EXHIBIT A
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: July 12, 2005
Original Conversion Price (subject to adjustment herein): $6.50
$____________
VARIABLE RATE CONVERTIBLE DEBENTURE
THIS VARIABLE RATE SECURED CONVERTIBLE DEBENTURE is one of a series of
duly authorized and issued Variable Rate Convertible Debentures of Able Energy,
Inc., a Delaware corporation, having a principal place of business at
_____________________________ (the "COMPANY") designated as its Variable Rate
Convertible Debenture, (this debenture, the "DEBENTURE" and collectively with
the other such series of debentures, the "DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "HOLDER"), or shall have
paid pursuant to the terms hereunder, the principal sum of $_______________ by
July __, 2007, or such earlier date as this Debenture is required or permitted
to be repaid as provided hereunder (the "MATURITY DATE"), and to pay interest to
the Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture in accordance with the provisions hereof. This Debenture is
subject to the following additional provisions:
SECTION 1. DEFINITIONS. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
"ALTERNATE CONSIDERATION" shall have the meaning set forth in Section
5(d).
"BASE CONVERSION PRICE" shall have the meaning set forth in Section
5(b).
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions in the State of New York are authorized or required by law or other
government action to close.
"BUY-IN" shall have the meaning set forth in Section 4(d)(v).
"CHANGE OF CONTROL TRANSACTION" means, except with respect to the
acquisition of All American Plazas, Inc., the occurrence after the date hereof
of any of (i) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of 40% of the voting securities of the Company, or (ii) the Company
merges into or consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such transaction, the
stockholders of the Company immediately prior to such transaction own less than
60% of the aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers its assets, as an entirety
or substantially as an entirety, to another Person and the stockholders of the
Company immediately prior to such transaction own less than 60% of the aggregate
voting power of the acquiring entity immediately after the transaction, (iv) a
replacement at one time or within a three year period of more than one-half of
the members of the Company's board of directors which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i) or (iv).
"COMMON STOCK" means the common stock, par value $0.001 per share, of
the Company and stock of any other class of securities into which such
securities may hereafter have been reclassified or changed into.
"CONVERSION DATE" shall have the meaning set forth in Section 4(a).
"CONVERSION PRICE" shall have the meaning set forth in Section 4(b).
"CONVERSION SHARES" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms.
"DEBENTURE REGISTER" shall have the meaning set forth in Section 2(c).
2
"DILUTIVE ISSUANCE" shall have the meaning set forth in Section 5(b).
"DILUTIVE ISSUANCE NOTICE" shall have the meaning set forth in Section
5(b).
"EFFECTIVENESS PERIOD" shall have the meaning given to such term in the
Registration Rights Agreement.
"EQUITY CONDITIONS" shall mean, during the period in question, (i) the
Company shall have duly honored all conversions and redemptions scheduled to
occur or occurring by virtue of one or more Notice of Conversions of the Holder,
if any, (ii) all liquidated damages and other amounts owing to the Holder in
respect of this Debenture shall have been paid; (iii) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (iv) the
Common Stock is trading on the Trading Market and all of the shares issuable
pursuant to the Transaction Documents are listed for trading on a Trading Market
(and the Company believes, in good faith, that trading of the Common Stock on a
Trading Market will continue uninterrupted for the foreseeable future), (v)
there is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the shares issuable pursuant
to the Transaction Documents, (vi) there is then existing no Event of Default or
event which, with the passage of time or the giving of notice, would constitute
an Event of Default, (vii) the issuance of the shares in question (or, in the
case of a redemption, the shares issuable upon conversion in full of the
redemption amount) to the Holder would not violate the limitations set forth in
Section 4(c)(i) and Section 4(c)(ii) and (viii) no public announcement of a
pending or proposed Fundamental Transaction, Change of Control Transaction or
acquisition transaction has occurred that has not been consummated.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"FUNDAMENTAL TRANSACTION" shall have the meaning set forth in Section
5(d).
"IMMEDIATELY ACCRETIVE ACQUISITION" is a business combination that
causes an increase in fully diluted earnings per share of the Company as shown
in the Company's Form 10-Q or 10-K next filed after the combined results of such
business combination are reflected in the Company's financial reports for one
full fiscal quarter.
"INTEREST CONVERSION RATE" means the lesser of (a) the Conversion Price
and (b) the 90% of the lesser of (i) the average of the 20 VWAPs immediately
prior to the applicable Interest Payment Date or (ii) the average of the 20
VWAPs immediately prior to the date the applicable interest payment shares are
issued and delivered if after the Interest Payment Date.
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"INTEREST CONVERSION SHARES" shall have the meaning set forth in Section
2(a).
"INTEREST NOTICE PERIOD" shall have the meaning set forth in Section
2(a).
"INTEREST PAYMENT DATE" shall have the meaning set forth in Section
2(a).
"INTEREST PERIOD" means, initially, the period beginning on and
including the Original Issue Date and ending on and including September 30, 2005
and each successive period as follows: the period beginning on and including
October 1 and ending on and including December 31; the period beginning on and
including January 1 and ending on and including March 31; the period beginning
on and including April 1 and ending on and including June 30; and the period
beginning on July 1 and ending on and including September 30.
"INTEREST SHARE AMOUNT" shall have the meaning set forth in Section
2(a).
"LATE FEES" shall have the meaning set forth in Section 2(d).
"LIBOR" means, for each Interest Period (i) the three-month London
Interbank Offered Rate for deposits in U.S. dollars, as shown on such the
Trading Day immediately prior to the beginning of such Interest Period in The
Wall Street Journal (Eastern Edition) under the caption "Money Rates - London
Interbank Offered Rates (LIBOR)"; or (ii) if The Wall Street Journal does not
publish such rate, the offered one-month rate for deposits in U.S. dollars which
appears on the Reuters Screen LIBO Page as of 10:00 a.m., New York time, the
Trading Day immediately prior to the beginning of such Interest Period, provided
that if at least two rates appear on the Reuters Screen LIBO Page on any such
Trading Day, the "LIBOR" for such day shall be the arithmetic mean of such
rates.
"MANDATORY DEFAULT AMOUNT" shall equal the sum of (i) the greater of:
(A) 125% of the principal amount of this Debenture to be prepaid, or (B) the
principal amount of this Debenture to be prepaid, divided by the Conversion
Price on (x) the date the Mandatory Default Amount is demanded or otherwise due
or (y) the date the Mandatory Default Amount is paid in full, whichever is less,
multiplied by the VWAP on (x) the date the Mandatory Default Amount is demanded
or otherwise due or (y) the date the Mandatory Default Amount is paid in full,
whichever is greater, and (ii) all accrued and unpaid interest hereon amounts,
costs, expenses and liquidated damages due in respect of this Debenture.
"MONTHLY CONVERSION PERIOD" shall have the meaning set forth in Section
6(b) hereof.
"MONTHLY CONVERSION PRICE" shall have the meaning set forth in Section
6(b) hereof.
4
"MONTHLY REDEMPTION" shall mean the redemption of this Debenture
pursuant to Section 6(b) hereof.
"MONTHLY REDEMPTION AMOUNT" shall mean $________1.
"MONTHLY REDEMPTION DATE" means the 1st of each month, commencing on the
3rd month after the Original Issue Date and ending upon the full redemption of
this Debenture.
"MONTHLY REDEMPTION NOTICE" shall have the meaning set forth in Section
6(b) hereof.
"MONTHLY REDEMPTION PERIOD" shall have the meaning set forth in Section
6(b) hereof.
"MONTHLY REDEMPTION SHARE AMOUNT" shall have the meaning set forth in
Section 6(b) hereof.
"NEW YORK COURTS" shall have the meaning set forth in Section 9(d).
"NOTICE OF CONVERSION" shall have the meaning set forth in Section 4(a).
"OPTIONAL REDEMPTION" shall have the meaning set forth in Section 6(a).
"OPTIONAL REDEMPTION AMOUNT" shall mean the sum of (i) 125% of the
principal amount of the Debenture then outstanding, (ii) accrued but unpaid
interest and (iii) all liquidated damages and other amounts due in respect of
the Debenture.
"OPTIONAL REDEMPTION NOTICE" shall have the meaning set forth in Section
6(a).
"OPTIONAL REDEMPTION NOTICE DATE" shall have the meaning set forth in
Section 6(a).
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
"PERMITTED INDEBTEDNESS" shall mean the individual and collective
reference to the following: (a) Indebtedness existing on the Closing Date as
described in the Disclosure Schedules to the Purchase Agreement; (b) up to, in
the aggregate during the term of this Debenture, $1,500,000 of new Indebtedness;
and (c) non-equity linked Indebtedness incurred solely in connection with any
business combination provided that such Indebtedness does not mature or require
payments of principal prior to the two year
-------------------------------
1 1/21st of the original principal amount of this Debenture.
5
anniversary of the Original Issue Date and is made expressly subordinate in
right of payment to the Indebtedness evidenced by this Xxxxxxxxx, as reflected
in a written agreement acceptable to the Holder and approved by the Holder in
writing.
"PERMITTED LIEN" shall mean the individual and collective reference to
the following: (a) Liens for taxes, assessments and other governmental charges
or levies not yet due or Liens for taxes, assessments and other governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves (in the good faith judgment of the management of the
Company) have been established in accordance with GAAP; (b) Liens imposed by law
which were incurred in the ordinary course of business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens, and other
similar Liens arising in the ordinary course of business, and (x) which do not
individually or in the aggregate materially detract from the value of such
property or assets or materially impair the use thereof in the operation of the
business of the Company and its consolidated Subsidiaries or (y) which are being
contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the property or asset subject to
such Lien; (c) Existing Liens as they exist on the date of the Purchase
Agreement and which are set forth in the Disclosure Schedules to the Purchase
Agreement, and (d) Liens on the assets of a future Subsidiary incurred solely in
connection with a Permitted Indebtedness under clause (c) of the definition of
Permitted Indebtedness provided that such Lien is limited only to the assets of
the Subsidiary to be acquired in connection with such Permitted Indebtedness.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PRE-REDEMPTION CONVERSION SHARES" shall have the meaning set forth in
Section 6(a) hereof.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement, dated as
of July ___, 2005, to which the Company and the original Holder are parties, as
amended, modified or supplemented from time to time in accordance with its
terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the date of the Purchase Agreement, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"REGISTRATION STATEMENT" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among
other things the resale of the Conversion Shares and naming the Holder as a
"selling stockholder" thereunder.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
6
"SHAREHOLDER APPROVAL" shall have the meaning given to such term in the
Purchase Agreement.
"SUBSIDIARY" shall have the meaning given to such term in the Purchase
Agreement.
"TRADING DAY" means a day on which the Common Stock is traded on a
Trading Market.
"TRADING MARKET" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the Nasdaq
SmallCap Market, the American Stock Exchange, the New York Stock Exchange or the
Nasdaq National Market.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in the Purchase
Agreement.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg Financial L.P.
(based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
listed or quoted on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "Pink Sheets" published by the Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or (c) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.
SECTION 2. INTEREST.
a) PAYMENT OF INTEREST IN CASH OR KIND. The Company shall pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture at the rate per annum equal to LIBOR for the
applicable Interest Period plus 4.0% or such lesser rate as shall be the highest
rate permitted by applicable law, payable quarterly on April 1, July 1, October
1 and January 1, beginning on the first such date after the Original Issue Date,
on each Monthly Redemption Date (as to that principal amount then being
redeemed), on each Conversion Date (as to that principal amount then being
converted), on each Optional Redemption Date (as to that principal amount then
being redeemed) and on the Maturity Date (except that, if any such date is not a
Business Day, then such payment shall be due on the next succeeding Business
Day) (each such date, an "INTEREST PAYMENT DATE"), in cash or shares of Common
Stock at the Interest
7
Conversion Rate, or a combination thereof (the amount to be paid in shares, the
"INTEREST SHARE AMOUNT"); PROVIDED, HOWEVER, (i) payment in shares of Common
Stock may only occur if during the 20 Trading Days immediately prior to the
applicable Interest Payment Date (the "INTEREST NOTICE PERIOD") and through and
including the date such shares of Common Stock are issued to the Holder all of
the Equity Conditions, unless waived by the Holder in writing, have been met and
the Company shall have given the Holder notice in accordance with the notice
requirements set forth below and (ii) as to such Interest Payment Date, prior to
such Interest Notice Period (but not more 5 Trading Days prior to the
commencement of the Interest Notice Period), the Company shall have delivered to
the Holder's account with The Depository Trust Company a number of shares of
Common Stock to be applied against such Interest Share Amount equal to the
quotient of (x) the applicable Interest Share Amount divided by (y) the then
Conversion Price (the "INTEREST CONVERSION SHARES").
b) COMPANY'S ELECTION TO PAY INTEREST IN KIND. Subject to the terms
and conditions herein, the decision whether to pay interest hereunder in shares
of Common Stock or cash shall be at the discretion of the Company. Not less than
20 Trading Days prior to each Interest Notice Period, the Company shall provide
the Holder with written notice of its election to pay interest hereunder on the
applicable Interest Payment Date either in cash, shares of Common Stock or a
combination thereof (the Company may indicate in such notice that the election
contained in such notice shall continue for later periods until revised). Within
20 Trading Days prior to an Interest Payment Date, the Company's election
(whether specific to an Interest Payment Date or continuous) shall be
irrevocable as to such Interest Payment Date. Subject to the aforementioned
conditions, failure to timely provide such written notice shall be deemed an
election by the Company to pay the interest on such Interest Payment Date in
cash. At any time the Company delivers a notice to the Holder of its election to
pay the interest in shares of Common Stock, the Company shall file a prospectus
supplement pursuant to Rule 424 disclosing such election. The aggregate number
of shares of Common Stock otherwise issuable to the Holder on an Interest
Payment Date shall be reduced by the number of Interest Conversion Shares
previously issued to the Holder in connection with such Interest Payment Date.
c) INTEREST CALCULATIONS. Interest shall be calculated on the basis
of a 360-day year and shall accrue daily commencing on the Original Issue Date
until payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Payment of interest in shares of Common Stock (other than the Interest
Conversion Shares issued prior to an Interest Notice Period) shall otherwise
occur pursuant to Section 4(d)(ii) and only for purposes of the payment of
interest in shares, the Interest Payment Date shall be deemed the Conversion
Date. Interest shall cease to accrue with respect to any principal amount
converted, provided that the Company in fact delivers the Conversion Shares
within the time period required by Section 4(d)(ii). Interest hereunder will be
paid to the Person in whose name this Debenture is registered on the records of
the Company regarding registration and transfers of Debentures (the "DEBENTURE
REGISTER"). Except as otherwise provided herein, if at any time the Company pays
interest partially in cash and partially in
8
shares of Common Stock to the holders of the Debentures, then such payment shall
be distributed ratably among the holders of the Debentures based on their (or
their predecessor's initial purchases of Debentures pursuant to the Purchase
Agreement.
d) LATE FEE. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 18% per annum (or such lower
maximum amount of interest permitted to be charged under applicable law) ("LATE
FEES") which will accrue daily, from the date such interest is due hereunder
through and including the date of payment. Notwithstanding anything to the
contrary contained herein, if on any Interest Payment Date the Company has
elected to pay interest in Common Stock and is not able to pay accrued interest
in the form of Common Stock because it does not then satisfy the conditions for
payment in the form of Common Stock set forth above, then, at the option of the
Holder, the Company, in lieu of delivering either shares of Common Stock
pursuant to this Section 2 or paying the regularly scheduled cash interest
payment, shall deliver, within three Trading Days of each applicable Interest
Payment Date, an amount in cash equal to the product of the number of shares of
Common Stock otherwise deliverable to the Holder in connection with the payment
of interest due on such Interest Payment Date and the average VWAP during the
period commencing on the Interest Payment Date and ending on the Trading Day
prior to the date such payment is made. If any Interest Conversion Shares are
issued to the Holder in connection with an Interest Payment Date and are not
applied against an Interest Share Amount, then the Holder shall promptly return
such excess shares to the Company
e) PREPAYMENT. Except as otherwise set forth in this Debenture, the
Company may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.
SECTION 3. REGISTRATION OF TRANSFERS AND EXCHANGES.
a) DIFFERENT DENOMINATIONS. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration of transfer or exchange.
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.
9
SECTION 4. CONVERSION.
a) VOLUNTARY CONVERSION. At any time after the Original Issue Date
until this Debenture is no longer outstanding, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time (subject to the limitations on
conversion set forth in Section 4(c) hereof). The Holder shall effect
conversions by delivering to the Company the form of Notice of Conversion
attached hereto as ANNEX A (a "NOTICE OF CONVERSION"), specifying therein the
principal amount of this Debenture to be converted and the date on which such
conversion is to be effected (a "CONVERSION DATE"). If no Conversion Date is
specified in a Notice of Conversion, the Conversion Date shall be the date that
such Notice of Conversion is provided hereunder. To effect conversions
hereunder, the Holder shall not be required to physically surrender this
Debenture to the Company unless the entire principal amount of this Debenture
plus all accrued and unpaid interest thereon has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of
this Debenture in an amount equal to the applicable conversion. The Holder and
the Company shall maintain records showing the principal amount converted and
the date of such conversions. The Company shall deliver any objection to any
Notice of Conversion within 2 Business Days of receipt of such notice. In the
event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder and
any assignee, by acceptance of this Debenture, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of a portion of
this Debenture, the unpaid and unconverted principal amount of this Debenture
may be less than the amount stated on the face hereof.
b) CONVERSION PRICE. The conversion price in effect on any
Conversion Date shall be equal to $6.50 (subject to adjustment herein)(the
"CONVERSION PRICE").
c) CONVERSION LIMITATIONS.
i. TRADING MARKET LIMITATIONS. Notwithstanding anything
herein to the contrary, if the Company has not obtained Shareholder
Approval (as defined below), if required by the applicable rules and
regulations of the Trading Market (or any successor entity), then the
Company may not issue upon conversion of this Debenture, a number of
shares of Common Stock which, when aggregated with any shares of Common
Stock issued prior to such Conversion Date (A) pursuant to any
Debentures issued pursuant to the Purchase Agreement and (B) pursuant to
any Warrants issued pursuant to the Purchase Agreement, would exceed
19.999% of the number of shares of Common Stock outstanding on the
Trading Day immediately preceding the Original Issue Date (such number
of shares, the "ISSUABLE MAXIMUM"). Each Holder shall be entitled to a
portion of the Issuable Maximum equal to the quotient obtained by
dividing (x) the aggregate principal amount of the Debenture(s) issued
and sold to such Holder on the Original Issue Date by (y) the aggregate
principal amount of all Debentures issued and sold by the Company on the
Original Issue Date. If any Holder shall no longer hold the
Debenture(s), then such Xxxxxx's remaining portion of the
10
Issuable Maximum shall be allocated pro-rata among the remaining
Holders. If on any Conversion Date: (1) the applicable Conversion Price
then in effect is such that the shares issuable under this Debenture on
any Conversion Date together with the aggregate number of shares of
Common Stock that would then be issuable upon conversion in full of all
then outstanding Debentures would exceed the Issuable Maximum, and (2)
the Company's shareholders shall not have previously approved the
transactions contemplated by the Transaction Documents, as may be
required by the applicable rules and regulations of the Nasdaq SmallCap
Market, if any (the "SHAREHOLDER APPROVAL"), then the Company shall
issue to the Holder requesting a conversion a number of shares of Common
Stock equal to such Holder's pro-rata portion (which shall be calculated
pursuant to the terms hereof) of the Issuable Maximum and, with respect
to the remainder of the aggregate principal amount of the Debentures
(including any accrued interest) then held by such Holder for which a
conversion in accordance with the applicable conversion price would
result in an issuance of shares of Common Stock in excess of such
Holder's pro-rata portion (which shall be calculated pursuant to the
terms hereof) of the Issuable Maximum (the "EXCESS PRINCIPAL"), the
Company shall be prohibited from converting such Excess Principal, and
shall notify the Holder of the reason therefor. This Debenture shall
thereafter be unconvertible to such extent until and unless Shareholder
Approval is subsequently obtained or is otherwise not required, but this
Debenture shall otherwise remain in full force and effect.
ii. HOLDER'S RESTRICTION ON CONVERSION. The Company shall
not effect any conversion of this Debenture, and the Holder shall not
have the right to convert any portion of this Debenture, pursuant to
Section 4(a) or otherwise, to the extent that after giving effect to
such conversion, the Holder (together with the Holder's affiliates), as
set forth on the applicable Notice of Conversion, would beneficially own
in excess of 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, 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 conversion of this
Debenture with respect to which the determination of such sentence is
being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) conversion of the remaining, nonconverted
portion of this Debenture beneficially owned by the Holder or any of its
affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including,
without limitation, any other Debentures or the Warrants) subject to a
limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 4(c)(ii), 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 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
11
discretion of such Holder. To ensure compliance with this restriction,
the Holder will be deemed to represent to the Company each time it
delivers a Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and the Company
shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 4(c)(ii), 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) the
Company's most recent Form 10-Q or Form 10-K, as the case may be, (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 two Trading Days confirm orally
and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Debenture, by the
Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The provisions of this
Section 4(c) may be waived by the Holder, at the election of the Holder,
upon not less than 61 days' prior notice to the Company, and the
provisions of this Section 4(c) 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).
d) MECHANICS OF CONVERSION
i. CONVERSION SHARES ISSUABLE UPON CONVERSION OF PRINCIPAL
AMOUNT. The number of shares of Common Stock issuable upon a conversion
hereunder shall be determined by the quotient obtained by dividing (x)
the outstanding principal amount of this Debenture to be converted by
(y) the Conversion Price. i.
ii. DELIVERY OF CERTIFICATE UPON CONVERSION. Not later than
three Trading Days after any Conversion Date, the Company will deliver
or cause to be delivered to the Holder (A) a certificate or certificates
representing the Conversion Shares which shall be free of restrictive
legends and trading restrictions (other than those required by the
Purchase Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of this Debenture (including, if the
Company has given continuous notice pursuant to Section 2(b) for payment
of interest in shares of Common Stock at least 20 Trading Days prior to
the date on which the Conversion Notice is delivered to the Company,
shares of Common Stock representing the payment of accrued interest
otherwise determined pursuant to Section 2(a) but assuming that the
Interest Payment Period is the 20 Trading Days period immediately prior
to the date on which the Conversion Notice is delivered to the Company
and excluding for such issuance the condition that the Company deliver
Interest Conversion Shares as to such interest payment) and (B) a bank
check in the amount of accrued and unpaid interest (if the Company is
required to pay accrued interest in cash). The
12
Company shall, if available and if allowed under applicable securities
laws, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions.
iii. FAILURE TO DELIVER CERTIFICATES. If in the case of any
Notice of Conversion such certificate or certificates are not delivered
to or as directed by the applicable Holder by the third Trading Day
after a Conversion Date, the Holder shall be entitled by written notice
to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event
the Company shall immediately return the certificates representing the
principal amount of this Debenture tendered for conversion.
iv. OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES. If the
Company fails for any reason to deliver to the Holder such certificate
or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day
after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, for each $1000 of
principal amount being converted, $10 per Trading Day (increasing to $20
per Trading Day after 10 Trading Days after such damages begin to
accrue) for each Trading Day after such fifth Trading Day until such
certificates are delivered. The Company's obligations to issue and
deliver the Conversion Shares upon conversion of this Debenture in
accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the
same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the
same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other person, and irrespective of
any other circumstance which might otherwise limit such obligation of
the Company to the Holder in connection with the issuance of such
Conversion Shares; PROVIDED, HOWEVER, such delivery shall not operate as
a waiver by the Company of any such action the Company may have against
the Holder. In the event the Holder of this Debenture shall elect to
convert any or all of the outstanding principal amount hereof, the
Company may not refuse conversion based on any claim that the Holder or
any one associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless, an
injunction from a court, on notice, restraining and or enjoining
conversion of all or part of this Debenture shall have been sought and
obtained and the Company posts a surety bond for the benefit of the
Holder in the amount of 125% of the principal amount of this Debenture
outstanding, which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Holder to the extent
it obtains judgment. In the absence of an injunction precluding the
same, the Company shall issue
13
Conversion Shares or, if applicable, cash, upon a properly noticed
conversion. Nothing herein shall limit a Xxxxxx's right to pursue actual
damages or declare an Event of Default pursuant to Section 8 herein for
the Company's failure to deliver Conversion Shares within the period
specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
The exercise of any such rights shall not prohibit the Holder from
seeking to enforce damages pursuant to any other Section hereof or under
applicable law. Notwithstanding anything herein to the contrary, as to
any delays in performance caused solely and directly by a Force Majeure,
the Trading Days during which such delay is occurring shall be tolled
hereunder with respect to liquidated damages, provided that the Company
has used, and continues to use, best efforts to perform its obligations
notwithstanding such Force Majeure.
v. COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER
CERTIFICATES UPON CONVERSION. In addition to any other rights available
to the Holder, if the Company fails for any reason to deliver to the
Holder such certificate or certificates pursuant to Section 4(d)(ii) by
the fifth Trading Day after the Conversion Date, and if after such fifth
Trading Day the Holder is required by its brokerage firm to purchase (in
an open market transaction or otherwise) Common Stock to deliver in
satisfaction of a sale by such Holder of the Conversion Shares which the
Holder anticipated receiving upon such conversion (a "BUY-IN"), then the
Company shall (A) pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any)
for the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the actual sale
price of the Common Stock at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase obligation and (B) at
the option of the Holder, either reissue (if surrendered) this Debenture
in a principal amount equal to the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its
delivery requirements under Section 4(d)(ii). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted conversion of this Debenture with
respect to which the actual sale price of the Conversion Shares at the
time of the sale (including brokerage commissions, if any) giving rise
to such purchase obligation was a total of $10,000 under clause (A) of
the immediately preceding sentence, the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder
requires the Company to make payment in respect of a Buy-In for the
failure to timely deliver certificates hereunder and the Company timely
pays in full such payment, the Company shall not be required to pay such
Holder
14
liquidated damages under Section 4(d)(iv) in respect of the certificates
resulting in such Buy-In.
vi. RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The
Company covenants that it will at all times reserve and keep available
out of its authorized and unissued shares of Common Stock solely for the
purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of
persons other than the Holder (and the other holders of the Debentures),
not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation
of such shares set forth in the Purchase Agreement) be issuable (taking
into account the adjustments and restrictions of Section 5) upon the
conversion of the outstanding principal amount of this Debenture and
payment of interest hereunder. The Company covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and, if the
Registration Statement is then effective under the Securities Act,
registered for public sale in accordance with such Registration
Statement.
vii. FRACTIONAL SHARES. Upon a conversion hereunder the
Company shall not be required to issue stock certificates representing
fractions of shares of the Common Stock, but may if otherwise permitted,
make a cash payment in respect of any final fraction of a share based on
the VWAP at such time. If the Company elects not, or is unable, to make
such a cash payment, the Holder shall be entitled to receive, in lieu of
the final fraction of a share, one whole share of Common Stock.
viii. TRANSFER TAXES. The issuance of certificates for shares
of the Common Stock on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay any
tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of this Debenture so converted and the
Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
paid.
SECTION 5. CERTAIN ADJUSTMENTS.
a) STOCK DIVIDENDS AND STOCK SPLITS. If the Company, at any time
while this Debenture is outstanding: (A) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent
15
securities payable in shares of Common Stock (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Company pursuant to
this Debenture, including as interest thereon), (B) subdivides outstanding
shares of Common Stock into a larger number of shares, (C) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller
number of shares, or (D) issues by reclassification of shares of the Common
Stock any shares of capital stock of the Company, then the Conversion Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
b) SUBSEQUENT EQUITY SALES. If the Company or any Subsidiary
thereof, as applicable, at any time while this Debenture is outstanding, shall
sell, grant any option to purchase or offer, sell or grant any right to reprice
its securities, or otherwise dispose of or issue any Common Stock or Common
Stock Equivalents entitling any Person to acquire shares of Common Stock, at an
effective price per share less than the then Conversion Price (such lower price,
the "BASE CONVERSION PRICE" and such issuances collectively, a "DILUTIVE
ISSUANCE"), as adjusted hereunder (if the holder of the Common Stock or Common
Stock Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares of Common
Stock at an effective price per share which is less than the Conversion Price,
such issuance shall be deemed to have occurred for less than the Conversion
Price on such date of the Dilutive Issuance), then the Conversion Price shall be
reduced to equal the Base Conversion Price. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no adjustment will be made under this Section
5(b) in respect of an Exempt Issuance. The Company shall notify the Holder in
writing, no later than the Business Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this section, indicating therein
the applicable issuance price, or of applicable reset price, exchange price,
conversion price and other pricing terms (such notice the "DILUTIVE ISSUANCE
NOTICE"). For purposes of clarification, whether or not the Company provides a
Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of
any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Conversion Shares based upon the Base Conversion
Price regardless of whether the Holder accurately refers to the Base Conversion
Price in the Notice of Conversion.
c) PRO RATA DISTRIBUTIONS. If the Company, at any time while this
Debenture is outstanding, shall distribute to all holders of Common Stock (and
not to the holders of the Debenture) evidences of its indebtedness or assets
(including cash and cash
16
dividends) or rights or warrants to subscribe for or purchase any security, then
in each such case the Conversion Price shall be adjusted by multiplying such
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of the Common Stock as determined by the Board of Directors in
good faith. In either case the adjustments shall be described in a statement
provided to the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
d) FUNDAMENTAL TRANSACTION. If, at any time while this Debenture is
outstanding, other than the acquisition of All American Plazas, Inc., (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a "FUNDAMENTAL TRANSACTION"),
then upon any subsequent conversion of this Debenture, the Holder shall have the
right to receive, for each Conversion Share that would have been issuable upon
such conversion immediately prior to the occurrence of such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of one share of Common Stock (the "ALTERNATE CONSIDERATION"). For
purposes of any such conversion, the determination of the Conversion Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction
shall (i) assume in writing all of the obligations of the Company under this
Debenture and the other Transaction Documents pursuant to written agreements in
form and substance satisfactory to the Holder (such approval not to be
unreasonably withheld or delayed) prior to such Fundamental Transaction and (ii)
17
to issue to the Holder a new debenture of such successor entity evidenced by a
written instrument substantially similar in form and substance to this
Debenture, including, without limitation, having a principal amount and interest
rate equal to the principal amounts and the interest rates of the Debentures
held by the Holder and having similar ranking to the Debenture, and satisfactory
to the Holder (any such approval not to be unreasonably withheld or delayed).
The provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
on the conversion or redemption of this Debenture.
e) CALCULATIONS. All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 5, the number of shares of Common Stock deemed to
be issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.
f) NOTICE TO THE HOLDER.
i. ADJUSTMENT TO CONVERSION PRICE. Whenever the Conversion
Price is adjusted pursuant to any of this Section 5, the Company shall
promptly mail to each Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Company issues a variable rate
security, despite the prohibition thereon in the Purchase Agreement, the
Company shall be deemed to have issued Common Stock or Common Stock
Equivalents at the lowest possible conversion or exercise price at which
such securities may be converted or exercised in the case of a Variable
Rate Transaction (as defined in the Purchase Agreement).
ii. NOTICE TO ALLOW CONVERSION BY HOLDER. If (A) the Company
shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of the Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the
Common Stock, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets of
the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; (E) the Company
shall authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then, in each case, the
Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Debenture, and shall cause to be
mailed to the Holder at its last addresses as it shall appear upon the
stock books of the Company, at least 10 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
18
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. The Holder is
entitled to convert this Debenture during the 10-day period commencing
the date of such notice to the effective date of the event triggering
such notice.
SECTION 6. REDEMPTION.
a) OPTIONAL REDEMPTION AT ELECTION OF COMPANY. Subject to the
provisions of this Section 6, at any time after the Original Issue Date, the
Company may deliver a notice to the Holder (an "OPTIONAL REDEMPTION NOTICE" and
the date such notice is deemed delivered hereunder, the "OPTIONAL REDEMPTION
NOTICE DATE") of its irrevocable election to redeem some or all of the then
outstanding Debentures, for an amount, in cash, equal to the Optional Redemption
Amount on the 20th Trading Day following the Optional Redemption Notice Date
(such date, the "OPTIONAL REDEMPTION DATE" and such redemption, the "OPTIONAL
REDEMPTION"). The Optional Redemption Amount is due in full on the Optional
Redemption Date. The Company may only effect an Optional Redemption if during
the period commencing on the Optional Redemption Notice Date through to the
Optional Redemption Date and through and including the date such shares of
Common Stock are issued to the Holder, each of the Equity Conditions shall have
been met. If any of the Equity Conditions shall cease to be satisfied at any
time during the required period, then the Holder may elect to nullify the
Optional Redemption Notice by notice to the Company within 3 Trading Days after
the first day on which any such Equity Condition has not been met (provided that
if, by a provision of the Transaction Documents the Company is obligated to
notify the Holder of the non-existence of an Equity Condition, such notice
period shall be extended to the third Trading Day after proper notice from the
Company) in which case the Optional Redemption Notice shall be null and void, AB
INITIO. The Company covenants and agrees that it will honor all Notice of
Conversions tendered from the time of delivery of the Optional Redemption Notice
through the date all amounts owing thereon are due and paid in full.
Notwithstanding anything herein to the contrary, in the event an Optional
Redemption is being undertaken in connection with a financing that would
otherwise result in an adjustment to the Conversion Price pursuant to Section
5(b) and the Company arranges for the direct redemption of all or part of this
Debenture out of the closing of such Dilutive Issuance, the Conversion Price as
to the principal amount of this Debenture subject to an Optional Redemption
shall not be adjusted as to such Dilutive Issuance on or before the Optional
Redemption Date, provided that in the event the Optional Redemption Amount is
19
not paid in full on or before the Optional Redemption Date, the Conversion Price
shall be immediately adjusted to the lower price pursuant to Section 5(b).
b) MONTHLY REDEMPTION. On each Monthly Redemption Date, the Company
shall redeem the Monthly Redemption Amount plus accrued but unpaid interest, the
sum of all liquidated damages and any other amounts then owing to such Holder in
respect of this Debenture (the "MONTHLY REDEMPTION"). The Monthly Redemption
Amount due on each Monthly Redemption Date shall be paid in cash; PROVIDED,
HOWEVER, as to any Monthly Redemption and upon 25 Trading Days' prior written
irrevocable notice (the "MONTHLY REDEMPTION NOTICE and the 25 Trading Day period
immediately following the Monthly Redemption Notice, the "MONTHLY REDEMPTION
PERIOD"), in lieu of a cash redemption payment the Company may elect to pay up
to 100% of a Monthly Redemption Amount in Conversion Shares (such dollar amount
to be paid on a Monthly Redemption Date in Conversion Shares, the "MONTHLY
REDEMPTION SHARE AMOUNT") based on a conversion price equal to 90% of the
average of the 20 VWAPs during the 20 consecutive Trading Days immediately prior
to the applicable Monthly Redemption Date (subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting the
Common Stock during such 20 Trading Day period, such period, the "MONTHLY
CONVERSION PERIOD") (the "MONTHLY CONVERSION PRICE"); PROVIDED, FURTHER, that
the Company may not pay up to 100% of the Monthly Redemption Amount in
Conversion Shares unless (i) on the applicable Monthly Redemption Date (through
and including the date payment is actually made) and during the applicable
Monthly Redemption Period, the Equity Conditions, unless waived in writing by
the Holder, have been satisfied, (ii) the daily trading volume for the Common
Stock exceeds $100,000 per Trading Day for the applicable Monthly Redemption
Period and (iii) as to such Monthly Redemption, prior to the such Monthly
Redemption Period (but not more than 5 Trading Days prior to the commencement of
the Monthly Redemption Period), the Company shall have delivered to the Holder's
account with The Depository Trust Company a number of shares of Common Stock to
be applied against such Monthly Redemption Share Amount equal to the quotient of
(x) the applicable Monthly Redemption Share Amount divided by (y) the then
Conversion Price (the "PRE-REDEMPTION CONVERSION SHARES"). The Holder may
convert, pursuant to Section 4(a), any principal amount of this Debenture
subject to a Monthly Redemption at any time prior to the date that the Monthly
Redemption Amount and all amounts owing thereon are due and paid in full. Unless
otherwise indicated by the Holder in the applicable Notice of Conversion, any
principal amount of this Debenture converted during the applicable Monthly
Redemption Period until the date the Monthly Redemption Amount is paid in full
shall be first applied to the principal amount subject to the Monthly Redemption
Amount payable in cash and then to the Monthly Redemption Share Amount. Any
principal amount of this Debenture converted during the applicable Monthly
Redemption Period in excess of the Monthly Redemption Amount shall be applied
against the last principal amount of this Debenture scheduled to be redeemed
hereunder, in reverse time order from the Maturity Date; PROVIDED, HOWEVER, if
any such conversion is applied to such Monthly Redemption Amount, the
Pre-Redemption Conversion Shares, if any were issued in connection with such
Monthly Redemption or were not already applied to such conversions, shall be
first applied against
20
such conversion. The Company covenants and agrees that it will honor all Notice
of Conversions tendered up until such amounts are paid in full. The Company's
determination to pay a Monthly Redemption in cash, shares of Common Stock or a
combination thereof shall be applied ratably to all of the holders of the
Debentures based on their (or their predecessor's) initial purchases of
Debentures pursuant to the Purchase Agreement. At any time the Company delivers
a notice to the Holder of its election to pay the Monthly Redemption Amount in
shares of Common Stock, the Company shall file a prospectus supplement pursuant
to Rule 424 disclosing such election.
c) REDEMPTION PROCEDURE. The payment of cash and/or issuance of
Common Stock (other than the Pre-Redemption Conversion Shares), as the case may
be, pursuant to a Monthly Redemption or the payment of cash pursuant to an
Optional Redemption shall be made on the Monthly Redemption Date or the Optional
Redemption Date, as applicable. The aggregate number of Conversion Shares issued
to the Holder pursuant to a Monthly Redemption shall be reduced by the number of
Pre-Redemption Conversion Shares issued to the Holder in connection with the
Monthly Redemption less the number of Pre-Redemption Conversion Shares applied
to conversions of the Holder during the 20 Trading Days immediately prior to the
Monthly Conversion Date. If any portion of the cash payment and/or issuance of
Common Stock, as the case may be, for a Monthly Redemption or the payment of
cash pursuant to an Optional Redemption, as applicable, shall not be paid by the
Company by the respective due date, interest shall accrue thereon at the rate of
18% per annum (or the maximum rate permitted by applicable law, whichever is
less) until the payment of the Monthly Redemption Amount or the Optional
Redemption Amount, as applicable, plus all amounts owing thereon is paid in
full. Alternatively, if any portion of the Monthly Redemption Amount or the
Optional Redemption Amount, as applicable, remains unpaid after such date, the
Holders subject to such redemption may elect, by written notice to the Company
given at any time thereafter, to invalidate AB INITIO such redemption and the
Company shall no longer have any right to exercise an Optional Redemption Right.
If any Pre-Redemption Conversion Shares are issued to the Holder in connection
with a Monthly Redemption and are not applied against either the Monthly
Redemption Amount or against voluntary conversions during the Monthly
Redemption, then the Holder shall promptly return such excess shares to the
Company.
SECTION 7. NEGATIVE COVENANTS. So long as any portion of this
Debenture is outstanding, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:
a) other than Permitted Indebtedness, enter into, create, incur,
assume, guarantee or suffer to exist any indebtedness for borrowed money of any
kind, including but not limited to, a guarantee, on or with respect to any of
the equity, property or assets of the Subsidiary now owned or hereafter acquired
or any interest therein or any income or profits therefrom;
b) other than Permitted Liens, enter into, create, incur, assume or
suffer to exist any liens of any kind, on or with respect to any of the equity,
property or assets of
21
the Subsidiary now owned or hereafter acquired or any interest therein or any
income or profits therefrom;
c) amend its certificate of incorporation, bylaws or other charter
documents so as to materially and adversely affect any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a DE MINIMIS number of shares of its Common Stock or Common
Stock Equivalents other than as to the Conversion Shares to the extent permitted
or required under the Transaction Documents or as otherwise permitted by the
Transaction Documents;
e) enter into any agreement with respect to any of the foregoing;
or
f) pay cash dividends or distributions on any equity securities of
the Company.
SECTION 8. EVENTS OF DEFAULT.
a) "EVENT OF DEFAULT", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
i. any default in the payment of (A) the principal amount
of any Debenture, or (B) interest (including Late Fees) on, or
liquidated damages in respect of, any Debenture, as and when the same
shall become due and payable (whether on a Conversion Date or the
Maturity Date or by acceleration or otherwise) which default, solely in
the case of an interest payment or other default under clause (B) above,
is not cured, within 5 Trading Days;
ii. the Company shall fail to observe or perform any other
covenant or agreement contained in this Debenture or any other Debenture
(other than a breach by the Company of its obligations to deliver shares
of Common Stock to the Holder upon conversion which breach is addressed
in clause (xi) below) which failure is not cured, if possible to cure,
within the earlier to occur of (A) 10 Trading Days after written notice
of such default sent by the Holder or by any other Holder and (B) 20
Trading Days after the Company shall become or should have become aware
of such failure;
iii. a material default or event of default (subject to any
grace or cure period provided for in the applicable agreement, document
or instrument) shall occur under (A) any of the Transaction Documents
other than the Debentures, or (B) any other material agreement, lease,
document or instrument to which the Company or any Subsidiary is bound;
22
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;
v. (i) the Company or any of its Subsidiaries shall
commence a case, as debtor, a case under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor thereto,
or the Company or any Subsidiary commences any other proceeding under
any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company
or any Subsidiary thereof or (ii) there is commenced a case against the
Company or any Subsidiary thereof, under any applicable bankruptcy or
insolvency laws, as now or hereafter in effect or any successor thereto
which remains undismissed for a period of 60 days; or (iii) the Company
or any Subsidiary thereof is adjudicated by a court of competent
jurisdiction insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or (iv) the
Company or any Subsidiary thereof suffers any appointment of any
custodian or the like for it or any substantial part of its property
which continues undischarged or unstayed for a period of 60 days; or (v)
the Company or any Subsidiary thereof makes a general assignment for the
benefit of creditors; or (vi) the Company shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or (vii) the Company or any Subsidiary
thereof shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (viii) the
Company or any Subsidiary thereof shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence in any of
the foregoing; or (ix) any corporate or other action is taken by the
Company or any Subsidiary thereof for the purpose of effecting any of
the foregoing;
vi. the Company or any Subsidiary shall default in any of
its obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which
there may be issued, or by which there may be secured or evidenced any
indebtedness for borrowed money or money due under any long term leasing
or factoring arrangement of the Company in an amount exceeding $500,000,
whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise
become due and payable;
vii. the Common Stock shall not be eligible for quotation on
or quoted for trading on a Trading Market and shall not again be
eligible for and quoted or listed for trading thereon within five
Trading Days;
23
viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or dispose
of all or in excess of 40% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction) or shall redeem or repurchase more than a de minimis number
of its outstanding shares of Common Stock or other equity securities of
the Company (other than redemptions of Conversion Shares and repurchases
of shares of Common Stock or other equity securities of departing
officers and directors of the Company; provided such repurchases shall
not exceed $250,000, in the aggregate, for all officers and directors
during the term of this Debenture);
ix. a Registration Statement shall not have been declared
effective by the Commission on or prior to the 210th calendar day after
the Closing Date;
x. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the Registration
Statement lapses for any reason or the Holder shall not be permitted to
resell Registrable Securities (as defined in the Registration Rights
Agreement) under the Registration Statement, in either case, for more
than 20 consecutive Trading Days or 40 non-consecutive Trading Days
(except that, if in connection with the acquisition of All American
Plazas, Inc., 120 consecutive or non-consecutive Trading Days) during
any 12 month period; PROVIDED, HOWEVER, that in the event that the
Company is negotiating a merger, consolidation, acquisition or sale of
all or substantially all of its assets or a similar transaction and in
the written opinion of counsel to the Company, the Registration
Statement, would be required to be amended to include information
concerning such transactions or the parties thereto that is not
available or may not be publicly disclosed at the time, the Company
shall be permitted an additional 20 consecutive Trading Days during any
12 month period relating to such an event;
xi. the Company shall fail for any reason to deliver
certificates to a Holder prior to the third Trading Day after a
Conversion Date pursuant to and in accordance with Section 4(d) or the
Company shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests
for conversions of any Debentures in accordance with the terms hereof;
or
xii. any Person shall breach the agreements delivered to the
initial Holder pursuant to Section 2.2(a)(v) of the Purchase Agreement
and the Company does not obtain Shareholder Approval.
b) REMEDIES UPON EVENT OF DEFAULT. If any Event of Default occurs,
the full principal amount of this Debenture, together with interest and other
amounts owing in respect thereof, to the date of acceleration shall become, at
the Holder's election, immediately due and payable in cash. The aggregate amount
payable upon an Event of
24
Default shall be equal to the Mandatory Default Amount. Commencing 5 days after
the occurrence of any Event of Default that results in the eventual acceleration
of this Debenture, the interest rate on this Debenture shall accrue at the rate
of 18% per annum, or such lower maximum amount of interest permitted to be
charged under applicable law. All Debentures for which the full Mandatory
Default Amount hereunder shall have been paid in accordance herewith shall
promptly be surrendered to or as directed by the Company. The Holder need not
provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Xxxxxx at any time prior to payment hereunder and the
Holder shall have all rights as a Debenture holder until such time, if any, as
the full payment under this Section shall have been received by it. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
SECTION 9. MISCELLANEOUS.
a) NOTICES. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile
number ______________, ATTN: ______________________________________or such other
address or facsimile number as the Company may specify for such purposes by
notice to the Holder 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 telephone number or address of such Xxxxxx appearing on the books of
the Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
5:30 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.
b) ABSOLUTE OBLIGATION. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, interest and
liquidated damages (if any) on, this Debenture at the time, place, and rate, and
in the coin or currency, herein prescribed.
25
This Debenture is a direct debt obligation of the Company. This Debenture ranks
PARI PASSU with all other Debentures now or hereafter issued under the terms set
forth herein.
c) LOST OR MUTILATED DEBENTURE. If this Debenture shall be
mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated Debenture, or
in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new
Debenture for the principal amount of this Debenture so mutilated, lost, stolen
or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such Debenture, and of the ownership hereof, and indemnity, if
requested, all reasonably satisfactory to the Company.
d) GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of New York,
Borough of Manhattan (the "NEW YORK COURTS"). Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or such
New York Courts are improper or inconvenient venue for such proceeding. Each
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Debenture and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Debenture or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
e) WAIVER. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that
26
party of the right thereafter to insist upon strict adherence to that term or
any other term of this Debenture. Any waiver must be in writing.
f) SEVERABILITY. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder
violates applicable laws governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum permitted rate of
interest. The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law or other
law which would prohibit or forgive the Company from paying all or any portion
of the principal of or interest on this Debenture as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
g) NEXT BUSINESS DAY. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.
h) HEADINGS. The headings contained herein are for convenience
only, do not constitute a part of this Debenture and shall not be deemed to
limit or affect any of the provisions hereof.
i) ASSUMPTION. Any successor to the Company or surviving entity in
a Fundamental Transaction shall (i) assume in writing all of the obligations of
the Company under this Debenture and the other Transaction Documents pursuant to
written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) prior to such Fundamental
Transaction and (ii) to issue to the Holder a new debenture of such successor
entity evidenced by a written instrument substantially similar in form and
substance to this Debenture, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Debentures held by the Holder and having similar ranking to this
Debenture, and satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed). The provisions of this Section 9(i) shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations of this Debenture.
*********************
27
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
ABLE ENERGY, INC.
By:_______________________________________
Name:
Title:
28
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Variable
Rate Convertible Debenture of Able Energy, Inc., a Delaware corporation (the
"COMPANY"), due on July __, 2007 , into shares of common stock, par value $0.001
per share (the "COMMON STOCK"), of the Company according to the conditions
hereof, as of the date written below. If shares are to be issued in the name of
a person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No fee
will be charged to the holder for any conversion, except for such transfer
taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the Exchange
Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued
on Account of Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
29
SCHEDULE 1
CONVERSION SCHEDULE
The Variable Rate Convertible Debentures due July __, 2007, in the aggregate
principal amount of $____________ issued by Able Energy, Inc., a Delaware
corporation. This Conversion Schedule reflects conversions made under Section 4
of the above referenced Debenture.
Dated:
=============================== ------------------------- ======================= ------------------------------
Aggregate Principal
Amount Remaining
Date of Conversion Subsequent to
(or for first entry, Original Conversion
Issue Date) Amount of Conversion (or original Company Attest
Principal Amount)
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
=============================== ========================= ======================= ------------------------------
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