been acquired
by such Person or its Consolidated Subsidiaries in any manner, to the extent
that such earnings were realized by such other Person prior to the date of
such
acquisition.
(D) earnings
of any Person in which the Person or its Consolidated Subsidiaries has an
ownership interest (other than wholly owned Subsidiaries of such Person ),
unless such earnings have actually been received by the Person or its
Consolidated Subsidiaries in the form of cash distributions,
(E) earnings
of any Person to which assets of the Person or its Consolidated Subsidiaries
shall have been sold, transferred or disposed of, or into which the Person
shall
have merged, to the extent that such earnings arise prior to the date of such
transaction,
(F) any
gain
arising from the acquisition of any securities of such Person or any of its
Consolidated Subsidiaries, and
(G) any
extraordinary gain realized by such Person or any of its Consolidated
Subsidiaries during such period.
(ii) plus
the
following, but only in each case to the extent incurred by the Company and
its
Consolidated Subsidiaries during such period and deducted in the calculation
above for such period,
(A) all
income and franchise taxes,
(B) all
Interest Expense,
(C) all
depreciation expense, and
(D) all
amortization expense.
“Current
Assets”
means,
at any particular time, all amounts which, in conformity with GAAP, would be
included as current assets on a consolidated balance sheet of the Company and
its Subsidiaries; provided
however,
there
shall be excluded therefrom (a) all prepaid expenses of every type and nature,
(b) all amounts due from partners, officers, stockholders or other Affiliates,
and all loans due from employees, and (c) all deferred charges.
“Current
Liabilities”
means,
at any particular time, all amounts (including deferred taxes) which, in
conformity with GAAP, would be included as current liabilities on a consolidated
balance sheet of the Company and its Subsidiaries.
3
“Current
Ratio”
means
the ratio of Current Assets to Current Liabilities.
“Dallas
Courts”
shall
have the meaning set forth in Section 7(e).
“Debenture
Register”
shall
have the meaning set forth in Section 2(b).
“Event
of Default”
shall
have the meaning set forth in Section 7.
“GAAP”
mean
generally accepted accounting principles.
“Interest
Expense”
means,
with respect to any Person and for any period (without duplication), all
interest on that Person’s Debt, whether paid in cash or accrued as a liability
and payable in cash during any subsequent period (including, without limitation,
the interest component of Capital Leases), as determined by GAAP.
“Late
Fees”
shall
have the meaning set forth in the second paragraph to this
Debenture.
“Liabilities”
mean
all liabilities, obligations and indebtedness of any and every kind and nature
(including, without limitation, lease obligations, accrued interest, charges,
expenses, attorneys' fees and other sums) chargeable to the Company and made
to
or for the benefit of the Company, whether arising under this Debenture or
arising under the any of the Transaction Documents, whether heretofore, now
or
hereafter owing, arising, due or payable from Company to the Holder and however
evidenced, credited, incurred, acquired or owing, whether primary, secondary,
direct, contingent, fixed, or otherwise, including obligation of
performance.
“Net
Income”
or “Net
Loss”
means,
with respect to any Person for any period, the net income or net loss of such
Person determined in accordance with GAAP, after payment of income Taxes but
excluding any extraordinary or non-recurring items.
“Original
Issue Date”
shall
mean the date of the first issuance of this Debenture regardless of the number
of transfers of this or any portion of this Debenture and regardless of the
number of instruments which may be issued to evidence such Debenture or
Debentures.
“Purchase
Agreement”
means
the Securities Purchase Agreement of even date herewith, to which the Company
and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.
4
Section
2. Interest.
a)
Payment
of Interest in Cash.
The
Company shall pay interest, in cash, to the Holder on the then outstanding
principal amount of this Debenture at the rate of 12% per annum, payable
monthly
in arrears in cash via wire transfer or by automated bank transfer in
immediately available and freely transferable funds (as requested by Xxxxxx),
on
the last day of each month for the period beginning on the Original Issue
Date
and ending on the Maturity Date or such earlier or later time when this
Debenture is paid or prepaid in full (except that, if any such date is not
a
Business Day, then such payment shall be due on the next succeeding Business
Day) (each such date, an “Interest
Payment Date”),
subject to the conversion rights of Holder as stated herein.
b)
Interest
Calculations.
Interest shall be calculated on the basis of a 360-day year and shall accrue
daily commencing on the Original Issue Date until payment in full of the
principal sum, together with all accrued and unpaid interest and other amounts
which may become due hereunder, has been made. Interest hereunder will be
paid
to the Person in whose name this Debenture is registered on the records of
the
Company regarding registration and transfers of Debentures (the “Debenture
Register”).
c)
Late
Fee.
All
overdue accrued and unpaid interest to be paid hereunder shall entail a late
fee
at the rate of 18% per annum (or such lower maximum amount of interest permitted
to be charged under applicable law or regulation) (“Late
Fee”)
which
will accrue daily, from the date such interest is due hereunder through and
including the date of payment.
d)
Prepayment.
The
Company may prepay all or any portion of the then outstanding principal amount
of this Debenture without any prepayment premium or discount by providing
Holder
not less than 30 days prior written notice, such outstanding principal balance
remaining subject to Xxxxxx’s conversion rights hereunder until the actual
prepayment is made following such notice period.
5
Section
3. Conversion
Right; Adjustments.
The
Holder of this Debenture shall have the right, at Xxxxxx’s option, immediately
following the Original Issue Date, to convert all, or, in multiples of $50,000,
any part of this Debenture into such number of fully paid and nonassessable
shares of Common Stock as shall be provided herein. The Holder of this Debenture
may exercise the conversion right by giving written notice (a “Conversion
Notice”)
to the
Company of the exercise of such right and stating the name or names in which
the
stock certificate or stock certificates for the shares of Common Stock are
to be
issued and the address to which such certificates shall be delivered. The
Conversion Notice shall be accompanied by this Debenture. The number of shares
of Common Stock that shall be issuable upon conversion of the Debenture shall
equal the then outstanding principal amount of this Debenture on the Conversion
Date (defined
below) or a portion thereof (in the discretion of the Holder) divided
by the Conversion Price (as defined below) in effect on the date the Conversion
Notice is given. Conversion shall be deemed to have been effected on the date
the Conversion Notice is delivered to the Company (each, a “Conversion
Date”).
Within five (5) Business days after a Conversion Date, the Company shall issue
and deliver by hand against a signed receipt therefor or by reputable overnight
delivery carrier to the address designated in the Conversion Notice, a stock
certificate or stock certificates of the Company representing the number of
shares of Common Stock to which Holder is entitled and a check or cash in
payment of all interest accrued and unpaid under the Debenture being converted
up to and including the Conversion Date. If a stock certificate or stock
certificates are not delivered within five (5) Business days after a Conversion
Date, the Company shall pay to Holder the sum of $1,000 per day until such
certificates are delivered (not to exceed $150,000 under any circumstances).
The
conversion rights will be governed by the following provisions:
a) Conversion
Price. On
the
issue date hereof and until such time as an adjustment shall occur, the
Conversion Price shall be equal to $1.25 per share (post the stock split
described in Schedule 1.1 of the Purchase Agreement).
(i) If
and
whenever any Additional Common Stock (as herein defined) shares shall be issued
by the Company (the “Stock
Issue Date”)
for a
gross consideration per share less than the Conversion Price, then in each
such
case the initial Conversion Price shall be reduced to a new Conversion Price
equal to the gross consideration per share received by the Company for the
additional shares of Common Stock then issued, and accordingly, the number
of
shares issuable to Holder upon conversion shall be proportionately increased
as
a result thereof; and, in the case of shares issued without consideration,
the
initial Conversion Price shall be reduced in amount and the number of shares
issued upon conversion shall be increased in an amount so as to maintain for
the
Holder the right to convert this Debenture into shares equal in amount to the
same percentage interest in the Common Stock of the Company as existed for
the
Holder immediately preceding the applicable Stock Issue Date.
(ii) Consideration
for Shares.
In case
of the issuance of Additional Common Stock for a consideration part or all
of
which shall be cash, the amount of the cash consideration therefor shall
be
deemed to be the amount of the cash paid by the purchasers (prior to reduction
for commissions, fees or expenses) for such shares. In case of the issuance
of
any shares of Additional Common Stock for a consideration part or all of
which
shall be other than cash, the amount of the consideration therefor, other
than
cash, shall be deemed to be the then fair market value of the property exchanged
(prior to reduction for commissions, fees or expenses) as determined by an
investment banking firm selected by Holder.
(iii)
Reclassification
of Shares.
In case
of the reclassification of securities into shares of Common Stock, the shares
of
Common Stock issued in such reclassification shall be deemed to have been issued
for a consideration other than cash. Shares of Additional Common Stock issued
by
way of dividend or other distribution on any class of stock of the Company
(other than Common Stock) shall be deemed to have been issued without
consideration.
6
(iv) Split
up or Combination of Shares.
Except
for the stock split described in Schedule 1.1 of the Purchase Agreement, in
case
issued and outstanding shares of Common Stock shall be subdivided or split
up
into a greater number of shares of the Common Stock, the Conversion Price shall
be proportionately decreased, and in case issued and outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common Stock,
the Conversion Price shall be proportionately increased, such increase or
decrease, as the case may be, becoming effective at the time of record of the
split-up or combination, as the case may be.
(v)
The
term
“Additional
Common Stock”
herein
shall mean in the most broadest sense all shares of Common Stock or Common
Stock
Equivalents hereafter issued by the Company (including, but not limited to
Common Stock held in the treasury of the Company), except Common Stock and
Common Stock Equivalents issued in an Exempt Issuance.
(i) In
the
event of distribution to all Common Stock holders of any stock, indebtedness
of
the Company or assets (excluding cash dividends or distributions from retained
earnings) or other rights to purchase securities or assets, then, after such
event, this Debenture will be convertible into the kind and amount of
securities, cash and other property which the holder of the Debenture would
have
been entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such event.
(ii) In
case
of any capital reorganization, reclassification of the stock of the Company
(other than a change in par value or as a result of a stock dividend,
subdivision, split up or combination of shares), this Debenture shall be
convertible into the kind and number of shares of stock or other securities
or
property of the Company to which the holder of the Debenture would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such event.
The provisions of the foregoing sentence shall similarly apply to successive
reorganizations, reclassifications, consolidations, exchanges, leases, transfers
or other dispositions or other share exchanges.
7
d) Notice
of Adjustment.
In the
event the Company shall propose to take any action which shall result in an
adjustment in the Conversion Price, the Company shall give notice to the Holder,
which notice shall specify the record date, if any, with respect to such action
and the date on which such action is to take place. Such notice shall be given
on or before the earlier of 10 days before the record date or the date which
such action shall be taken. Such notice shall also set forth all facts (to
the
extent known) material to the effect of such action on the Conversion Price
and
the number, kind or class of shares or other securities or property which shall
be deliverable or purchasable upon the occurrence of such action or deliverable
upon conversion of this Debenture. Additionally, following completion of an
event wherein the Conversion Price shall be adjusted, the Company shall furnish
to the holder of this Debenture a statement, signed by an authorized officer
of
the Company of the facts creating such adjustment and specifying the resultant
adjusted Conversion Price then in effect.
e) Reservation
of Shares. The
Company warrants and agrees that it shall at all times reserve and keep
available, free from preemptive rights, sufficient authorized and unissued
shares of Common Stock to effect conversion of this Debenture.
f) Registration
Rights.
The
Holder has certain rights with respect to the registration of shares of Common
Stock issued upon the conversion of this Debenture, such rights being
specifically set forth in the Purchase Agreement entered into by and between
Holder and the Company on the date hereof.
8
g) Exercise
Limitations.
The
Holder shall not have the right to convert any portion of this Debenture,
pursuant to Section 3 or otherwise, to the extent that after giving effect
to
such issuance after exercise, the Holder (together with the Holder’s
affiliates), as set forth on the applicable Conversion Notice, would
beneficially own in excess of 4.99% (or as applicable, 9.99%) of the number
of
shares of the Common Stock outstanding immediately after giving effect
to such
issuance. For purposes of the foregoing determination, the number of
shares of Common Stock beneficially owned by the Holder and its affiliates
shall
include the number of shares of Common Stock issuable upon such conversion
of
this Debenture less the number of shares of Common Stock which would be
issuable
upon (A) conversion of the remaining, unexercised portion of this Debenture
and
(B) exercise or conversion of the unexercised or unconverted portion of
any
other Securities (including, without limitation, any other Debentures or
Warrants) subject to a limitation on conversion or exercise analogous to
the
limitation contained herein beneficially owned by the Holder. Except as
set forth in the preceding sentence, for purposes of this Section 3(g),
beneficial ownership shall be calculated in accordance with Section 13(d)
of the
Exchange Act. To the extent that the limitation contained in this Section
3(g)
applies, the determination of whether this Debenture is convertible (in
relation
to other securities owned by the Holder) and of which a portion of this
Debenture is convertible shall be in the sole discretion of Holder. For
purposes
of this Section 3(g), in determining the number of outstanding shares of
Common
Stock, the Holder may rely on the number of outstanding shares of Common
Stock
as reflected in (x) Schedule
3.1(g)
to the
Purchase Agreement, (y) a more recent public announcement by the Company
or (z)
any other notice by the Company or the Company’s Transfer Agent setting forth
the number of shares of Common Stock outstanding. Upon the written or oral
request of the Holder, the Company shall within five Business Days confirm
orally and in writing to the Holder the number of shares of Common Stock
then
outstanding. The provisions of this Section 3(g) may be waived by the
Holder upon, at the election of the Holder, not less than 61 days’ prior notice
to the Company, and the provisions of this Section 3(g) shall continue
to apply
until such 61st day (or such later date, as determined by the Holder, as
may be
specified in such notice of waiver).
Section
4. Registration
of Transfers and Exchanges.
a) Different
Denominations.
This
Debenture is exchangeable for an equal aggregate principal amount of Debentures
of different authorized denominations, as requested by the Holder surrendering
the same. No service charge will be made for such registration of transfer
or
exchange.
b) Investment
Representations.
This
Debenture has been issued subject to certain investment representations
of the
original Holder set forth in the Purchase Agreement and may be transferred
or
exchanged only in compliance with the Purchase Agreement and applicable
federal
and state securities laws and regulations.
c)Reliance
on Debenture Register.
Prior
to due presentment to the Company for transfer of this Debenture, the
Company
and any agent of the Company may treat the Person in whose name this
Debenture
is duly registered on the Debenture Register as the owner hereof for
the purpose
of receiving payment as herein provided and for all other purposes,
whether or
not this Debenture is overdue, and neither the Company nor any such
agent shall
be affected by notice to the contrary.
Section
5. Negative
Covenants.
Other
than with respect to actions taken that are described in the merger agreement
approved by Holder in connection with the DIA Transaction, so long as any
portion of this Debenture is outstanding, without the prior written consent
of
the Holder, which consent may be withheld in the sole discretion of the Holder,
the Company will not and will not permit any of its Subsidiaries to directly
or
indirectly:
9
a)
Indebtedness.
Enter
into, create, incur, assume or suffer to exist any indebtedness or Liens,
on or
with respect to any of its property or assets now owned or hereafter
acquired or
any interest therein or any income or profits therefrom that is
senior
to, or pari passu
with, in
any respect, the Company’s secured obligations under the Debentures;
provided,
however,
that
this provision shall not prevent the Company from entering into any transaction,
the purpose of which is to repay this Debenture, provided all proper
notices are
given in accordance herewith; provided
further,
that
nothing contained in this Section shall preclude the Company from incurring
purchase money indebtedness or capital lease obligations or other indebtedness
in connection with the acquisition of an interest in property, equipment,
or
other assets if such indebtedness or capital lease obligation is secured
solely
by the property, equipment or assets acquired.
b)
Repayment
of Indebtedness.
Repay
any principal due and owing on any promissory notes, debentures, or other
forms
of indebtedness, other than (i) periodic interest payments due and owing
thereunder; (ii) repayment due of any principal amount or interest due
or
becoming due under this Debenture, and (iii) repayment of the indebtedness,
if
any, set forth in Schedule 4.8 to the Purchase Agreement; provided, nothing
contained in this section shall prohibit the Company from making any
payments
with respect to trade payables made in the ordinary course of the Company’s
business;
c)
Repurchase
of Shares.
Repurchase or offer to repurchase or otherwise acquire more than a de
minimus
number of shares of its Common Stock or other equity securities or as
otherwise
permitted by the Transaction Documents;
d)
Bylaws.Amend
its
certificate of incorporation, bylaws or other charter documents so as
to
adversely affect any rights of the Holder in its capacity as a holder
of the
Debentures;
e)
Loans
and Investments.
Except
for the loan to DIA described in Schedule 4.8 to the Purchase Agreement,
lend or
advance money, credit or property to any person or entity, or invest in
(by
capital contribution or otherwise), or purchase or repurchase the stock
or
indebtedness or assets or properties of any person or entity, or agree
to do any
of the foregoing, other than in the ordinary course of
business;
f)
Guarantees.
Assume,
endorse or otherwise become or remain liable in connection with the obligations
(including accounts payable) of any other person or entity, other than
in the
ordinary course of business.
10
g)
Sale
of Assets, Dissolution, Etc.
Transfer, sell, assign, lease or otherwise dispose of any of its properties
or
assets, or any assets or properties necessary or desirable for the proper
conduct of its business, or transfer, sell, assign or otherwise dispose
of any
of its accounts, or contract rights to any person or entity, or change
the
nature of its business, wind-up, liquidate or dissolve, or agree to any
of the
foregoing, other than in the ordinary course of
business;
h)
Other
than in accordance herewith, create, issue or permit the issuance of any
additional securities of the Company or of any of its Subsidiaries (including
with respect to any Qualifying Transaction), if any, or any rights, options
or
warrants to acquire any such securities for no consideration or in excess
of
500,000 Common Shares for services rendered, and in the event that Company
desires to issue securities with preferences or rights greater than that
which
the Common Stock has, the Holder will have the option of converting into
such
stock in lieu of the Common Stock hereby;
i)
No
Dividends; No Redemption.
Declare
any dividend, pay or set aside for payment any dividend or other distribution,
in cash, stock, or other property, or make any payment to any related parties,
including to any preferred stockholders, as a dividend, redemption, or
otherwise, other than the payment of salaries in the ordinary course of
business.
j)
Stock
Splits.
Other
than the forward stock split describe in Schedule 1.1 of the Purchase Agreement,
undertake a reverse or forward stock split or reclassification of the Common
Stock; or
k)
Agreement. Enter
into any agreement obligating the Company to undertake any of the matters
set
forth in this Section 5.
Section
6. Affirmative
Covenants.
Other
than with respect to actions taken that are described in the merger agreement
approved by Holder in connection with the DIA Transaction, so long as
any
portion of this Debenture is outstanding and unless the Holder otherwise
consents in writing, which consent may be withheld in the sole discretion
of the
Holder, the Company will:
a)
Taxes
and Liens.
Promptly pay, or cause to be paid, all taxes, assessments and other governmental
charges which may lawfully be levied or assessed upon the income or profits
of
the Company, or upon any property, real, personal or mixed, belonging
to the
Company, or upon any part thereof, and also any lawful claims for labor,
material and supplies which if unpaid, might become a lien or charge
against any
such property; provided,
however,
the
Company shall not be required to pay any such tax, assessment, charge,
levy or
claim so long as the validity thereof shall be actively contested in
good faith
by proper proceedings; but, provided further
that any
such tax, assessment, charge, levy or claim shall be paid or bonded in
a manner
satisfactory to the Holder upon the commencement of proceedings to foreclose
any
lien securing the same.
11
b) Business
and Existence.
Do or
cause to be done all things necessary to preserve and to keep in full
force and
effect any licenses necessary to the business of the Company, its corporate
existence and rights of its franchises, trade names, trademarks, and
permits
which are reasonably necessary for the continuance of its business; and
continue
to engage principally in the business currently operated by the
Company.
c) Insurance
and Properties.
Keep
its business and properties insured at all times with responsible insurance
companies and carry such types and amounts of insurance as are required
by all
federal, state and local governments in the areas which the Company
does
business and as are usually carried by entities engaged in the same
or similar
business similarly situated. In addition, the Company shall maintain
in full
force and effect policies of liability insurance in amounts at least
equal to
that currently in effect.
d) Maintain
Property and Assets.
Maintain its property and assets in good order and repair and, from time
to
time, make all needed and proper repairs, renewals, replacements, additions
and
improvements thereto, so that the business carried on may be properly and
advantageously conducted at all times in accordance with prudent business
management, and maintain annually adequate reserves for maintenance
thereof.
e) True
Books.
Keep
true books of record and account in which full, true and correct entries
will be
made of all of its dealings and transactions, and set aside on its books
such
reserves as may be required by GAAP, consistently applied, with respect
to all
taxes, assessments, charges, levies and claims referred to in (a) above,
and
with respect to its business in general, and include such reserves in
interim as
well as year-end financial statements.
f) Right
of Inspection.
Permit
any person designated by the Holder, at the Holder’s expense, to visit and
inspect any of the properties, books and financial reports of the Company,
all
at such reasonable times upon three (3) Business Days prior notice to
Company,
and as often as the Holder may reasonably request, provided the Holder
does not
unreasonably interfere with the daily operations of the Company.
g)
Observance
of Laws.
Conform
to and duly observe all laws, regulations and other valid requirements
of any
regulatory authority with respect to the conduct of its business except
those
that would not cause a Material Adverse Effect, as determined in the
reasonable
discretion of the Holder.
12
h)
Company’s
Knowledge of Default.
Upon an
officer or director of the Company obtaining knowledge of, or threat of,
an
Event of Default hereunder, cause such officer to promptly, within no more
than
five (5) Business Days, deliver to the Holder notice thereof specifying
the
nature thereof, the period of existence thereof, and what action the Company
has
taken and/or proposes to take with respect thereto.
i)
Notice
of Proceedings.
Upon an
officer or director of the Company obtaining knowledge of any material
litigation, dispute or proceedings being instituted or threatened against
the
Company, or any attachment, levy, execution or other process being instituted
against any assets of the Company, cause such officer to promptly, within
no
more than five (5) Business Days, give the Holder written notice of such
litigation, dispute, proceeding, levy, execution or other process.
j) Certificate
of Covenant Compliance
Within
30 days of the last day of each March, June, September and December, the
Company
will issue a Certificate of Covenant Compliance, executed by either the
Chief
Executive Officer or Chief Financial Officer in the form of Exhibit
A
attached
hereto. If the Company is not in compliance with the covenants specified
in this
Section 5, the Company will modify the Certificate of Covenant Compliance
by
stating the exception and providing a detailed explanation of the
non-compliance.
k)
Payment
of Xxxxxx’s Expenses.
If at
any time or times hereafter, Xxxxxx employs counsel in connection with
the
execution and consummation of the transactions contemplated by this Debenture
or
to commence, defend or intervene, file a petition, complaint, answer, motion
or
other pleading, or to take any action in or with respect to any suit or
proceeding (bankruptcy or otherwise) relating to this Debenture or any
other
Transaction Document, or any other agreement, guaranty, note, instrument
or
document heretofore, now or at any time or times hereafter executed by
the
Company and delivered to Holder, or to enforce any rights of Holder hereunder
whether before or after the occurrence of any Event of Default, or to collect
any of the Liabilities, then in any of such events, all of the reasonable
attorneys’ fees arising from such services, and any expenses, costs and charges
relating thereto, shall be part of the Liabilities, payable on
demand.
l)
Financial
Reporting.
The
Company shall provide to Holder audited annual financial statements, audited
by
its independent certified public accounting firm. Said financial statements
shall be prepared in accordance with GAAP, consistently applied, and shall
be
delivered to Holder within ninety (90) days after the close of the Company’s
fiscal year. The Company’s fiscal year ends on March 31, and shall not be
changed without the prior written consent of the Holder. The Company shall
provide to Holder unaudited quarterly financial statements (including period
to
date and year to date actual to prior periods) presented in accordance
with
GAAP, consistently applied (subject to such exceptions for interim financials
as
may be noted by the Company thereon), and shall be delivered to Holder
within
forty-five (45) days after the close of each fiscal quarter of the
Company.
13
m) Financial
Covenants.
Commencing upon the date two hundred seventy (270) days following the date
of
this Agreement and thereafter continuing until the Termination Date, the
Company
must maintain the following ratios:
(ii) Cash
Flow Coverage Ratio.
The
ratio of (a) the Company’s Cash Flow to (b) the sum of (i) the Company’s
consolidated Interest Expense plus (ii) the Company’s scheduled payments of
principal (including the principal component of Capital Leases) to be paid
during the 12 months following any date of determination shall at all times
exceed (1) 1.5 to 1.0. Compliance with the ratio will be tested as of the last
day of each month, with Cash Flow and Interest Expense being calculated for
the
twelve months then ended.
(iii) Current
Ratio.
The
Company will at all times maintain a Current Ratio of not less than 1.5 to
1.0.
The Current Ratio shall be calculated and tested quarterly as of the last day
of
each fiscal quarter of the Company.
(iv) Actual
versus Budget.
The
Company shall on a quarterly basis achieve 75 percent of its budgeted revenue
and income. Budget numbers shall be those delivered to Holder contemporaneously
herewith and then on an annual calendar basis.
Section
7. Events
of Default.
a)
“Event
of Default”,
wherever used herein, means any one of the following events (whatever the
reason
and whether it shall be voluntary or involuntary or effected by operation
of law
or pursuant to any judgment, decree or order of any court, or any order,
rule or
regulation of any administrative or governmental body):
i. any
default in the payment of (A) the principal amount of any Debenture,
or (B)
interest (including Late Fees) on, or liquidated damages in respect of,
any
Debenture, in each case free of any claim of subordination, as and when
the same
shall become due and payable (whether on the Maturity Date or by acceleration
or
otherwise) which is not cured within three (3) Business
Days;
14
ii. the
Company shall fail to observe or perform any other covenant or agreement
contained in this Debenture or any of the other Transaction Documents
which
failure is not cured, if possible to cure, within the earlier to occur
of (A) 10
Business Days after notice of such default sent by the Holder or by any
other
Holder and (B) 10 Business Days after the Company shall become or should
have
become aware of such failure;
iii. a
default
or event of default (subject to any grace or cure period provided for
in the
applicable agreement, document or instrument) shall occur under (A) any
of the
Transaction Documents or (B) any other material agreement, lease, document
or
instrument to which the Company or any Subsidiary is bound and not
cured;
iv. any
representation or warranty made herein, in any other Transaction Documents,
in
any written statement pursuant hereto or thereto, or in any other report,
financial statement or certificate made or delivered to the Holder or
any other
holder of Debentures shall be untrue or incorrect in any material respect
as of
the date when made or deemed made;
v. there
shall have occurred a Bankruptcy Event;
vi. the
Company or any Subsidiary shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which
there
may be secured or evidenced any indebtedness for borrowed money or money
due
under any long term leasing or factoring arrangement of the Company in an
amount
exceeding $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.
vii. the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction, shall agree to sell or dispose of all or in excess of 33% of
its
assets in one or more transactions (whether or not such sale would constitute
a
Change of Control Transaction) or shall redeem or repurchase any its outstanding
shares of Common Stock or Common Stock Equivalents;
viii. the
Company shall fail to have available a sufficient number of authorized and
unreserved shares of Common Stock to issue to such Holder upon exercise of
the
Warrants in full and not remedied as permitted in the Transaction Documents;
15
ix. the
Company shall redeem any of the Common Stock Equivalents;
or
x. the
occurrence of an Activity Event of Default (as defined in Section 5.1(f)(ii)
of
the Purchase Agreement).
b)
Remedies
Upon Event of Default.
If any
Event of Default occurs, the full principal amount of this Debenture, together
with interest and other amounts owing in respect thereof, to the date of
acceleration shall become, at the Holder’s election, immediately due and payable
in cash. Commencing 5 days after the occurrence of any Event of Default
that
results in the eventual acceleration of this Debenture, the interest rate
on
this Debenture while such Event of Default is continuing shall accrue at
the
rate of 18% per annum, or such lower maximum amount of interest permitted
to be
charged under applicable law or regulation. All Debentures for which the
full
principal amount hereunder shall have been paid in accordance herewith
shall
promptly be surrendered to or as directed by the Company. The Holder need
not
provide and the Company hereby waives any presentment, demand, protest
or other
notice of any kind, and the Holder may immediately and without expiration
of any
grace period enforce any and all of its rights and remedies hereunder and
all
other remedies available to it under applicable law. Such declaration may
be
rescinded and annulled by Xxxxxx at any time prior to payment hereunder
and the
Holder shall have all rights as a Debenture holder until such time, if
any, as
the full payment under this Section shall have been received by it. No
such
rescission or annulment shall affect any subsequent Event of Default or
impair
any right consequent thereon.
Section
8. Miscellaneous.
a)
Notices.
Any and
all notices or other communications or deliveries to be provided by the
Holders
hereunder shall be in writing and delivered personally, by facsimile, sent
by a
nationally recognized overnight courier service, addressed to the Company,
at
the address set forth above, or such other address or facsimile number
as the
Company may specify for such purposes by notice to the Holders delivered
in
accordance with this Section. Any and all notices or other communications
or
deliveries to be provided by the Company hereunder shall be in writing
and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address
of
such Holder appearing herein, or such other address or facsimile number
as such
Holder may specify in accordance with this Section. Any notice or other
communication or deliveries hereunder shall be deemed given and effective
on the
earliest of (i) the date of transmission, if such notice or communication
is
delivered via facsimile at the facsimile telephone number specified in
this
Section prior to 5:30 p.m. (Dallas, Texas time), (ii) the date after the
date of
transmission, if such notice or communication is delivered via facsimile
at the
facsimile telephone number specified in this Section later than 5:30 p.m.
(Dallas, Texas time) on any date and earlier than 11:59 p.m. (Dallas, Texas
time) on such date, (iii) the second Business Day following the date of
mailing,
if sent by nationally recognized overnight courier service, or (iv) upon
actual
receipt by the party to whom such notice is required to be given.
16
b)
Absolute
Obligation.
Except
as expressly provided herein, no provision of this Debenture shall alter
or
impair the obligation of the Company, which is absolute and unconditional,
to
pay the principal of, interest and liquidated damages (if any) on, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct debt obligation of the Company.
This
Debenture ranks pari passu
with all
other Debentures now or hereafter issued under the terms set forth
herein.
c)
Security
Interest.
This
Debenture is a direct debt obligation of the Company and, pursuant to the
Security Documents, is secured by a first priority security interest in
all of
the assets of the Company and certain other collateral for the benefit
of the
Holders.
d)
Lost
or Mutilated Debenture.
If this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and substitution for and upon cancellation
of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen
or
destroyed Debenture, a new Debenture for the principal amount of this Debenture
so mutilated, lost, stolen or destroyed but only upon receipt of evidence
of
such loss, theft or destruction of such Debenture, and of the ownership
hereof,
and indemnity, if requested, all reasonably satisfactory to the
Company.
e)
Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Debenture shall be governed by and construed and enforced in accordance
with the internal laws of the State of Texas, without regard to the principles
of conflicts of law thereof, except to the extent that the General Corporation
Law of the State of Nevada (excluding any provisions thereof relating to
conflict of laws) governs the affairs and operation of the Company. Each
party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction
Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the
state and
federal courts sitting in the City of Dallas, Texas (the “Dallas
Courts”).
Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of
the
Dallas Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action
or
proceeding, any claim that it is not personally subject to the jurisdiction
of
any such court, or such Dallas Courts are improper or inconvenient venue
for
such proceeding. Each party hereby irrevocably waives personal service
of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in
effect for notices to it under this Debenture and agrees that such service
shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve
process
in any manner permitted by law. Each party hereto hereby irrevocably waives,
to
the fullest extent permitted by applicable law, any and all right to trial
by
jury in any legal proceeding arising out of or relating to this Debenture
or the
transactions contemplated hereby. If either party shall commence an action
or
proceeding to enforce any provisions of this Debenture, then the prevailing
party in such action or proceeding shall be reimbursed by the other party
for
its attorneys fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.
17
f)
Waiver.
Any
waiver by the Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall
not be
considered a waiver or deprive that party of the right thereafter to insist
upon
strict adherence to that term or any other term of this Debenture. Any
waiver
must be in writing.
g)
Severability.
If any
provision of this Debenture is invalid, illegal or unenforceable, the balance
of
this Debenture shall remain in effect, and if any provision is inapplicable
to
any person or circumstance, it shall nevertheless remain applicable to
all other
persons and circumstances. If it shall be found that any interest or other
amount deemed interest due hereunder violates applicable laws governing
usury,
the applicable rate of interest due hereunder shall automatically be lowered
to
equal the maximum permitted rate of interest. The Company covenants (to
the
extent that it may lawfully do so) that it shall not at any time insist
upon,
plead, or in any manner whatsoever claim or take the benefit or advantage
of,
any stay, extension or usury law or other law which would prohibit or forgive
the Company from paying all or any portion of the principal of or interest
on
this Debenture as contemplated herein, wherever enacted, now or at any
time
hereafter in force, or which may affect the covenants or the performance
of this
indenture, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants
that
it will not, by resort to any such law, hinder, delay or impeded the execution
of any power herein granted to the Holder, but will suffer and permit the
execution of every such as though no such law has been enacted.
h)
Next
Business Day.
Whenever any payment or other obligation hereunder shall be due on a day
other
than a Business Day, such payment shall be made on the next succeeding
Business
Day.
i)
Headings.
The
headings contained herein are for convenience only, do not constitute a
part of
this Debenture and shall not be deemed to limit or affect any of the provisions
hereof.
18
j)
Usury.
To the
extent it may lawfully do so, the Company hereby agrees not to insist upon
or
plead or in any manner whatsoever claim, and will resist any and all efforts
to
be compelled to take the benefit or advantage of, usury laws wherever enacted,
now or at any time hereafter in force, in connection with any claim, action
or
proceeding that may be brought by any Purchaser in order to enforce any
right or
remedy under any Transaction Documents. Notwithstanding any provision to
the
contrary contained in any Transaction Documents, it is expressly agreed
and
provided that the total liability of the Company under the Transaction
Documents
for payments in the nature of interest shall not exceed the Maximum Rate,
and,
without limiting the foregoing, in no event shall any rate of interest
or
default interest, or both of them, when aggregated with any other sums
in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the
maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of
interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date of such increase or decrease forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company
to any
Purchaser with respect to indebtedness, if any, evidenced by the Transaction
Documents, such excess shall be applied by such Purchaser to the unpaid
principal balance of any such indebtedness or be refunded to the Company,
the
manner of handling such excess to be at such Purchaser’s election in the event
any principal amount remains outstanding.
k)
Amendment.
This
Agreement may not be amended, supplemented or modified, except by an agreement
in writing signed by each of the parties
hereto.
[Signature
Page Follows]
19
IN
WITNESS WHEREOF,
Zone
Mining has caused this Debenture to be duly executed by a duly authorized
officer as of the date first above indicated.
ZONE
MINING LIMITED
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By: | /s/ Xxxxxxx X. Xxxxxxxxxx | |
Xxxxxxx X. Xxxxxxxxxx
President
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20
EXHIBIT
A
The
undersigned, hereby represents that Zone Mining Limited is in compliance with
all of its covenants
specified in Sections 5 and 6
of that
certain 12% Senior Secured Convertible Debenture originally dated as of
September 21, 2006, executed by such party with its principal place of business
located at 000 Xxxxxxxxxxxx Xxxx., Xxxxx 000, Xxxx Xxxxxx, XX 00000, in favor
of
Trident Growth Fund, L.P., with its principal place of business at 000 Xxxxxx,
Xxxxxxx, Xxxxx 00000.
ZONE
MINING LIMITED
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By: | /s/ Xxxxxxx X. Xxxxxxxxxx | |
Xxxxxxx X. Xxxxxxxxxx
President
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