EXHIBIT 10.2
DATED: MAY 17, 2005
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE
IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS.
No. MEP-3 $1,781,130
ENCLAVES GROUP, INC.
AMENDED AND RESTATED SECURED CONVERTIBLE DEBENTURE
DUE SEPTEMBER 15, 2006
This Secured Convertible Debenture (the "DEBENTURE") is issued on
May 16, 2005 by ENCLAVES GROUP, INC., a Delaware corporation (the "OBLIGOR"), to
CORNELL CAPITAL PARTNERS, LP (the "HOLDER"), pursuant to that certain Securities
Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT") dated December 28, 2004
by and among the Obligor and the Buyers listed on Schedule I attached thereto.
The Obligor issued to the Holder on December 28, 2004 a secured debenture in the
amount of Seven Hundred Fifty Thousand Dollars ($750,000) (the "DECEMBER 2004
DEBENTURE") and on January 13, 2005, a secured debenture in the amount of One
Million Dollars ($1,000,000) (the "JANUARY 2005 DEBENTURE") (collectively
referred to as the "Prior Debentures"). This Debenture is being re-issued to the
Holder to reflect the cancellation and consolidation of the Prior Debentures
into this Debenture, plus accrued and unpaid interest on the Prior Debentures
($14,281 as and for interest on the December 2004 Debenture and $16,849 as and
for interest on the January 2005 Debenture), for a total principal sum of One
Million Seven Hundred Eighty One Thousand One Hundred Thirty Dollars
($1,781,130).
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder
or its successors and assigns the principal sum of One Million Seven Hundred
Eighty One Thousand One Hundred Thirty Dollars ($1,781,130), together with
accrued but unpaid interest on the following terms:
PAYMENTS. Interest on the outstanding principal balance hereof shall
begin to accrue from the date hereof and shall be due and payable monthly, in
arrears, as set forth below (each, an "INTEREST PAYMENT DATE"). Principal shall
be due and payable in 12 equal installments of $148,427.50 each, plus accrued
interest and a redemption premium equal to 12% ("REDEMPTION PREMIUM") of each
such installment or the highest rate permitted by applicable law, if lower. The
installments of principal shall be due and payable commencing September 15,
2005, and subsequent installments shall be due and payable on the fifteenth day
of each calendar month thereafter ("PRINCIPAL PAYMENT DATE") until the
outstanding principal balance is paid in full; however, all amounts of
outstanding principal shall be paid in full no later than September 15, 2006
(the "MATURITY DATE"). All payments in respect of the indebtedness evidenced
hereby shall be made in collected funds, and shall be applied to principal,
accrued interest and charges and expenses owing under or in connection with this
Debenture in such order as the Holder elects, except that payments shall be
applied to accrued interest before principal. Notwithstanding the foregoing,
this Debenture shall become due and immediately payable, including all accrued
but unpaid interest, upon the closing of a Funding Event (as defined in SECTION
4 hereof) or pursuant to an Event of Default (as defined in SECTION 2 hereof).
INTEREST. Interest shall accrue on the outstanding principal balance
hereof at an annual rate equal to 12%. Interest shall be calculated on the basis
of a 360-day year and the actual number of days elapsed, to the extent permitted
by applicable law. Interest hereunder will be paid to the Holder or its assignee
(as defined in SECTION 4) in whose name this Debenture is registered on the
records of the Obligor regarding registration and transfers of Debentures (the
"DEBENTURE REGISTER").
RIGHT OF REDEMPTION. The Obligor at its option shall have the right,
with three (3) business days advance written notice, to redeem a portion or all
amounts outstanding under this Debenture prior to the Maturity Date or any
Principal Payment date. The Redemption Premium shall apply to all payments
whether on, before, or after any Principal Payment Date.
SECURITY AGREEMENT. This Debenture is secured by a Security
Agreement (the "SECURITY AGREEMENT") dated December 28, 2004 between the Obligor
and Cornell Capital Partners, LP ("Cornell"). In addition, this Debenture is
secured by the mortgages given to the Holder for the North Fort Myers, Florida
and Mesquite, Texas properties as more fully described in the Securities
Purchase Agreement dated December 28, 2004 and the mortgage given to the Holder
of even date herewith for the Fort Worth, Texas property.
CONSENT OF HOLDER TO SELL CAPITAL STOCK OR GRANT SECURITY INTERESTS.
Prior to the Obligor's Common Stock being listed on the Principal Market (as
defined in the Standby Equity Distribution Agreement dated December 28, 2004),
the Obligor shall not issue shares of Common Stock or Preferred Stock except as
provided by the merger and share exchange with Alliance Towers, Inc. and
described in the Obligor's 8-K filing dated may 2, 2005, or otherwise permitted
herein or under the Securities Purchase Agreement. Once the Obligor's Common
Stock is listed on the Principal Market, so long as any of the principal or
interest on this Debenture remains unpaid and unconverted, the Obligor shall
not, without the prior consent of the Holder, issue or sell (i) any capital
stock without consideration or for a consideration per share less than its fair
market value determined immediately prior to its issuance, (ii) issue or sell
any preferred stock, warrant, option, right, contract, call, or other security
or instrument granting the holder thereof the right to acquire Common Stock
without consideration or for a consideration per share less than such Common
Stock's fair market value or the preferred stock's conversion price determined
immediately prior to its issuance, (iii) enter into any security instrument
granting the holder a security interest in any of the assets of the Obligor,
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except for any security instrument granting the holder a security interest in
any and all assets of the Obligor in connection with permanent or construction
financing obtained for the development of any real property, or for any security
instruments of a non-material nature or entered into in the ordinary course of
business, provided that in each case the Obligor gives the Holder prior notice
of such security interest, or (iv) file any registration statement on Form S-8.
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
SECTION 2. EVENTS OF DEFAULT.
(a) An "EVENT OF DEFAULT", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) Any default in the payment of the principal of,
interest on or other charges in respect of this Debenture, free of any
claim of subordination, as and when the same shall become due and payable
(whether on an installment, a Principal Payment Date, an Interest Payment Date,
a Conversion Date or the Maturity Date or by acceleration or otherwise);
(ii) The Obligor shall fail to observe or perform any
other covenant, agreement or warranty contained in, or otherwise
commit any breach or default of any provision of this Debenture (except as may
be covered by SECTION 2(A)(I) hereof) or any Transaction Document (as defined in
SECTION 4) which is not cured with in the time prescribed;
(iii) The Obligor or any subsidiary of the Obligor shall
commence, or there shall be commenced against the Obligor or any
subsidiary of the Obligor under any applicable bankruptcy or insolvency laws as
now or hereafter in effect or any successor thereto, or the Obligor or any
subsidiary of the Obligor commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Obligor or any subsidiary of the Obligor or
there is commenced against the Obligor or any subsidiary of the Obligor any such
bankruptcy, insolvency or other proceeding which remains undismissed for a
period of 61 days; or the Obligor or any subsidiary of the Obligor is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Obligor or any
subsidiary of the Obligor suffers any appointment of any custodian, private or
court appointed receiver or the like for it or any substantial part of its
property which continues undischarged or unstayed for a period of sixty one (61)
days; or the Obligor or any subsidiary of the Obligor makes a general assignment
for the benefit of creditors; or the Obligor or any subsidiary of the Obligor
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shall fail to pay, or shall state that it is unable to pay, or shall be unable
to pay, its debts generally as they become due; or the Obligor or any subsidiary
of the Obligor shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or the Obligor or any
subsidiary of the Obligor shall by any act or failure to act expressly indicate
its consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the Obligor or any subsidiary of the
Obligor for the purpose of effecting any of the foregoing;
(iv) The Obligor or any subsidiary of the Obligor shall
default in any of its obligations under any other Debenture, including but not
limited to the Amended and Restated Secured Debenture issued by the Obligor to
Xxxxxxxxxx Equity Partners, Ltd. of even date herewith, or any mortgage, credit
agreement or other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any long term
leasing or factoring arrangement of the Obligor or any subsidiary of the Obligor
in an amount exceeding $100,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
become due and payable;
(v) The Common Stock shall cease to be quoted for
trading or listed for trading on the Nasdaq OTC Bulletin Board ("OTC"), Nasdaq
SmallCap Market, New York Stock Exchange, American Stock Exchange or the Nasdaq
National Market (each, a "SUBSEQUENT MARKET") and shall not again be quoted or
listed for trading thereon within five (5) Trading Days of such delisting;
(vi) The Obligor or any subsidiary of the Obligor shall
be a party to any Change of Control Transaction (as defined in SECTION 4);
(vii) The Obligor shall fail to file the Underlying
Shares Registration Statement (as defined in SECTION 4) with the Commission (as
defined in SECTION 4), or the Underlying Shares Registration Statement shall not
have been declared effective by the Commission, in each case within the time
periods set forth in the Investor Registration Rights Agreement dated December
28, 2004, as amended on April 26, 2005, between the Obligor and Cornell;
(viii) If the effectiveness of the Underlying Shares
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell the shares of Common Stock underlying this Debenture under
the Underlying Shares Registration Statement, in either case, for more than five
(5) consecutive Trading Days or an aggregate of eight Trading Days (which need
not be consecutive Trading Days);
(ix) The Obligor shall fail for any reason to deliver
Common Stock certificates to a Holder prior to the fifth (5th) Trading Day after
a Conversion Date or the Obligor shall provide notice to the Holder, including
by way of public announcement, at any time, of its intention not to comply with
requests for conversions of this Debenture in accordance with the terms hereof;
(x) The Obligor shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within three (3) days
after notice is claimed delivered hereunder;
(xi) A material breach of the Guaranty Agreement with
Homes for America Holdings, Inc. dated December 28, 2004,
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(xii) A material breach of the mortgages given to the
Holder for the Fort Xxxxx, Florida and Mesquite, Texas properties or any other
mortgage given by the Obligor to the Holder before or after the date hereof
(xiii) A material breach by the Obligor of its
obligations under the Securities Purchase Agreement, the Escrow Agreement, the
Security Agreement, the Investor Registration Rights Agreement, as amended on
April 26, 2005, or any other agreement entered into on December 28, 2004 between
the Obligor and the Holder which is not cured by the Obligor within ten (10)
days after receipt of written notice thereof,
(b) During the time that any portion of this Debenture is
outstanding, if any Event of Default has occurred, the full principal amount of
this Debenture, together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become at the Holder's election,
immediately due and payable in cash, PROVIDED HOWEVER, the Holder may request
(but shall have no obligation to request) payment of such amounts in Common
Stock of the Obligor. If an Event of Default occurs and remains uncured, the
Conversion Price shall be reduced to ninety percent (90 %) of the Conversion
Price defined herein. In addition to any other remedies, the Holder shall have
the right (but not the obligation) to convert this Debenture at any time after
(x) an Event of Default or (y) the Maturity Date at the Conversion Price then
in-effect. The Holder need not provide and the Obligor hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Xxxxxx at any
time prior to payment hereunder. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon. Upon an
Event of Default, notwithstanding any other provision of this Debenture or any
Transaction Document, the Holder shall have no obligation to comply with or
adhere to any limitations, if any, on the conversion of this Debenture or the
sale of the Underlying Shares.
SECTION 3. CONVERSION.
(a) (i) CONVERSION AT OPTION OF HOLDER.
(A) This Debenture shall be convertible into shares of Common
Stock at the option of the Holder, in whole or in part at any time and from time
to time, after the Original Issue Date (as defined in Section 4) (subject to the
limitations on conversion set forth in SECTION 3(A)(II) hereof). The number of
shares of Common Stock issuable upon a conversion hereunder equals the sum of
(i) the quotient obtained by dividing (x) the outstanding amount of this
Debenture to be converted by (y) the Conversion Price (as defined in SECTION
3(C)(I)). The Obligor shall deliver Common Stock certificates to the Holder
prior to the Fifth (5th) Trading Day after a Conversion Date.
(B) Notwithstanding anything to the contrary contained herein,
if on any Conversion Date: (1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay principal and interest hereunder in shares of Common
Stock; (2) the Common Stock is not listed or quoted for trading on the OTC or on
a Subsequent Market; (3) the Obligor has failed to timely satisfy its
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conversion; or (4) the issuance of such shares of Common Stock would result in a
violation of SECTION 3(A)(II), then, at the option of the Holder, the Obligor,
in lieu of delivering shares of Common Stock pursuant to SECTION 3(A)(I)(A),
shall deliver, within three (3) Trading Days of each applicable Conversion Date,
an amount in cash equal to the product of the outstanding principal amount to be
converted plus any interest due therein divided by the Conversion Price and
multiplied by the highest closing price of the stock from date of the conversion
notice till the date that such cash payment is made.
Further, if the Obligor shall not have delivered any cash due in
respect of conversion of this Debenture or as payment of interest thereon by the
fifth (5th) Trading Day after the Conversion Date, the Holder may, by notice to
the Obligor, require the Obligor to issue shares of Common Stock pursuant to
SECTION 3(C), except that for such purpose the Conversion Price applicable
thereto shall be the lesser of the Conversion Price on the Conversion Date and
the Conversion Price on the date of such Holder demand. Any such shares will be
subject to the provisions of this Section.
(C) The Holder shall effect conversions by delivering to the
Obligor a completed notice in the form attached hereto as Exhibit A (a
"CONVERSION NOTICE"). The date on which a Conversion Notice is delivered is the
"CONVERSION DATE." Unless the Holder is converting the entire principal amount
outstanding under this Debenture, the Holder is not required to physically
surrender this Debenture to the Obligor in order to effect conversions.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture plus all accrued and unpaid interest thereon
in an amount equal to the applicable conversion. The Holder and the Obligor
shall maintain records showing the principal amount converted and the date of
such conversions. In the event of any dispute or discrepancy, the records of the
Holder shall be controlling and determinative in the absence of manifest error.
(ii) CERTAIN CONVERSION RESTRICTIONS.
(A) A Holder may not convert this Debenture or receive
shares of Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 4.9% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, this Debenture held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Obligor the
number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 4.9% of the then outstanding shares of Common Stock
without regard to any other shares which may be beneficially owned by the Holder
or an affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of
which portion of the principal amount of this Debenture is convertible shall be
the responsibility and obligation of the Holder. If the Holder has delivered a
Conversion Notice for a principal amount of this Debenture that, without regard
to any other shares that the Holder or its affiliates may beneficially own,
would result in the issuance in excess of the permitted amount hereunder, the
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Obligor shall notify the Holder of this fact and shall honor the conversion for
the maximum principal amount permitted to be converted on such Conversion Date
in accordance with the periods described in SECTION 3(A)(I)(A) and, at the
option of the Holder, either retain any principal amount tendered for conversion
in excess of the permitted amount hereunder for future conversions or return
such excess principal amount to the Holder. The provisions of this Section may
be waived by a Holder (but only as to itself and not to any other Holder) upon
not less than 65 days prior notice to the Obligor. Other Holders shall be
unaffected by any such waiver.
(b) (i) Nothing herein shall limit a Holder's right to pursue actual
damages or declare an Event of Default pursuant to SECTION 2 herein for the
Obligor 's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
(ii) In addition to any other rights available to the
Holder, if the Obligor fails to deliver to the Holder such certificate or
certificates pursuant to SECTION 3(A)(I)(A) by the fifth Trading Day after the
Conversion Date, and if after such fifth (5th) Trading Day the Holder purchases
(in an open market transaction or otherwise) Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which the Holder
anticipated receiving upon such conversion (a "BUY-IN"), then the Obligor shall
(A) pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock
that such Holder anticipated receiving from the conversion at issue multiplied
by (2) the market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder, either reissue
a Debenture in the principal amount equal to the principal amount of the
attempted conversion or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Obligor timely complied with its
delivery requirements under SECTION 3(A)(I)(A). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of Debentures with respect to
which the market price of the Underlying Shares on the date of conversion was a
total of $10,000 under clause (A) of the immediately preceding sentence, the
Obligor shall be required to pay the Holder $1,000. The Holder shall provide the
Obligor written notice indicating the amounts payable to the Holder in respect
of the Buy-In.
(c) (i) The conversion price (the "CONVERSION PRICE") in effect on
any Conversion Date shall be equal to one hundred percent (100 %) of the average
closing bid price of the Common Stock, as quoted by Bloomberg, LP for the five
(5) trading days immediately preceding the filing of the Underlying Shares
Registration Statement, which conversion price may be adjusted pursuant to the
other terms of this Debenture.
(ii) If the Obligor, at any time while this Debenture is
outstanding, shall (a) pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
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outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Obligor, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) If the Obligor, at any time while this Debenture
is outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Closing Bid Price 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 Closing Bid Price. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of any
such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant to
this Section, if any such right, option or warrant shall expire and shall not
have been exercised, the Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number of shares of the
Common Stock actually purchased upon the exercise of such rights, options or
warrants actually exercised.
(iv) If the Obligor or any subsidiary thereof, as
applicable, with respect to Common Stock Equivalents (as defined below), at any
time while this Debenture is outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible into
or exchangeable for shares of Common Stock ("COMMON STOCK EQUIVALENTS")
entitling any Person to acquire shares of Common Stock, at a price per share
less than the Conversion Price (if the holder of the Common Stock or Common
Stock Equivalent so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares of Common
Stock at a price per share which is less than the Conversion Price, such
issuance shall be deemed to have occurred for less than the Conversion Price),
then, at the sole option of the Holder, the Conversion Price shall be adjusted
to mirror the conversion, exchange or purchase price for such Common Stock or
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Common Stock Equivalents (including any reset provisions thereof) at issue. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued. The Obligor shall notify the Holder in writing, no later than one
(1) business day following the issuance of any Common Stock or Common Stock
Equivalent subject to this Section, indicating therein the applicable issuance
price, or of applicable reset price, exchange price, conversion price and other
pricing terms. No adjustment under this Section shall be made as a result of
issuances and exercises of options to purchase shares of Common Stock issued for
compensatory purposes pursuant to any of the Obligor's stock option or stock
purchase plans.
(v) If the Obligor, at any time while this Debenture is
outstanding, shall distribute to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price at which this Debenture shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Closing Bid
Price determined as of the record date mentioned above, and of which the
numerator shall be such Closing Bid Price on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) In case of any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder shall have the right
thereafter to, at its option, (A) convert the then outstanding principal amount,
together with all accrued but unpaid interest and any other amounts then owing
hereunder in respect of this Debenture into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
the Common Stock following such reclassification or share exchange, and the
Holder of this Debenture shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of the
Obligor into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled, or (B) require the
Obligor to prepay the outstanding principal amount of this Debenture, plus all
interest and other amounts due and payable thereon. The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vii) The Obligor shall maintain a share reserve of not
less than 500% of the shares of Common Stock issuable upon conversion of this
Debenture; and within three (3) Business Days following the receipt by the
Obligor of a Holder's notice that such minimum number of Underlying Shares is
not so reserved, the Obligor shall promptly reserve a sufficient number of
shares of Common Stock to comply with such requirement.
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(viii) All calculations under this SECTION 3 shall be
rounded up to the nearest $0.001 of a share.
(ix) Whenever the Conversion is adjusted pursuant to
SECTION 3 hereof, the Obligor shall promptly mail to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(x) If (A) the Obligor shall declare a dividend (or any
other distribution) on the Common Stock; (B) the Obligor shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Obligor shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Obligor
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Obligor is a party, any sale or
transfer of all or substantially all of the assets of the Obligor, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Obligor shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Obligor; then, in each case, the Obligor shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the Obligor, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day calendar period commencing the date of such notice to the effective date
of the event triggering such notice.
(xi) In case of any (1) merger or consolidation of the
Obligor or any subsidiary of the Obligor with or into another Person, or (2)
sale by the Obligor or any subsidiary of the Obligor of more than one-half of
the assets of the Obligor in one or a series of related transactions, a Holder
shall have the right to (A) exercise any rights under SECTION 2(B), (B) convert
the aggregate amount of this Debenture then outstanding into the shares of stock
and other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale, and such
Holder shall be entitled upon such event or series of related events to receive
such amount of securities, cash and property as the shares of Common Stock into
which such aggregate principal amount of this Debenture could have been
converted immediately prior to such merger, consolidation or sales would have
been entitled, or (C) in the case of a merger or consolidation, require the
surviving entity to issue to the Holder a convertible Debenture with a principal
amount equal to the aggregate principal amount of this Debenture then held by
such Holder, plus all accrued and unpaid interest and other amounts owing
10
thereon, which such newly issued convertible Debenture shall have terms
identical (including with respect to conversion) to the terms of this Debenture,
and shall be entitled to all of the rights and privileges of the Holder of this
Debenture set forth herein and the agreements pursuant to which this Debentures
were issued. In the case of clause (C), the conversion price applicable for the
newly issued shares of convertible preferred stock or convertible Debentures
shall be based upon the amount of securities, cash and property that each share
of Common Stock would receive in such transaction and the Conversion Price in
effect immediately prior to the effectiveness or closing date for such
transaction. The terms of any such merger, sale or consolidation shall include
such terms so as to continue to give the Holder the right to receive the
securities, cash and property set forth in this Section upon any conversion or
redemption following such event. This provision shall similarly apply to
successive such events.
(d) The Obligor covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Obligor as to reservation of such shares set
forth in this Debenture) be issuable (taking into account the adjustments and
restrictions of SECTIONS 2(B) AND 3(C)) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder. The
Obligor covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Obligor shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Closing Bid Price at such time. If the Obligor
elects not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Obligor shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debenture so converted and the Obligor
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Obligor
the amount of such tax or shall have established to the satisfaction of the
Obligor that such tax has been paid.
(g) Any notices, consents, waivers or other communications required
or permitted to be given under the terms hereof must be in writing and will be
deemed to have been delivered: (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile (provided confirmation of transmission is
11
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) trading day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Obligor, to: Enclaves Group, Inc.
Xxx Xxxxx Xxxxx
Xxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Olshan Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
Park Avenue Tower
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Holder: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxxxx X. Press
Telephone: (000) 000-0000
With a copy to: Xxxx Xxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
SECTION 4. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
12
"BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on which
banking institutions are authorized or required by law or other government
action to close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of (a) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Obligor, by contract or otherwise) of in excess of fifty percent
(50%) of the voting securities of the Obligor (except that the acquisition of
voting securities by the Holder shall not constitute a Change of Control
Transaction for purposes hereof), (b) a replacement at one time or over time of
more than one-half of the members of the board of directors of the Obligor which
is not approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving as
members of the board of directors on any date whose nomination to the board of
directors was approved by a majority of the members of the board of directors
who are members on the date hereof), (c) the merger, consolidation or sale of
fifty percent (50%) or more of the assets of the Obligor or any subsidiary of
the Obligor in one or a series of related transactions with or into another
entity, or (d) the execution by the Obligor of an agreement to which the Obligor
is a party or by which it is bound, providing for any of the events set forth
above in (a), (b) or (c).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $0.001, of the
Obligor and stock of any other class into which such shares may hereafter be
changed or reclassified.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FUNDING EVENT" means any transaction or series of transactions
closed after the Original Issue Date in which the Obligor raises $10,000,000 or
more through the sale of their equity securities or securities exercisable or
convertible into equity securities.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of
this Debenture regardless of the number of transfers and regardless of the
number of instruments, which may be issued to evidence such Debenture.
"CLOSING BID PRICE" means the price per share in the last reported
trade of the Common Stock on the OTC or on the exchange which the Common Stock
is then listed as quoted by Bloomberg, LP.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"TRADING DAY" means a day on which the shares of Common Stock are
quoted on the OTC or quoted or traded on such Subsequent Market on which the
shares of Common Stock are then quoted or listed; provided, that in the event
13
that the shares of Common Stock are not listed or quoted, then Trading Day shall
mean a Business Day.
"TRANSACTION DOCUMENTS" means the Securities Purchase Agreement or
any other agreement delivered in connection with the Securities Purchase
Agreement, including, without limitation, the Security Agreement, the Escrow
Agreement, the Guaranty Agreement by and among Homes For America Holdings, Inc.,
Cornell Capital Partners, LP and Xxxxxxxxxx Equity Partners, Ltd. and the
Investor Registration Rights Agreement, all dated December 28, 2004 and the
mortgages given to the Holder for the North Fort Myers, Florida and Mesquite,
Texas properties as more fully described in the Securities Purchase Agreement
dated December 28, 2004 and the mortgage of even date herewith given to the
Holder for the Fort Worth, Texas property.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
SECTION 5. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Obligor, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Obligor. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Obligor shall not and shall cause their subsidiaries not to,
without the consent of the Holder, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock or other equity securities other than as to
the Underlying Shares to the extent permitted or required under the Transaction
Documents; or (iii) enter into any agreement with respect to any of the
foregoing.
SECTION 6. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Obligor, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Obligor, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
SECTION 7. If this Debenture is mutilated, lost, stolen or
destroyed, the Obligor shall execute and deliver, in exchange and substitution
for and upon cancellation of the mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Obligor.
14
SECTION 8. No indebtedness of the Obligor is senior to this
Debenture in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. Without the Holder's consent, the
Obligor will not and will not permit any of their subsidiaries to, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
there from that is senior in any respect to the obligations of the Obligor under
this Debenture.
SECTION 9. This Debenture shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect to
conflicts of laws thereof. Each of the parties consents to the jurisdiction of
the Superior Courts of the State of New Jersey sitting in Xxxxxx County, New
Jersey and the U.S. District Court for the District of New Jersey sitting in
Newark, New Jersey in connection with any dispute arising under this Debenture
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on FORUM NON CONVENIENS to the bringing of any
such proceeding in such jurisdictions.
SECTION 10. If the Obligor fails to strictly comply with the terms
of this Debenture, then the Obligor shall reimburse the Holder promptly for all
fees, costs and expenses, including, without limitation, attorneys' fees and
expenses incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the
Holder's rights, remedies and obligations, (ii) collecting any sums which become
due to the Holder, (iii) defending or prosecuting any proceeding or any
counterclaim to any proceeding or appeal; or (iv) the protection, preservation
or enforcement of any rights or remedies of the Holder.
SECTION 11. Any waiver by the Holder of a breach of any provision of
this Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver must be in writing.
SECTION 12. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder
shall violate applicable laws governing usury, the applicable rate of interest
due hereunder shall automatically be lowered to equal the maximum permitted rate
of interest. The Obligor covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Obligor from paying all or any
portion of the principal of or interest on this Debenture as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Obligor (to
the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted to the
15
Holder, but will suffer and permit the execution of every such as though no such
law has been enacted.
SECTION 13. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.
SECTION 14. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
ENCLAVES GROUP, INC.
By: /s/ Xxxxxx X. Xxxxx
----------------------------------
Name: Xxxxxx X. Xxxxx
Title: President and CEO
EXHIBIT "A"
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE HOLDER IN ORDER TO CONVERT THE DEBENTURE)
TO:
The undersigned hereby irrevocably elects to convert $_____ of the
principal amount of the above Debenture into Shares of Common Stock of Enclaves
Group, Inc., according to the conditions stated therein, as of the Conversion
Date written below.
CONVERSION DATE: ___________________________________________
APPLICABLE CONVERSION PRICE: ___________________________________________
SIGNATURE: ___________________________________________
NAME: ___________________________________________
ADDRESS: ___________________________________________
AMOUNT TO BE CONVERTED: $__________________________________________
AMOUNT OF DEBENTURE
UNCONVERTED: $__________________________________________
CONVERSION PRICE PER SHARE: $__________________________________________
NUMBER OF SHARES OF COMMON STOCK
TO BE ISSUED: ___________________________________________
PLEASE ISSUE THE SHARES OF
COMMON STOCK IN THE FOLLOWING
NAME AND TO THE FOLLOWING
ADDRESS: ___________________________________________
ISSUE TO: ___________________________________________
AUTHORIZED SIGNATURE: ___________________________________________
NAME: ___________________________________________
TITLE: ___________________________________________
PHONE NUMBER: ___________________________________________
BROKER DTC PARTICIPANT CODE: ___________________________________________
ACCOUNT NUMBER: ___________________________________________
