NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS
DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY.
No. 1 Original Issue Date:
September 21, 2001
$522,316.42
PHOENIX INTERNATIONAL INDUSTRIES, INC.
12% SECURED CONVERTIBLE DEBENTURE
DUE MARCH 31, 2003
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of Phoenix International Industries, Inc., a Florida
corporation, having a principal place of business at 0000 Xxxxxxx
Xxxxx, Xxxx Xxxx Xxxxx, Xxxxxxx 00000 (the "Company"), designated as
its 12% Secured Convertible Debentures, in the aggregate principal
amount of One Million Five Hundred and Sixty Three Thousand, Six
Hundred and Fifty Six Dollars and Eighty Three Cents ($1,563,656.83)
(the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to AJW Partners,
LLC or its registered assigns (the "Holder"), the principal sum of
Five Hundred and Twenty Two Thousand, Three Hundred and Sixteen
Dollars and Forty Two Cents ($522,316.42), on March 31, 2003 or such
earlier date as the Debentures are required or permitted to be repaid
as provided hereunder (the "Maturity Date") and to pay interest to the
Holder on the aggregate unconverted and then outstanding principal
amount of this Debenture at the rate of 12% per annum, payable on a
quarterly basis on March 31, June 30, September 30 and December 31 of
each year while such Debentures are outstanding commencing on
December 31, 2001 and on each Conversion Date (as defined herein)
(each an "Interest Payment Date") for such principal amount,
commencing on the earlier to occur of a Conversion Date for such
principal amount and September 30, 2001, in cash or, if permitted
hereunder, shares of Common Stock (as defined in Section 6). Subject
to the terms and conditions herein, the decision whether to pay
interest hereunder in shares of Common Stock or cash shall be at the
discretion of the Company. Not less than five Trading Days (as
1
defined in Section 6) prior to the Maturity Date or an Interest
Payment Date, the Company shall provide the Holder with written notice
of its election to pay interest hereunder in cash or in shares of
Common Stock. The Company may indicate in such notice that the
election contained in such notice shall continue for later periods
until revised. Failure to timely provide such written notice shall be
deemed an election by the Company to pay the interest on such Maturity
Date or Interest Payment Date in shares of Common Stock. If interest
is paid by the Company in shares of its Common Stock, then the number
of shares of Common Stock issuable on account of such interest shall
equal the cash amount of such interest on such Interest Payment Date
or Maturity Date divided by the Conversion Price (as defined below) on
such date. Interest shall be calculated on the basis on a 360-day
year and shall accrue daily commencing on the Original Issue Date (as
defined in Section 6) until payment in full of the principal sum,
together with all accrued and unpaid interest and other amounts which
may become due hereunder, has been made. Interest hereunder will be
paid to the Person (as defined in Section 6) in whose name this
Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the "Debenture Register").
All overdue accrued and unpaid interest to be paid in cash hereunder
shall entail a late fee at the rate of 15% per annum ("Late Fee") (or
such lower maximum amount of interest permitted to be charged under
applicable law) which will accrue daily, from the date such interest
is due hereunder through and including the date of payment.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same. No service charge
will be made for such registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the
Purchase Agreement (as defined in Section 6) and may be transferred or
exchanged only in compliance with the Purchase Agreement. Prior to
due presentment to the Company for transfer of this Debenture, the
Company and any agent of the Company may treat the Person (as defined
in Section 6) in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
Section 3. Events of Default.
------------------
(a) "Event of Default"
------------------, wherever used herein, means
any one of the following events (whatever the reason and whether it
shall be voluntary or involuntary or effected by operation of law or
pursuant to any judgment, decree or order of any court, or any order,
rule or regulation of any administrative or governmental body):
(i) any default in the payment of the principal
of, interest (including any Late Fees) on or liquidated damages in
respect of, any Debentures, free of any claim of subordination, as and
-2-
2
when the same shall become due and payable (whether by acceleration or
otherwise);
(ii) the Company shall fail to observe or perform any
other covenant or agreement contained in, or otherwise commit any breach
of any of the Transaction Documents (as defined in Section 6), and such
failure or breach shall not have been remedied within five days after
the date on which notice of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall
commence, or there shall be commenced against the Company or any
such subsidiary a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the
Company commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether
now or hereafter in effect relating to the Company or any subsidiary
thereof or there is commenced against the Company or any subsidiary
thereof any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is
entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial
part of its property which continues undischarged or unstayed for a
period of 60 days; or the Company or any subsidiary thereof makes a
general assignment for the benefit of creditors; or the Company shall
fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or the Company
or any subsidiary thereof shall call a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary thereof shall by any act or
failure to act expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate or other action
is taken by the Company or any subsidiary thereof for the purpose of
effecting any of the foregoing;
(iv) the Company shall default in any of its obligations
under any other Debenture or any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under
any long term leasing or factoring arrangement of the Company in an
amount exceeding $25,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness
becoming or being declared due and payable prior to the date on which
it would otherwise become due and payable;
(v) the Common Stock shall not be eligible for
quotation on and quoted for trading on the OTC Bulletin Board ("OTC')
or listed for trading on the Nasdaq SmallCap Market, New York Stock
Exchange, American Stock Exchange or the Nasdaq National Market (each,
a "Subsequent Market") and shall not again be eligible for and quoted
or listed for trading thereon within five Trading Days;
-3-
3
(vi) the Company shall be a party to any Change
of Control Transaction (as defined in Section 6), shall agree to sell
or dispose all or in excess of 33% of its assets in one or more
transactions (whether or not such sale would constitute a Change of
Control Transaction), or shall redeem or repurchase more than a de
minimis number of shares of Common Stock or other equity securities of
the Company (other than redemptions of Underlying Shares (as defined
in Section 6));
(vii) an Underlying Shares Registration Statement
(as defined in Section 6) shall not have been declared effective by
the Commission (as defined in Section 6) on or prior to the 90th day
after the Original Issue Date;
(viii) if, during the Effectiveness Period
(as defined in the Registration Rights Agreement (as defined in
Section 6)), the effectiveness of the Underlying Shares Registration
Statement lapses for any reason or the Holder shall not be permitted
to resell Registrable Securities (as defined in the Registration
Rights Agreement) under the Underlying Shares Registration Statement,
in either case, for more than five consecutive Trading Days or an
aggregate of eight Trading Days (which need not be consecutive Trading
Days);
(ix) an Event (as defined in the Registration
Rights Agreement) shall not have been cured to the satisfaction of the
Holder prior to the expiration of thirty days from the Event Date (as
defined in the Registration Rights Agreement) relating thereto (other
than an Event resulting from a failure of an Underlying Shares
Registration Statement to be declared effective by the Commission on
or prior to the 120th day after the Original Issue Date, which shall be
covered by Section 3(a)(vii));
(x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the third Trading Day after a
Conversion Date pursuant to and in accordance with Section 4(b) or
the Company shall provide notice to the Holder, including by way of
public announcement, at any time, of its intention not to comply with
requests for conversions of any Debentures in accordance with the
terms hereof; and
(xi) the Company shall fail for any reason to
deliver the payment in cash pursuant to a Buy-In (as defined herein)
within five days after notice is claimed delivered hereunder.
(b) If any Event of Default occurs and is continuing,
the full principal amount of this Debenture (and, at the Holder's
option, all other Debentures then held by such Holder), together with
interest and other amounts owing in respect thereof, to the date of
acceleration shall become at the Holder's election, immediately due
and payable in cash. The aggregate amount payable upon an Event of
Default shall be equal to the sum of (i) the Mandatory Prepayment
Amount (as defined in Section 6) plus (ii) the product of (A) the
number of Underlying Shares issued in respect of conversions hereunder
within thirty days of the date of a declaration of an Event of Default
and then held by the Holder and (B) the Per Share Market Value (as
defined in Section 6) on the date prepayment is due or the date the
-4-
4
full prepayment price is paid, whichever is greater. Interest shall
accrue on the prepayment amount hereunder from the seventh day after
such amount is due (being the date of an Event of Default) through the
date of prepayment in full thereof at the rate of 15% per annum (or
such lesser maximum amount that is permitted to be paid by applicable
law), to accrue daily from the date such payment is due hereunder
through and including the date of payment. All Debentures and
Underlying Shares for which the full prepayment price 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. In addition, upon the occurrence of an
Event of Default, the Holder may take such actions and enforce such
rights as permitted under the Security Agreement.
Section 4. Conversion.
-----------
(A) This Debenture shall be convertible into shares of
Common Stock at the option of the Holder, in whole or in part at
any time and from time to time, after the Original Issue Date
(subject to the limitations on conversion set forth in Section
4(a)(ii) hereof). The number of shares of Common Stock issuable
upon a conversion hereunder shall be determined by adding the sum of
(i) the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted and (y) the Conversion Price
(as defined herein), and (ii) the amount equal to (I) the product of
(x) the outstanding principal amount of this Debenture to be converted
and (y) the product of (1) the quotient obtained by dividing .12 by
360 and (2) the number of days for which such principal amount was
outstanding, divided by (II) the Conversion Price on the Conversion
Date, provided, that if the Company shall have timely elected to pay
the interest due on a Conversion Date in cash pursuant to the terms
hereof, subsection (ii) shall not be used in the calculation of the
number of shares of Common Stock issuable upon a conversion
hereunder.
(B) Notwithstanding anything to the contrary contained
herein, if on any Conversion Date:
(1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury
stock, is insufficient to pay interest hereunder in shares of Common Stock;
(2) the Underlying Shares issuable for such conversion
(including any interest payable in shares) (x) are not registered for
resale pursuant to an effective Underlying Shares Registration Statement
and (y) may not be sold without volume restrictions pursuant to Rule
-5-
5
144(k) promulgated under the Securities Act (as defined in Section 6);
(3) the Common Stock is not listed or quoted for trading
on the OTC or on a Subsequent Market;
(4) the Company has failed to timely satisfy its conversion
obligations hereunder; or
(5) the issuance of such shares of Common Stock would
result in a violation of Sections 4(a)(ii),
then, the Company may not pay interest in kind and must pay
interest in cash by delivering, within three Trading Days of each
applicable Conversion Date, an amount in cash equal to the product of
(a) the outstanding principal amount of the Debentures to be converted
on such Conversion Date and (b) the product of (x) the quotient
obtained by dividing .12 by 360 and (y) the number of days for which
such principal amount was outstanding.
(C) This Debenture shall be convertible into shares of
Common Stock at the option of the Holder, in whole or in part at
any time and from time to time, after the Original Issue Date
(subject to the limitations on conversion set forth in Section
4(a)(ii) hereof). The Holder shall effect conversions by delivering
to the Company a completed notice substantially in the form attached
hereto as Exhibit A (a "Conversion Notice"). The Conversion Notice
shall set forth the remaining principal amount of this Debenture and
all accrued and unpaid interest thereon subsequent to the conversion
at issue. The date on which a Conversion Notice is delivered is the
"Conversion Date." Unless the Holder is converting the entire
principal amount outstanding under this Debenture, the Holder is not
be required to physically surrender this Debenture to the Company in
order to effect conversions. Subject to Section 4(b), each Conversion
Notice, once given, shall be irrevocable. Conversions hereunder shall
have the effect of lowering the outstanding principal amount of this
Debenture plus all accrued and unpaid interest thereon in an amount
equal to the applicable conversion, which shall be evidenced by
notations made in the Conversion Notice. The Holder and the Company
shall maintain records showing the principal amount converted and the
date of such conversions. In the event of any dispute or discrepancy,
the records of the Holder shall be controlling and determinative in
the absence of manifest error.
(ii) Certain Conversion Restrictions.
--------------------------------
(A) Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be
acquired by the Holder upon conversion of this Debenture (or
otherwise in respect hereof) shall be limited to the extent necessary
to insure that, following such conversion (or other issuance), the
total number of shares of Common Stock then beneficially owned by such
Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999%
-6-
6
(the "Maximum Percentage") of the total number of issued and
outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such conversion). For such
purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of a Notice of Conversion
hereunder will constitute a representation by the Holder that it has
evaluated the limitation set forth in this paragraph and determined
that issuance of the full number of shares of Common Stock requested
in such Notice of Conversion is permitted under this paragraph. By
written notice to the Company, the Holder may waive the provisions of
this Section, but (i) any such waiver or increase will not be
effective until the 61st day after such notice is delivered to the
Company, and (ii) any such waiver will apply only to the Holder and
not to any other holder of Debentures.
(B) Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be
acquired by the Holder upon conversion of this Debenture (or
otherwise in respect hereof) shall be limited to the extent necessary
to insure that, following such conversion (or other issuance), the
total number of shares of Common Stock then beneficially owned by such
Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 9.999%
(the "Additional Maximum Percentage") of the total number of issued
and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of a Notice of Conversion
hereunder will constitute a representation by the Holder that it has
evaluated the limitation set forth in this paragraph and determined
that issuance of the full number of shares of Common Stock requested
in such Notice of Conversion is permitted under this paragraph. By
written notice to the Company, the Holder may waive the provisions of
this Section, but (i) any such waiver or increase will not be
effective until the 61st day after such notice is delivered to the
Company, and (ii) any such waiver will apply only to the Holder and
not to any other holder of Debentures.
(iii) Not later than five Trading Days after any
Conversion Date, (i) the Company shall deliver to the Holder a
certificate or certificates which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1(b)
of the Purchase Agreement) representing the number of shares of Common
Stock issuable upon such conversion in accordance with the terms
hereof), and (ii) if accrued interest is paid in cash, the Company
will deliver to the Holder a bank check, payable to Holder, in the
amount of accrued and unpaid interest. If requested by a Holder, the
Company will use its best efforts to deliver conversion shares
electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. If
shares of Common Stock issuable following a Conversion Notice are not
delivered to or as directed by the Holder by the fifth Trading Day
after a Conversion Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such
shares, to rescind such conversion, in which event the Company shall
immediately return to the Holder a Debenture in principal amount equal
-7-
7
to the principal amount, interest and all other amounts due in respect
of the Conversion Notice (provided the Holder is converting the entire
principal amount outstanding under this Debenture).
(iv) If the Company fails for any reason to deliver
to the Holder such certificate or certificates pursuant to Section
4(b)(i) by the fifth Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated damages
and not as a penalty, $5,000 for each Trading Day after such fifth
Trading Day until such certificates are delivered. Nothing herein
shall limit a Xxxxxx's right to pursue actual damages or declare an
Event of Default pursuant to Section 3 herein for the Company's
failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder
shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holders from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.
Further, if the Company shall not have delivered any cash due in
respect of conversions of Debentures or as payment of interest thereon
by the fifth Trading Day after the Conversion Date, the Holder may, by
notice to the Company, require the Company to issue shares of Common
Stock pursuant to Section 4(c), except that for such purpose the
Conversion Price applicable thereto shall be the lesser of the
Conversion Price on the Conversion Date and the Conversion Price on
the date of such Holder demand. Any such shares will be subject to
the provision of this Section.
(v) In addition to any other rights available to the
Holder, if the Company fails for any reason to deliver to the
Holder such certificate or certificates pursuant to Section 4(b)(i) by
the fifth Trading Day after the Conversion Date, and if after such
fifth Trading Day the Holder purchases (in an open market transaction
or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Underlying Shares which the Holder anticipated
receiving upon such conversion (a "Buy-In"), then the Company shall
(A) pay in cash to the Holder (in addition to any remedies available
to or elected by the Holder) the amount by which (x) the Holder's
total purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such
purchase obligation and (B) at the option of the Holder, either
reissue Debentures in principal amount equal to the principal amount
of the attempted conversion or deliver to the Holder the number of
shares of Common Stock that would have been issued had the Company
timely complied with its delivery requirements under Section 4(b)(i).
For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of Debentures with respect to which the market
price of the Underlying Shares on the date of conversion was a total
of $10,000 under clause (A) of the immediately preceding sentence, the
Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to
the Holder in respect of the Buy-In. Notwithstanding anything
contained herein to the contrary, if a Holder requires the Company to
make payment in respect of a Buy-In for the failure to timely deliver
certificates hereunder and the Company timely pays in full such
-8-
8
payment, the Company shall not be required to pay such Holder
liquidated damages under Section 4(b)(ii) in respect of the
certificates resulting in such Buy-In.
(vi) The conversion price (the "Conversion Price")
in effect on any Conversion Date shall be the lesser of (1) $0.08
(the "Initial Conversion Price"), and (2) 50% of the average of
the lowest three inter-day trading prices (which need not occur on
consecutive Trading Days) during the twenty Trading Days immediately
preceding the applicable Conversion Date (which may include Trading
Days prior to the Original Issue Date), provided, that such twenty
Trading Day period shall be extended for the number of Trading Days
during such period in which: (A) trading in the Common Stock is
suspended by, or not traded on, the OTC or a Subsequent Market on
which the Common Stock is then listed, or (B) after the date declared
effective by the Commission, the Underlying Shares Registration
Statement is either not effective or the Prospectus included in the
Underlying Shares Registration Statement may not be used by the Holder
for the resale of Underlying Shares.
(vii) If the Company, at any time while the Debentures
are outstanding: (a) shall pay a stock dividend or otherwise make
a distribution or distributions on shares of its Common Stock or
any other equity or equity equivalent securities payable in shares
of Common Stock, (b) subdivide outstanding shares of Common Stock
into a larger number of shares, (c) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller
number of shares, or (d) issue by reclassification of shares of the
Common Stock any shares of capital stock of the Company, then the
Initial Conversion Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-
classification.
(viii) If the Company, at any time while Debentures
are outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to
subscribe for or purchase shares of Common Stock at a price per share
less than the Per Share Market Value at the record date mentioned
below, then the Conversion Price shall be multiplied by a fraction, of
which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of
which the numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of shares which
the aggregate offering price of the total number of shares so offered
would purchase at such Per Share Market Value. Such adjustment shall
be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
However, upon the expiration of any such right, option or warrant to
purchase shares of the Common Stock the issuance of which resulted in
an adjustment in the Conversion Price pursuant to this Section, if any
-9-
9
such right, option or warrant shall expire and shall not have been
exercised, the Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any
other adjustments in the Conversion Price made pursuant to the
provisions of this Section after the issuance of such rights or
warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights, options or warrants been made on the basis of
offering for subscription or purchase only that number of shares of
the Common Stock actually purchased upon the exercise of such rights,
options or warrants actually exercised.
(ix) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined
below), at any time while Debentures are outstanding, shall issue
shares of Common Stock or rights, warrants, options or other
securities or debt that are convertible into or exchangeable for
shares of Common Stock ("Common Stock Equivalents") entitling any
Person to acquire shares of Common Stock at a price per share less
than the Conversion Price (if the holder of the Common Stock or Common
Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options
or rights issued in connection with such issuance, be entitled to
receive shares of Common Stock at a price less than the Conversion
Price, such issuance shall be deemed to have occurred for less than
the Conversion Price), then, at the sole option of the Holder, either
(i) the Conversion Price shall be multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such shares of Common
Stock or such Common Stock Equivalents plus the number of shares of
Common Stock which the offering price for such shares of Common Stock
or Common Stock Equivalents would purchase at the Conversion Price,
and the denominator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to such issuance plus
the number of shares of Common Stock so issued or issuable, or (2) the
Conversion Price shall be replaced with the conversion, exchange or
purchase price for such Common Stock Equivalents (including any reset
provisions thereof), provided, that for purposes hereof, all shares of
Common Stock that are issuable upon conversion, exercise or exchange
of Common Stock Equivalents shall be deemed outstanding immediately
after the issuance of such Common Stock Equivalents. Such adjustment
shall be made whenever such shares of Common Stock or Common Stock
Equivalents are issued. However, upon the expiration of any Common
Stock Equivalents the issuance of which resulted in an adjustment in
the Conversion Price pursuant to this Section, if any such Common
Stock Equivalents shall expire and shall not have been exercised, the
Conversion Price shall immediately upon such expiration be recomputed
and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments
in the Conversion Price made pursuant to the provisions of this
Section after the issuance of such Common Stock Equivalents) had the
adjustment of the Conversion Price made upon the issuance of such
Common Stock Equivalents been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such Common Stock Equivalents
actually exercised. The Company shall notify the Holder in writing, no
later than the business day following the issuance of any Common Stock
or Common Stock Equivalent subject to this section, indicating therein
-10-
10
the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms.
(x) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and
not to Holders) evidences of its indebtedness or assets or rights
or warrants to subscribe for or purchase any security, then in
each such case the Conversion Price at which Debentures shall
thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed
for determination of stockholders entitled to receive such distribution
by a fraction of which the denominator shall be the Per Share Market
Value determined as of the record date mentioned above, and of which
the numerator shall be such Per Share Market Value on such record
date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined
by the Board of Directors in good faith. In either case the adjustments
shall be described in a statement provided to the Holders of the portion
of assets or evidences of indebtedness so distributed or such subscription
rights applicable to one share of Common Stock. Such adjustment shall
be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(xi) In case of any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common
Stock is converted into other securities, cash or property, the
Holders shall have the right thereafter to, at their option, (A)
convert the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture only into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share
exchange, and the Holders of the Debentures shall be entitled upon
such event to receive such amount of securities, cash or property as
the shares of the Common Stock of the Company into which the then
outstanding principal amount, together with all accrued but unpaid
interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B)
require the Company to prepay the aggregate of its outstanding
principal amount of Debentures, plus all interest and other amounts
due and payable thereon, at a price determined in accordance with
Section 3(b). The entire prepayment price shall be paid in cash.
This provision shall similarly apply to successive reclassifications
or share exchanges.
(xii) All calculations under this Section 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as the
case may be. No adjustments in either the Conversion Price or the
Initial Conversion Price shall be required if such adjustment is less
than $0.01, provided, however, that any adjustments which by reason of
this Section are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(xiii) Whenever either the Initial Conversion Price
or the Conversion Price is adjusted pursuant to any of Section
4(c)(ii) - (v), the Company shall promptly mail to each Holder a
-11-
11
notice setting forth the Initial Conversion Price or Conversion Price
(as applicable) after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(xiv) If (A) the Company shall declare a dividend (or
any other distribution) on the Common Stock; (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the
Common Stock; (C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights;
(D) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of
any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then, in each case, the
Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of the Debentures, and shall cause to be
mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior
to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the
holders of the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger,
sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of
the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity
of the corporate action required to be specified in such notice.
Holders are entitled to convert Debentures during the 20-day period
commencing the date of such notice to the effective date of the event
triggering such notice.
(xv) In case of any (1) merger or consolidation of the
Company with or into another Person, or (2) sale by the Company
of more than one-half of the assets of the Company in one or a series
of related transactions, a Holder shall have the right to (A) exercise
any rights under Section 3(b), (B) convert its aggregate principal
amount of Debentures then outstanding into the shares of stock and
other securities, cash and property receivable upon or deemed to be
held by holders of Common Stock following such merger, consolidation
or sale, and such Holder shall be entitled upon such event or series
of related events to receive such amount of securities, cash and
property as the shares of Common Stock into which such aggregate
principal amount of Debentures could have been converted immediately
prior to such merger, consolidation or sales would have been entitled,
or (C) in the case of a merger or consolidation, require the surviving
entity to issue to the Holder convertible debentures with a principal
amount equal to the aggregate principal amount of Debentures then held
by such Holder, plus all accrued and unpaid interest and other amounts
owing thereon, which newly issued convertible debentures shall have
terms identical (including with respect to conversion) to the terms of
this Debenture, and shall be entitled to all of the rights and
-12-
12
privileges of a Holder of Debentures set forth herein and the
agreements pursuant to which the Debentures were issued. In the case
of clause (C), the conversion price applicable for the newly issued
shares of convertible preferred stock or convertible debentures shall
be based upon the amount of securities, cash and property that each
share of Common Stock would receive in such transaction and the
Conversion Price in effect immediately prior to the effectiveness or
closing date for such transaction. The terms of any such merger, sale
or consolidation shall include such terms so as to continue to give
the Holders the right to receive the securities, cash and property set
forth in this Section upon any conversion or redemption following such
event. This provision shall similarly apply to successive such events.
(b) The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued shares
of Common Stock solely for the purpose of issuance upon conversion of
the Debentures and payment of interest on the Debentures, each as
herein provided, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders, not less
than such number of shares of the Common Stock as shall (subject to
any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 4(b)) upon the
conversion of the outstanding principal amount of the Debentures and
payment of interest hereunder. The Company covenants that all shares
of Common Stock that shall be so issuable shall, upon issue, be duly
and validly authorized, issued and fully paid, nonassessable and, if
the Underlying Shares Registration Statement has been declared
effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(c) Upon a conversion hereunder the Company shall not
be required to issue stock certificates representing fractions of
shares of the Common Stock, but may if otherwise permitted, make a
cash payment in respect of any final fraction of a share based on the
Per Share Market Value at such time. If the Company elects not, or is
unable, to make such a cash payment, the Holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of
Common Stock.
(d) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge
to the Holders thereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay
any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a
name other than that of the Holder of such Debentures so converted and
the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(e) Any and all notices or other communications or deliveries
to be provided by the Holders hereunder, including, without limitation,
any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service
-13-
13
or sent by certified or registered mail, postage prepaid, addressed to
the Company, at 0000 Xxxxxxx Xxxxx, Xxxx Xxxx Xxxxx, Xxxxxxx 00000,
Facsimile No.: (000) 000-0000, attention Chief Financial Officer, or
such other address or facsimile number as the Company may specify for
such purposes by notice to the Holders delivered in accordance with
this Section, with a copy to (other than for Conversion Notices) X.
Xxx Xxxxxxxx, Esq. (facsimile number (000) 000-0000). Any and all
notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service
or sent by certified or registered mail, postage prepaid, addressed to
each Holder at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the
Holder. Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date
of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section
prior to 6:30 p.m. (New York City time), (ii) the date after the date
of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section
later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) four days after
deposit in the United States mail, (iv) the Business Day following the
date of mailing, if sent by nationally recognized overnight courier
service, or (v) upon actual receipt by the party to whom such notice
is required to be given.
Section 5. Optional Prepayment.
--------------------
(a) Subject to Section 5(b) below, the Company shall
have the right, exercisable during the first thirty days after the
Original Issue Date only, in accordance with the terms hereof and upon
ten Trading Days' prior written notice to the Holders to be prepaid
(an "Optional Prepayment Notice"), to prepay all or any portion of the
outstanding principal amount of the Debentures which has not previously
been repaid or for which Conversion Notices have not previously been
delivered. The prepayment price applicable to prepayments under this
Section 5(a) shall equal the Prepayment Price and shall be paid in cash.
Any such prepayment shall be free of any claim of subordination. The
tenth Trading Day after receipt by the Holders of an Optional Prepayment
Notice is referred to herein as the ("Optional Prepayment Date").
(b) If any portion of the Prepayment Price shall not be paid
by the Company by the second (2nd) Trading Day following the Optional
Prepayment Date, the Prepayment Price shall be increased by 15% per
annum (or such lesser maximum amount that is permitted to be paid by
applicable law) to accrue daily from the date such interest is due
hereunder through and including the date of payment (which amount
shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of the Prepayment Price remains unpaid
through the expiration of the Optional Prepayment Date, the Holder
subject to such prepayment may elect by written notice to the Company
to either (x) demand conversion in accordance with the formula and the
time period therefor set forth in Section 4 of any portion of the
principal amount of Debentures for which the Prepayment Price, plus
accrued liquidated damages and accrued interest thereon, has not been
paid in full (the "Unpaid Prepayment Principal Amount"), in which
event the applicable Per Share Market Value shall be the lower of the
Per Share Market Value calculated on the Optional Prepayment Date and
-14-
14
the Per Share Market Value as of the Holder's written demand for
conversion, or (y) invalidate ab initio such optional prepayment,
notwithstanding anything herein contained to the contrary. If the
Holder elects option (x) above, the Company shall, within five Trading
Days after such election is deemed delivered hereunder, deliver to the
Holder the shares of Common Stock issuable upon conversion of the
Unpaid Prepayment Principal Amount subject to such conversion demand
and otherwise perform its obligations hereunder with respect thereto.
If the Holder elects option (y) above, the Company shall promptly, and
in any event not later than three Trading Days from receipt of notice
of such election, return to the Holder new Debentures for the full
Unpaid Prepayment Principal Amount and shall no longer have any
prepayment rights under this Debenture. If, upon an election under
option (x) above, the Company fails to deliver certificates
representing the shares of Common Stock issuable upon conversion of
the Unpaid Prepayment Principal Amount within the time period set
forth in this Section, the Company shall pay to the Holder in cash, as
liquidated damages and not as a penalty, $5,000 per day until the
Company delivers such certificates to the Holder.
Section 6. Definitions.
------------ For the purposes hereof, the following terms
shall have the following meanings:
"Affiliate"
----------- means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144. With respect to a Purchaser, any investment
fund or managed account that is managed on a discretionary basis by
the same investment manager as such Purchaser will be deemed to be an
Affiliate of such Purchaser.
"Business Day"
-------------- means any day except Saturday, Sunday and
any day which shall be a federal legal holiday in the United States or a
day on which banking institutions in the State of New York or Florida
are authorized or required by law or other government action to close.
"Change of Control Transaction"
------------------------------- means the occurrence of any
of (i) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 13d-5(b)(1) promulgated under
the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 33% of the voting securities of the Company,
(ii) a replacement at one time or over time of more than one-half of
the members of the Company's board of directors which is not approved
by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving
as members of the board of directors on any date whose nomination to
the board of directors was approved by a majority of the members of
the board of directors who are members on the date hereof), (iii)
the merger of the Company with or into another entity that is not
wholly-owned by the Company, consolidation or sale of 50% or more
of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to
which the Company is a party or by which it is bound, providing for
any of the events set forth above in (i), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
------------
-15-
15
"Common Stock"
-------------- means the common stock, $.001 par value per
share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Exchange Act"
-------------- means the Securities Exchange Act of 1934, as
amended and the rules and regulations promulgated thereunder.
"Mandatory Prepayment Amount"
----------------------------- for any Debentures shall equal
the sum of (i) the greater: of (A) 130% of the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon,
and (B) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price
on (x) the date the Mandatory Prepayment Amount is demanded or otherwise
due or (y) the date the Mandatory Prepayment Amount is paid in full,
whichever price is less, multiplied by the Per Share Market Value on
(x) the date the Mandatory Prepayment Amount is demanded or otherwise
due or (y) the date the Mandatory Prepayment Amount is paid in full,
whichever price is greater, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of such Debentures.
"Original Issue Date"
--------------------- shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of
any Debenture and regardless of the number of instruments which may be
issued to evidence such Debenture.
"Per Share Market Value"
------------------------ means on any particular date
(a) the closing bid price per share of Common Stock on such date on
the Subsequent Market on which the shares of Common Stock are then
listed or quoted (as reported by Bloomberg L.P. at 4:15 PM (New York
time) for the closing sales price for regular session trading on such
day), or if there is no such price on such date, then the closing bid
price on the Subsequent Market on the date nearest preceding such date
(as reported by Bloomberg L.P. at 4:15 PM (New York time) for the
closing sales price for regular session trading on such day), or
(b) if the shares of Common Stock are not then listed or quoted on a
Subsequent Market, the closing bid price for a share of Common Stock
in the OTC, as reported by the National Quotation Bureau Incorporated
or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the
shares of Common Stock are not then reported by the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in
good faith by the Holder, or (d) if the shares of Common Stock are not
then publicly traded the fair market value of a share of Common Stock
as determined by an Appraiser selected in good faith by the Holders of
a majority in interest of the principal amount of Debentures then
outstanding.
"Person"
-------- means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Prepayment Price"
------------------ for any Debentures shall equal the sum
of (i) the greater of (A) 130% of the principal amount of Debentures to
be prepaid, plus all accrued and unpaid interest thereon, and (B) the
-16-
16
principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the
date the Mandatory Prepayment Amount is demanded or otherwise due or
(y) the date the Mandatory Prepayment Amount is paid in full, whichever
is less, multiplied by the Per Share Market Value on (x) the date the
Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is
greater, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of such Debentures.
"Purchase Agreement"
-------------------- means the Secured Convertible Debenture
Purchase Agreement, dated as of the Original Issue Date, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Rights Agreement"
------------------------------- means the Registration
Rights Agreement, dated as of the Original Issue Date, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Securities Act"
---------------- means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Security Agreement"
-------------------- means the Security Agreement dated as
of the Original Issue Date, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day"
------------- means (a) a day on which the shares of Common
Stock are traded on the OTC or on such Subsequent Market on which the
shares of Common Stock are then listed or quoted, or (b) if the shares
of Common Stock are not listed on a Subsequent Market, a day on which
the shares of Common Stock are traded in the over-the-counter market,
as reported by the OTC, or (c) if the shares of Common Stock are not
quoted on the OTC, a day on which the shares of Common Stock are
quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, that in the
event that the shares of Common Stock are not listed or quoted as set
forth in (a), (b) and (c) hereof, then Trading Day shall mean any day
except a Business Day.
"Transaction Documents"
----------------------- shall have the meaning set forth in
the Purchase Agreement.
"Underlying Shares"
------------------- means the shares of Common Stock
issuable upon conversion of Debentures and as payment of interest in
accordance with the terms hereof.
"Underlying Shares Registration Statement"
------------------------------------------ means a
registration statement meeting the requirements set forth in the
Registration Rights Agreement, covering among other things the resale
of the Underlying Shares and naming the Holder as a "selling
stockholder" thereunder.
-17-
17
Section 7. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, interest
and liquidated damages (if any) on, this Debenture at the time, place,
and rate, and in the coin or currency, herein prescribed. This
Debenture is a direct obligation of the Company. This Debenture ranks
pari passu with all other Debentures now or hereafter issued under the
terms set forth herein. As long as there are Debentures outstanding,
the Company shall not and shall cause it subsidiaries not to, without
the consent of the Holders, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights
of the Holders; (ii) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock or other equity securities
other than as to the Underlying Shares to the extent permitted or
required under the Transaction Documents; or (iii) enter into any
agreement with respect to any of the foregoing. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures
in accordance with Section 5 hereof.
Section 8. 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 9. 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.
Section 10. No indebtedness of the Company is senior to this Debenture
in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. The Company will not and will
not permit any of its subsidiaries to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any indebtedness of any
kind, on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits
therefrom that is senior in any respect to the Company's obligations
under the Debentures.
Section 11. This Debenture shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this
Debenture (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents)
shall be commenced in the state and federal courts sitting in the
City of New York, Borough of Manhattan. Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein
-18-
18
(including with respect to the enforcement of the any of this Debenture),
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, that such suit, action or proceeding
is improper. Each party hereto 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 (including its
affiliates, agents, officers, directors and employees) 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.
Section 12. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach
of any other provision of this Debenture. The failure of the Company
or the Holder to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Debenture. Any
waiver must be in writing.
Section 13. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance,
it shall nevertheless remain applicable to all other persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder shall violate applicable laws governing
usury, the applicable rate of interest due hereunder shall automatically
be lowered to equal the maximum permitted rate of interest. The Company
covenants (to the extent that it may lawfully do so) that it shall not
at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Company from paying all
or any portion of the principal of or interest on the Debentures 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.
-19-
19
Section 14. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day.
Section 15. The payment obligations under this Debenture and the
obligations of the Company to the Holder arising upon the conversion of
all or any of the Debentures in accordance with the provisions hereof
are secured pursuant to the Security Agreement (as defined in the Purchase
Agreement).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
-20-
20
IN WITNESS WHEREOF, the Company has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date
first above indicated.
PHOENIX INTERNATIONAL INDUSTRIES, INC.
By:_____________________________________
Name: /S/Xxxxxx Xxxxxxx
Title: Chief Executive Officer
-21-
21
EXHIBIT A
---------
NOTICE OF CONVERSION
--------------------
The undersigned hereby elects to convert principal and, if specified,
interest under the 12% Secured Convertible Debenture of Phoenix
International Industries, Inc. (the "Company") due eighteen months
from issuance into shares of common stock, $.001 par value per share
(the "Common Stock"), of the Company according to the conditions
hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the
Company in accordance therewith. No fee will be charged to the holder
for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned
represents and warrants to the Company that its shares ownership
of the Company's Common Stock does not exceed the amounts determined
in accordance with Section 13(d) of the Exchange Act, specified under
Section 4(a)(ii) of this Debenture.
Conversion calculations:____________________________________
Date to Effect Conversion
______________________________________________
Principal Amount of Debentures to be Converted
_____________________________________________
Number of shares of Common Stock to be Issued
_____________________________________________
Applicable Conversion Price
_____________________________________________
Signature
_____________________________________________
Name
_____________________________________________
Address
_____________________________________________
Aggregate Principal Amount Remaining
Subsequent to Conversion
22
