EXHIBIT 99.(C).(2)
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: December 29, 2004
Original Conversion Price (subject to adjustment herein): $5.25
$2,000,000.00
8% CONVERTIBLE DEBENTURE
DUE AUGUST 31, 2005
THIS DEBENTURE is one of a series of duly authorized and issued 8%
Convertible Debentures of Recom Managed Systems, Inc., a Delaware corporation,
having a principal place of business at 0000 Xxxxxx Xxxxxx Xxxxxxxxx, Xxxxx 000,
Xxxxxx Xxxx, XX 00000 (the "Company"), designated as its 8% Convertible
Debenture (the "Debenture(s)").
FOR VALUE RECEIVED, the Company promises to pay to DKR SoundShore Oasis
Holding Fund, Ltd. or its registered assigns (the "Holder"), the principal sum
of $2,000,000.00 on such dates as the Debentures are required or permitted to be
repaid as provided hereunder, but in no event later than August 31, 2005 (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:
1
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 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 33% of the voting securities of the Company, or
(ii) 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 (iii) 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
(ii).
"Closing Price" means on any particular date (a) the last reported
closing bid price per share of Common Stock on such date on the Trading
Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b)
if there is no such price on such date, then the closing bid price on the
Trading Market on the date nearest preceding such date (as reported by
Bloomberg L.P. at 4:15 PM (New York time) for the closing bid price for
regular session trading on such day), or (c) 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 closing bid price of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board (as reported by Bloomberg L.P. at 4:15 PM (New York time),
(d) if the Common Stock is not then listed or quoted on the Trading Market
and if prices for the Common Stock are then reported in the "pink sheets"
published by the Pink Sheets LLC (formerly the National Quotation Bureau
Incorporated (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 (e) if the shares of Common Stock are not
then publicly traded the fair market value of a share of Common Stock as
determined by a qualified independent appraiser selected in good faith by
the Purchasers of a majority in interest of the Shares then outstanding.
2
"Common Stock" means the common stock, par value $0.001 per share,
of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"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 Debentures or as payment of interest in accordance with the
terms.
"Debenture Register" shall have the meaning set forth in Section
2(c).
"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, if any, (ii) all liquidated damages and other amounts owing
in respect of the Debentures 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
to Holder pursuant to the terms of 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 and (vii) all
of the shares issued or issuable pursuant to the transaction proposed
would not violate the limitations set forth in Section 4(c)(i).
"Event of Default" shall have the meaning set forth in Section 8.
3
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fundamental Transaction" shall have the meaning set forth in
Section 5(d).
"Interest Conversion Rate" means 90% of the lesser of (i) the
Closing Price immediately prior to the applicable Interest Payment Date or
(ii) the Closing Price immediately prior to the date the applicable
interest payment shares are issued and delivered if after the Interest
Payment Date.
"Interest Payment Date" shall have the meaning set forth in Section
2(a).
"Late Fees" shall have the meaning set forth in Section 2(d).
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the greater of: (A) 130% of the principal amount of Debentures to
be prepaid, plus all accrued and unpaid interest thereon, or (B) the
principal amount of Debentures to be prepaid, plus all other accrued and
unpaid interest hereon, divided by the Conversion Price on (x) the date
the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is less,
multiplied by the Closing Price on (x) the date the Mandatory Prepayment
Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of
such Debentures. Notwithstanding anything herein to the contrary, if at
the time the Holder delivers to the Company a notice of an Event of
Default (I) the Company has and is duly honoring all conversions, if any,
(II) 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), (III) 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),
(IV) there exists no other reason (other than the discretion of the Holder
or market conditions) which would otherwise deprive the Holder from
receiving (other than Section 4(c)) Conversion Shares or disposing of the
Conversion Shares on the Trading Market and (V) the Company takes no
action thereafter to directly or indirectly cause clauses (I) through (IV)
above to no longer be exist, then clause (B) above shall not be available
for the purpose of calculating the Mandatory Prepayment Amount as to such
notice of an Event of Default.
"Monthly Redemption" shall mean the redemption of the Debenture
pursuant to Section 6(a) hereof.
4
"Monthly Redemption Amount" shall mean, as to a Monthly Redemption,
$400,000.00.
"Monthly Redemption Date" means May 16th, 2005 and thereafter the
1st of each month, continuing until the full redemption of this Debenture.
"Monthly Redemption Price" shall have the meaning set forth in
Section 6(a) 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) 110% 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(c).
"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 Liens" shall mean the following: (a) liens which arise by
operation of law for taxes, assessments or charges not yet due and payable
or which are being contested in good faith and by appropriate proceedings;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
liens or other like encumbrances arising in the ordinary course of
business, provided that the obligations secured by such liens are not
delinquent or are being contested in good faith; (c) pledges or deposits
in connection with worker's compensation and unemployment insurance laws
and other social security legislation; and (d) purchase money security
interests.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of December 29, 2004, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
5
"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.
"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 OTC Bulletin Board, 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.
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 of 8% per annum, payable on May 10, 2005, the first
Business Day of each month thereafter and on each Conversion Date (as to that
principal amount then being converted) 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 Conversion Rate, or a combination
thereof; provided, however, payment in shares of Common Stock may only occur if
during the 5 Trading Days immediately prior to the applicable Interest Payment
Date all of the Equity Conditions have been met and the Company shall have given
the Holder notice in accordance with the notice requirements set forth below.
6
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 5
Trading Days prior to each Interest Payment Date, the Company shall provide the
Holder with written notice of its election to pay interest hereunder either in
cash or shares of Common Stock (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Within 5 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.
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 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 shares of Common Stock, then such payment shall be
distributed ratably among the Holders based upon the principal amount of
Debentures held by each Holder.
d) Late Fee. All overdue accrued and unpaid interest to be paid hereunder
shall entail a late fee at the rate of 15% 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 highest Closing Price during the
period commencing on the Interest Payment Date and ending on the Trading Day
prior to the date such payment is made.
7
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.
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 Debentures
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 Debentures 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
substantially in the form set forth in Schedule 1 attached hereto (the
"Debenture Schedule") 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. After each Conversion, upon the
request of the Company, a representative of the Company shall review the
Holder's Debenture Schedule, and shall attest to the Conversion upon
satisfaction that the information regarding the Conversion is correct.
8
b) Conversion Price. The conversion price in effect on any Conversion Date
shall be equal to $5.25 (subject to adjustment herein)(the "Conversion Price").
c) Xxxxxx'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), 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 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), 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-QSB or Form
10-KSB, 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 upon, at the
election of the Holder, 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).
9
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.
ii. Delivery of Certificate Upon Conversion. Not later than three
Trading Days after any Conversion Date ("Conversion Delivery Date"), the
Company will deliver 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 Debentures (including, if so timely
elected by the Company, shares of Common Stock representing the payment of
accrued interest) 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
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, so long as the Holder sells the
securities through a broker-dealer and otherwise sells the Securities
within the "Plan of Distribution" described in the Registration Rights
Agreement.
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 Debentures tendered for conversion.
10
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 second Trading Day after
the Conversion Delivery 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 5 Trading Days after such damages begin to accrue)
for each Trading Day after such third 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 (unless the Holder elects to
rescind such conversion), 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 a 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 of 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 subject to conversion, 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
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 Holders from seeking to
enforce damages pursuant to any other Section hereof or under applicable
law.
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 second
Trading Day after the Conversion Delivery Date, and if after such 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 Debentures in principal amount equal to the
principal amount of the attempted conversion or deliver to the Holder the
number of shares of Common Stock that would have been issued had the
Company timely complied with its delivery requirements under Section
4(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 Debentures 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 liquidated damages under Section
4(d)(iv) in respect of the certificates resulting in such Buy-In.
11
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 the Debentures and payment of interest on the
Debenture, each as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holders,
not less than such number of shares of the Common Stock as shall (subject
to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 5) upon the conversion
of the outstanding principal amount of the Debentures and payment of
interest hereunder. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the Registration
Statement is then effective under the Securities Act, registered for
public sale in accordance with such Registration Statement.
12
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 Closing
Price 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 the Debentures shall be made without charge
to the Holders thereof for any documentary stamp or similar taxes that may
be payable in respect of the issue or delivery of such certificate,
provided that the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery
of any such certificate upon conversion in a name other than that of the
Holder of such Debentures so converted and the Company shall not be
required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while the
Debentures are outstanding: (A) shall pay a stock dividend or otherwise make a
distribution or distributions (excluding for such purposes conversions of notes
or preferred stock and/or exercises of options or warrants by the holders
thereof) on shares of its Common Stock or any other equity or equity equivalent
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) subdivide outstanding shares
of Common Stock into a larger number of shares, (C) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares, or (D) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then the 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.
b) [Intentionally Deleted].
c) Pro Rata Distributions. If the Company, at any time while Debentures
are outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price shall be determined 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 Closing Price determined as of the record date mentioned above, and
of which the numerator shall be such Closing 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
Holders of the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
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d) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (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 absent 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 issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder's right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(c) and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
14
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. The
number of shares of Common Stock outstanding at any given time shall not
includes shares of Common Stock owned or held by or for the account of the
Company, and the description of any such shares of Common Stock shall be
considered on issue or sale of Common Stock. 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) Exempt Issuance. Notwithstanding the foregoing, no adjustment will be
made under this Section 5 in respect of an Exempt Issuance.
g) Notice to Holders.
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.
ii. Notice to Allow Conversion by Xxxxxx. If (A) the Company shall
declare a dividend (or any other distribution) on the Common Stock; (B)
the Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock; (C) the Company shall authorize the
granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class or of
any rights; (D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Company; then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of
the Debentures, and shall cause to be mailed to the Holders at their last
addresses as they shall appear upon the stock books of the Company, at
least 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 warrants, or if a record is not to be taken, the date as of
which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective
or close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange;
provided, that the failure to mail such notice or any defect therein or in
the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. Holders are entitled to convert
Debentures during the 10-day period commencing the date of such notice to
the effective date of the event triggering such notice.
15
Section 6. Redemption.
a) 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, if any, and any other amounts then owing to such
Holder in respect of the Debenture. The Monthly Redemption Amount due on each
Monthly Redemption Date shall be paid in cash; provided, however, as to any
Monthly Redemption and upon at least 10 Trading Days' prior written irrevocable
notice (the Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised), in lieu of a cash
redemption payment the Company may elect to pay all or part of a Monthly
Redemption in Conversion Shares based on a conversion price equal to the lesser
of (a) the then Conversion Price and (b) 85% of the average of the 3 lowest
Closing Prices during the 10 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 10 Trading Day period) (the "Monthly Redemption
Price"); provided, however, that the Company may not pay the Monthly Redemption
Amount in Conversion Shares unless, on the Monthly Redemption Date and during
the 10 Trading Day period immediately prior to the Monthly Redemption Date, the
Equity Conditions have been satisfied. The Holders may convert, pursuant to
Section 4(a), any principal amount of the 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
Debenture converted during any 10 day period until the date the Monthly
Redemption Amount is paid shall be first applied to the principal amount subject
to the Monthly Redemption and such Company's cash payment to the Holder of the
Monthly Redemption Amount on such Monthly Redemption Date shall be reduced
accordingly, and any remaining principal amount so converted shall be applied
against the last principal scheduled to be repaid pursuant to this Section 6(a),
in reverse time order. 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 or shares of Common
Stock shall be applied ratably to all Holders based on their initial purchases
of Debentures pursuant to the Purchase Agreement.
16
b) Optional Redemption Procedure. The payment of cash and/or issuance of
Common Stock, as the case may be, pursuant to a Monthly Redemption shall be made
on the Monthly Redemption Date. If any portion of the cash payment for a Monthly
Redemption shall not be paid by the Company by the respective due date, interest
shall accrue thereon at the rate of 15% per annum (or the maximum rate permitted
by applicable law, whichever is less) until the payment of the Monthly
Redemption Amount, plus all amounts owing thereon is paid in full.
Alternatively, if any portion of the Monthly Redemption Amount 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, notwithstanding anything herein contained to the contrary.
c) Optional Redemption at Election of Company. Subject to the provisions
of this Section 6, the Company may deliver a notice to the Holders (an "Optional
Redemption Notice" and the date such notice is deemed delivered hereunder, the
"Optional Redemption Notice Date") of its irrevocable election to redeem on or
after the 45th Trading Day following the Optional Redemption Notice Date but no
later than the 52nd Trading Day following the Optional Redemption Notice Date
(such date, the "Optional Redemption Date" and such redemption, the "Optional
Redemption") all of the then outstanding Debentures, for an amount, in cash,
equal to the Optional Redemption Amount. 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 from the Optional Redemption Notice Date through
to the Optional Redemption Date, 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. Any
election by the Company under this Section 6(c) shall require the redemption of
all Debentures.
d) Redemption Procedure. The payment of cash pursuant to an Optional
Redemption shall be made on the Optional Redemption Date. If any portion of the
cash payment for an Optional Redemption shall not be paid by the Company by the
respective due date, interest shall accrue thereon at the rate of 15% per annum
(or the maximum rate permitted by applicable law, whichever is less) until the
Optional Redemption Amount, plus all amounts owing thereon is paid in full.
Alternatively, if any portion of the Optional Redemption Amount remains unpaid
after such date, the Holders may elect, by written notice to the Company given
at any time thereafter, to invalidate ab initio such redemption, notwithstanding
anything herein contained to the contrary, and, with respect the failure to
honor the Optional Redemption, the Company shall have no further right to
exercise such Optional Redemption. The Holder may elect to convert the
outstanding principal amount of the Debenture pursuant to Section 4 prior to
actual payment in cash for any redemption under Section 6(c) by fax delivery of
a Notice of Conversion to the Company. The Company covenants and agrees that it
will honor all Conversion Notices tendered from the time of delivery of the
Optional Redemption Notice through the date all amounts owing thereon are due
and paid in full on such date.
17
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) except for Permitted Liens, enter into, create, incur, assume or suffer
to exist any indebtedness or liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom that is senior to, or pari passu with, in any
respect, the Company's obligations under the Debentures (the granting of any
security interest in the assets of the Company shall be deemed a senior lien);
b) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Holder;
c) repay, repurchase or offer to repay, repurchase or otherwise acquire
more than a de minimis number of shares of its Common Stock or other equity
securities 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; or
d) enter into any agreement with respect to any of the foregoing.
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, any Debenture, in
each case free of any claim of subordination, 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 materially fail to observe or perform any
other covenant or agreement contained in this 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 (xii)
below) which failure is not cured, if possible to cure, within the earlier
to occur of (A) 10 Trading Days after notice of such default sent by the
Holder or by any other Holder and (B)15 Trading Days after the Company
shall become or should have become aware of such failure;
18
iii. a default or event of default (subject to any grace or cure
period provided for in the applicable agreement, document or instrument)
shall occur under (A) any of the Transaction Documents other than the
Debentures (other than a breach by the Company of its obligations covered
separately elsewhere under this Section 8(a)), or (B) any other material
agreement, lease, document or instrument to which the Company or any
Subsidiary is bound that would result in a Material Adverse Effect on the
Company;
iv. any representation or warranty made herein, in any other
Transaction Documents, in any written statement made on or prior to the
date of this Debenture 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 made on or prior to the date of the Purchase
Agreement shall be untrue or incorrect in any material respect as of the
date when made or deemed made;
v. (i) the Company or any of its Subsidiaries shall commence 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 against the Company or any Subsidiary thereof any such
bankruptcy, insolvency or other proceeding 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;
19
vi. the Company or any Subsidiary shall default in any of its
obligations (subject to any applicable grace or cure periods) 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 $250,000, 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;
viii. the Company shall be a party to any Change of Control
Transaction, shall agree to sell or dispose of all or in excess of 33% of
its assets in one or more transactions (whether or not such sale would
constitute a Change of Control Transaction) or shall redeem or repurchase
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 $100,000, 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 240th 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
60 consecutive Trading Days or 90 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 10 consecutive Trading 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 tenth 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;
20
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 Default shall be equal to the Mandatory Prepayment
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 15% per annum, or such lower maximum
amount of interest permitted to be charged under applicable law. All Debentures
for which the full Mandatory Prepayment 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 Holders 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 Laurel Canyon Xxxxxxxxx, Xxxxx 000, Xxxxxx Xxxx, Xxxxxxxxxx 00000, xxxxxxxxx
number (000) 000-0000, Attn: Xxxx Xxxxxxxxx or such other address or facsimile
number as the Company may specify for such purposes by notice to the Holders
delivered in accordance with this Section. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service addressed to each Holder at the facsimile 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.
21
b) Absolute Obligation. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct debt obligation
of the Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein.
c) 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.
22
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 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.
*********************
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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.
RECOM MANAGED SYSTEMS, INC.
By: /s/ Xxxxxx X. Xxxx
Name: Xxxxxx X. Xxxx
Title: C.E.O.
24
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 8%
Convertible Debenture of Recom Managed Systems, Inc., a Delaware corporation
(the "Company"), 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 Debentures 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:
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SCHEDULE 1
CONVERSION SCHEDULE
The 8% Convertible Debentures, in the aggregate principal amount of
$____________ issued by Recom Managed Systems, Inc., a Delaware corporation.
This Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.
Dated:
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Aggregate Principal
Amount Remaining
Subsequent to
Date of Conversion Conversion
(or for first entry, Original (or original
Issue Date) Amount of Conversion Principal Amount) Company Attest
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