EXHIBIT 4.1
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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: June 30, 2006
Original Conversion Price (subject to adjustment herein): $0.85
$ ______________
6% SECURED CONVERTIBLE DEBENTURE
DUE DECEMBER 28, 2008
THIS SECURED DEBENTURE is one of a series of duly authorized and issued
6% Secured Convertible Debentures of XXXXxx.xxx, Inc., a Delaware corporation,
having a principal place of business at 000 Xxx Xxx Xxxxxxxxx Xxxx, 0xx Xxxxx,
Xxxxxxxxxx, XX 00000 (the "Company"), designated as its 6% Secured Convertible
Debenture, due December 2008 (this debenture, the "Debenture" and collectively
with the other such series of debentures, the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "Holder"), or shall have
paid pursuant to the terms hereunder, the principal sum of $_______________ by
December 28, 2008 (the "Maturity Date"), or such earlier date as this Debenture
is required to be repaid as provided hereunder, and to pay interest to the
Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture in accordance with the provisions hereof. This Debenture is
subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
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"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 40% of the voting securities
of the Company, or (ii) the Company merges into or consolidates with
any other Person, or any Person merges into or consolidates with the
Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 60%
of the aggregate voting power of the Company or the successor entity of
such transaction, or (iii) the Company sells or transfers its assets,
as an entirety or substantially as an entirety, to another Person and
the stockholders of the Company immediately prior to such transaction
own less than 60% of the aggregate voting power of the acquiring entity
immediately after the transaction, (iv) a replacement at one time or
within a two year period of more than one-half of the members of the
Company's board of directors which is not approved by a majority of
those individuals who are members of the board of directors on the date
hereof (or by those individuals who are serving as members of the board
of directors on any date whose nomination to the board of directors was
approved by a majority of the members of the board of directors who are
members on the date hereof), or (v) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i) through (iv).
"Cash Sale Redemption Amount" shall equal the sum of (i) 100%
of the principal amount of this Debenture to be prepaid, plus all
accrued and unpaid interest thereon, (ii) the principal amount of this
Debenture to be prepaid, plus all other accrued and unpaid interest
hereon, divided by the Conversion Price on the closing date of the
applicable event multiplied by the "Effective Price" (defined below),
and (iii) all other amounts, costs, expenses and liquidated damages due
in respect of this Debenture. The "Effective Price" shall be the cash
consideration paid by the acquirer in such event (less the amount set
forth in clause (i) above) divided by the sum of; (x) the issued and
outstanding shares of Common Stock of the Company then outstanding and
(y) the shares of Common Stock into which the outstanding Debentures
may be converted on the day immediately preceding the record date fixed
for determining the holders of shares of Common Stock eligible to
receive a distribution (or if no such date has been fixed, the date of
the day immediately preceding the closing of the transaction) and (z)
the number of shares deemed issuable to the Warrant holders pursuant to
the mandatory redemption provisions
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in the Warrants which take effect upon sale of assets for cash
consideration whether or not any Warrant holder shall have elected to
have their Warrants Redeemed; provided, however, that the number of
shares of Common Stock issuable on conversion of the Debentures and
issuable upon exercise of the Warrants for this purpose shall be
determined on a fully converted or exercised basis and ignoring any
conversion or exercise limitations therein).
"Common Stock" means the common stock, par value $.0001 per
share, of the Company and stock of any other class of securities into
which such securities may hereafter have been reclassified or changed
into.
"Conversion Date" shall have the meaning set forth in Section
4(a).
"Conversion Price" shall have the meaning set forth in Section
4(b).
"Conversion Shares" means the shares of Common Stock issuable
upon conversion of this Debenture or as payment of interest in
accordance with the terms.
"Debenture Register" shall have the meaning set forth in
Section 2(c).
"Dilutive Issuance" shall have the meaning set forth in
Section 5(b).
"Dilutive Issuance Notice" shall have the meaning set forth in
Section 5(b).
"Effectiveness Period" shall have the meaning given to such
term in the Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question,
(i) the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notice of
Conversions of the Holder, if any, (ii) all liquidated damages and
other amounts owing to the Holder in respect of this Debenture shall
have been paid, (iii) there is an effective Registration Statement
pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that
such effectiveness will continue uninterrupted for the foreseeable
future), (iv) the Common Stock is trading on the Trading Market and all
of the shares issuable pursuant to the Transaction Documents are listed
for trading on a Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on a Trading Market will
continue uninterrupted for the foreseeable future), (v) there is a
sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the shares issuable
pursuant to the Transaction Documents, (vi) there is then existing no
Event of Default or event which, with the passage of time or the giving
of notice, would constitute an Event of Default, (vii) the issuance of
the shares in question to the Holder would not violate the limitations
set forth in Section 4(c), (viii) no public announcement of a pending
or proposed Fundamental Transaction, Change of Control Transaction or
acquisition transaction has occurred that has not been
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consummated and (ix) for a period of 20 consecutive Trading Days prior
to the applicable date in question, the daily trading volume for the
Common Stock on the Trading Market exceeds 200,000 shares per Trading
Day (subject to adjustment for forward and reverse stock splits and the
like) in the case of a Forced Conversion pursuant to Section 6.
"Event of Default" shall have the meaning set forth in Section
8.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Forced Conversion" shall have the meaning set forth in
Section 6(b).
"Forced Conversion Date" shall have the meaning set forth in
Section 6(b).
"Forced Conversion Notice" shall have the meaning set forth in
Section 6(b).
"Forced Conversion Notice Date" shall have the meaning set
forth in Section 6(b).
"Fundamental Transaction" shall have the meaning set forth in
Section 5(d).
"Interest Conversion Rate" means 85% of the lesser of (i) the
average of the VWAPs for the 10 consecutive Trading Days ending on the
Trading Day that is immediately prior to the applicable Interest
Payment Date or (ii) the average of the VWAPs for the 10 consecutive
Trading Days ending on the Trading Day that is immediately prior to the
date the applicable interest payment shares are issued and delivered if
after the Interest Payment Date.
"Interest Notice Period" shall have the meaning set forth in
Section 2(a).
"Interest Payment Date" shall have the meaning set forth in
Section 2(a).
"Interest Share Amount" shall have the meaning set forth in
Section 2(a).
"Late Fees" shall have the meaning set forth in Section 2(d).
"Mandatory Default Amount" shall equal the sum of (i) the
greater of: (A) 130% of the principal amount of this Debenture to be
prepaid, plus all accrued and unpaid interest thereon, or (B) the
principal amount of this Debenture to be prepaid, plus all other
accrued and unpaid interest hereon, divided by the Conversion Price on
(x) the date the Mandatory Default Amount is demanded or otherwise due
or (y) the date the Mandatory Default Amount is paid in full, whichever
is less, multiplied by the average of the 15 VWAPs immediately prior to
(x) the date the Mandatory Default Amount is demanded or otherwise due
or (y) the date the Mandatory Default Amount is paid in full, whichever
is greater, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of this Debenture.
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"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).
"Original Issue Date" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be
issued to evidence such Debenture.
"Permitted Indebtedness" shall mean (a) the Indebtedness
existing on the Original Issue Date and set forth on Schedule 3.1(aa)
attached to the Purchase Agreement, (b) lease obligations and purchase
money Indebtedness of up to $100,000, in the aggregate, incurred in
connection with the acquisition of capital assets and lease obligations
with respect to newly acquired or leased assets, (c) Indebtedness
incurred pursuant to the Transaction Documents, (d) unsecured accounts
payable incurred in the ordinary course of business, (e) indebtedness
with respect to taxes, governmental changes or levies which are being
contested in good faith, provided that adequate reserves are maintained
on the books of the Company or Subsidiaries, as the case may be, in
accordance with GAAP and (f) up to $1,000,000 of additional
Indebtedness incurred by the Company in connection with raising capital
for the acquisition of another entity (by merger, consolidation, the
acquisition of all or substantially of the assets of such entity or
similar transaction), provided that in the case of (b) and (c) above,
such Indebtedness does not mature or require payments of principal
prior to the Maturity Date and is made expressly subordinate in right
of payment to the Indebtedness evidenced by this Debenture, as
reflected in a written agreement reasonably acceptable to, and approved
by, the Purchasers in writing.
"Permitted Lien" shall mean the individual and collective
reference to the following: (a) Liens for taxes, assessments and other
governmental charges or levies not yet due or Liens for taxes,
assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves
(in the good faith judgment of the management of the Company) have been
established in accordance with GAAP, (b) Liens prior to the Original
Issue Date as set forth on the Disclosure Schedules, (c) Liens granted
in connection with clauses (b) and (c) under Permitted Indebtedness
(provided, in the case of clause (b) such Liens are not secured by
assets of the Company or its Subsidiaries other than the assets so
leased or acquired), and (d) Liens imposed by law which were incurred
in the ordinary course of business, such as carriers', warehousemen's
and mechanics' Liens, statutory landlords' Liens, and other similar
Liens arising in the ordinary course of business, and (x) which do not
individually or in the aggregate materially detract from the value of
such property or assets or materially impair the use thereof in the
operation of the business of the Company and its consolidated
Subsidiaries or (y) which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or asset subject to
such Lien.
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"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 June 30, 2006 to which the Company and the original Holder
are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Conversion
Shares and naming the Holder as a "selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Subsidiary" shall have the meaning given to such term in the
Purchase Agreement.
"Threshold Period" shall have the meaning given to such term
in Section 6(b).
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq SmallCap Market, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
Board.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (c) in all other
cases, the fair
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market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.
"Warrants" 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 6% per
annum, payable semiannually on January 1 and July 1, beginning on
January 1, 2007, upon a redemption event pursuant to Section 6(a) 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 duly
authorized, fully paid and non-assessable shares of Common Stock at the
Interest Conversion Rate, or a combination thereof (the amount to be
paid in shares, the "Interest Share Amount"); provided, however,
payment in shares of Common Stock may only occur if during the 20
Trading Days immediately prior to the applicable Interest Payment Date
(the "Interest Notice Period") and through and including the date such
shares of Common Stock are issued to the Holder all of the Equity
Conditions, unless waived by the Holder in writing, have been met and
the Company shall have given the Holder notice in accordance with the
notice requirements set forth below.
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 sole
discretion of the Company. Prior to the commencement of an Interest
Notice Period, the Company shall provide the Holder with written notice
of its election to pay interest hereunder on the applicable Interest
Payment Date either in cash, shares of Common Stock or a combination
thereof (the Company may indicate in such notice that the election
contained in such notice shall continue for later periods until
revised) and the Interest Share Amount as to the applicable Interest
Payment Date. During any Interest Notice Period, the Company's election
(whether specific to an Interest Payment Date or continuous) shall be
irrevocable as to such Interest Payment Date. Subject to the
aforementioned conditions, failure to timely provide such written
notice shall be deemed an election by the Company to pay the interest
on such Interest Payment Date in cash. At any time the Company delivers
a notice to the Holder of its election to pay the interest in shares of
Common Stock, the Company shall file a prospectus supplement pursuant
to Rule 424 disclosing such election.
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
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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 this
Debenture (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 to the holders of the Debentures,
then such payment shall be distributed ratably among the holders of the
Debentures based on their (or their predecessor's initial purchases of
Debentures pursuant to the Purchase Agreement.
d) Late Fee. All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at the rate of 18% per annum (or
such lower maximum amount of interest permitted to be charged under
applicable law) ("Late Fees") which will accrue daily, from the date
such interest is due hereunder through and including the date of
payment. Notwithstanding anything to the contrary contained herein, if
on any Interest Payment Date the Company has elected to pay interest in
Common Stock and is not able to pay accrued interest in the form of
Common Stock because it does not then satisfy the conditions for
payment in the form of Common Stock set forth above, then, at the
option of the Holder, the Company, in lieu of (and in full satisfaction
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
VWAP during the period commencing on the Interest Payment Date and
ending on the Trading Day prior to the date such payment is made.
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
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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 this Debenture
to be converted and the date on which such conversion is to be effected
(a "Conversion Date"). If no Conversion Date is specified in a Notice
of Conversion, the Conversion Date shall be the date that such Notice
of Conversion is provided hereunder. Once delivered, the Notice of
Conversion shall be irrevocable, unless provided otherwise by the
Company in its sole discretion or as provided in Section 4(d)(iii). To
effect conversions hereunder, the Holder shall not be required to
physically surrender this Debenture to the Company unless the entire
principal amount of this Debenture plus all accrued and unpaid interest
thereon has been so converted. Conversions hereunder shall have the
effect of lowering the outstanding principal amount of this Debenture
in an amount equal to the applicable conversion. The Holder and the
Company shall maintain records showing the principal amount converted
and the date of such conversions. The Company shall deliver any
objection to any Notice of Conversion within 1 Business Day of receipt
of such notice. In the event of any dispute or discrepancy, the records
of the Holder shall be controlling and determinative in the absence of
manifest error. The Holder and any assignee, by acceptance of this
Debenture, acknowledge and agree that, by reason of the provisions of
this paragraph, following conversion of a portion of this Debenture,
the unpaid and unconverted principal amount of this Debenture may be
less than the amount stated on the face hereof.
b) Conversion Price. The conversion price in effect on any
Conversion Date shall be equal to $0.85 (subject to adjustment
herein)(the "Conversion Price").
c) Conversion Limitations. The Company shall not effect any
conversion of this Debenture, and a Holder shall not have the right to
convert any portion of this Debenture to the extent that after giving
effect to such conversion, such Holder (together with such Holder's
affiliates, and any other person or entity acting as a group together
with such Holder or any of such Holder's affiliates), as set forth on
the applicable Notice of Conversion, would beneficially own in excess
of the Beneficial Ownership Limitation (as defined below). For purposes
of the foregoing sentence, the number of shares of Common Stock
beneficially owned by such 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 principal amount of this Debenture beneficially owned by
such Holder or any of its affiliates and (B) exercise or conversion of
the unexercised or
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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 such 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 and the rules and
regulations promulgated thereunder. To the extent that the limitation
contained in this Section 4(c) applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by
such Holder together with any affiliates) and of which amounts of this
Debenture are convertible shall be in the sole discretion of such
Holder, and the submission of a Notice of Conversion shall be deemed to
be such Holder's determination of whether this Debenture may be
converted (in relation to other securities owned by such Holder) and
which amounts of this Debenture are convertible, in each case subject
to such aggregate percentage limitations. To ensure compliance with
this restriction, each 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. In addition, a determination as to
any group status as contemplated above shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 4(c),
in determining the number of outstanding shares of Common Stock, a
Holder may rely on the number of outstanding shares of Common Stock as
reflected in the most recent of the following: (A) the Company's most
recent Form 10-QSB or Form 10-KSB, as the case may be, (B) a more
recent public announcement by the Company or (C) 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 request of a
Holder, the Company shall within two Trading Days confirm in writing to
such 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 such Holder or
its affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. The Company, in refraining from or
taking actions under this Section 4(c), may rely solely upon filings
made by the Holder under Section 13(d) of the Exchange Act or written
representation of the Holder as to its beneficial ownership. The
"Beneficial Ownership Limitation" shall be 4.99% of the number of
shares of the Common Stock outstanding immediately after giving effect
to the issuance of shares of Common Stock issuable upon conversion of
this Debenture held by the Holder. The Beneficial Ownership Limitation
provisions of this Section 4(c) may be waived by such Holder, at the
election of such Holder, upon not less than 61 days' prior notice to
the Company to change the Beneficial Ownership Limitation to 9.99% of
the number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock upon conversion
of this Debenture held by the Holder, and the provisions of this
Section 4(c) shall continue to apply. Upon such a change by a Holder of
the Beneficial Ownership Limitation from such 4.99% limitation to such
9.99% limitation, the Beneficial Ownership Limitation may not be waived
by such Holder. The provisions of this paragraph shall be implemented
in a manner otherwise than in strict conformity with the terms of this
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Section 4(c) to correct this paragraph (or any portion hereof) which
may be defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements necessary
or desirable to properly give effect to such limitation. The
limitations contained in this paragraph shall apply to a successor
holder of this Debenture.
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, the Company will deliver
or cause to be delivered to the Holder (A) a certificate or
certificates representing the Conversion Shares which shall be free of
restrictive legends and trading restrictions (other than those required
by the Purchase Agreement) representing the number of shares of Common
Stock being acquired upon the conversion of this Debenture (including,
if the Company has given continuous notice pursuant to Section 2(b) for
payment of interest in shares of Common Stock at least 20 Trading Days
prior to the date on which the Conversion Notice is delivered to the
Company, shares of Common Stock representing the payment of accrued
interest otherwise determined pursuant to Section 2(a) but assuming
that the Interest Payment Period is the 20 Trading Days period
immediately prior to the date on which the Conversion Notice is
delivered to the Company and (B) a bank check in the amount of accrued
and unpaid interest (to the extent the Company is paying to pay accrued
interest in cash). The Company shall, if available and if allowed under
applicable securities laws, use its reasonable best efforts to deliver
any certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing
similar functions.
iii. Failure to Deliver Certificates. If in the case of any
Notice of Conversion such certificate or certificates are not delivered
to or as directed by the applicable Holder by the third Trading Day
after a Conversion Date, the Holder shall be entitled by written notice
to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event
the Company shall immediately return the certificates representing the
principal amount of this Debenture tendered for conversion.
iv. Obligation Absolute; Partial Liquidated Damages. If the
Company fails for any reason to deliver to the Holder such certificate
or certificates pursuant to Section 4(d)(ii) by the third Trading Day
after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a
11
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, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision
hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other
person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares; provided,
however, such delivery shall not operate as a waiver by the Company of
any such action the Company may have against the Holder. In the event
the Holder of this Debenture shall elect to convert any or all of the
outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or any one associated or
affiliated with the Holder has been engaged in any violation of law,
agreement or for any other reason, unless, an injunction from a court,
on notice, restraining and or enjoining conversion of all or part of
this Debenture shall have been sought and obtained and the Company
posts a surety bond for the benefit of the Holder in the amount of 150%
of the principal amount of this Debenture outstanding, which is subject
to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of
which shall be payable to such Holder to the extent it obtains
judgment. In the absence of an injunction precluding the same, the
Company shall issue Conversion Shares or, if applicable, cash, upon a
properly noticed conversion. Nothing herein shall limit a Xxxxxx's
right to pursue actual damages or declare an Event of Default pursuant
to Section 8 herein for the Company's failure to deliver Conversion
Shares within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit
the Holder from seeking to enforce damages pursuant to any other
Section hereof or under applicable law.
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 third Trading Day after the Conversion Date, and if after such
third 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
12
available to or elected by the Holder) the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any)
for the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the actual
sale price of the Common Stock at the time of the sale (including
brokerage commissions, if any) giving rise to such purchase obligation
and (B) at the option of the Holder, either reissue (if surrendered)
this Debenture in a principal amount equal to the principal amount of
the attempted conversion or deliver to the Holder the number of shares
of Common Stock that would have been issued had the Company timely
complied with its delivery requirements under Section 4(d)(ii). For
example, if the Holder purchases Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted
conversion of this Debenture with respect to which the actual sale
price of the Conversion Shares at the time of the sale (including
brokerage commissions, if any) giving rise to such purchase obligation
was a total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written proof indicating the amounts
payable to the Holder in respect of the Buy-In.
vi. Reservation of Shares Issuable Upon Conversion. The
Company covenants that it will at all times reserve and keep available
out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of this Debenture and payment
of interest on this Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of
persons other than the Holder (and the other holders of the
Debentures), not less than such number of shares of the Common Stock as
shall (subject to the terms and conditions set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder.
The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable.
vii. Fractional Shares. Upon a conversion hereunder the
Company shall not be required to issue stock certificates representing
fractions of shares of the Common Stock, but may if otherwise
permitted, make a cash payment in respect of any final fraction of a
share based on the VWAP at such time. If the Company elects not, or is
unable, to make such a cash payment, the Holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of
Common Stock.
viii. Transfer Taxes. The issuance of certificates for shares
of the Common Stock on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or
similar taxes that may be payable
13
in respect of the issue or delivery of such certificate, provided that
the Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the
Holder of this Debenture so converted and the Company shall not be
required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
SECTION 5. CERTAIN ADJUSTMENTS.
a) Stock Dividends and Stock Splits. If the Company, at any
time while this Debenture is outstanding: (A) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its Common
Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company pursuant to
this Debenture, including as interest thereon), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares
of Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital
stock of the Company, then the Conversion Price shall be multiplied by
a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the
number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to this Section shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the case
of a subdivision, combination or re-classification.
b) Subsequent Equity Sales.
i. If the Company or any Subsidiary thereof, as applicable, at
any time while this Debenture is outstanding, shall sell, grant any
option to purchase, sell or grant any right to reprice its securities,
or otherwise dispose of or issue any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock, at
an effective price per share less than the then Conversion Price (such
lower price, the "Base Conversion Price" and such issuances
collectively, a "Dilutive Issuance"), as adjusted hereunder (if the
holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or
otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share which is less than the
Conversion Price, such issuance shall be deemed to have occurred for
less
14
than the Conversion Price on such date of the Dilutive Issuance), then
the Conversion Price shall be reduced to equal the Base Conversion
Price.
ii. The Company or any Subsidiary there, as applicable, at any
time while this Debenture is outstanding, shall offer, sell, grant any
option to purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer,
sale, grant or any option to purchase or other disposition) any Common
Stock or Common Stock Equivalents entitling any Person to acquire
shares of Common Stock, at an effective price per share less than the
VWAP on either the Trading Day immediately prior to the date agreements
for such issuance are entered into or the date such issuance is
consummated, whichever results in a higher VWAP, but more than the then
effective Conversion Price (which is addressed in 5(b)(i) above) (such
lower price, the "Market Base Conversion Price" and such issuances
collectively, a "Market Dilutive Issuance"), as adjusted hereunder (if
the holder of the Common Stock or Common Stock Equivalents so issued
shall at any time, whether by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or
otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share which is less than the
Conversion Price, such issuance shall be deemed to have occurred for
less than the Conversion Price on such date of the Market Dilutive
Issuance) then the Conversion Price shall be reduced to a price
determined by multiplying the then effective Conversion Price by a
fraction, the numerator of which is the number of shares of Common
Stock issued and outstanding immediately prior to the Market Dilutive
Issuance plus the number of shares of Common Stock which the aggregate
offering price for such Market Dilutive Issuance would purchase at the
then Market Base Conversion Price, and the denominator of which shall
be the sum of the number of shares of Common Stock issued and
outstanding immediately prior to the Market Dilutive Issuance plus the
number of shares of Common Stock so issued or issuable in connection
with the Market Dilutive Issuance
iii. Such adjustments under this Section 5(b) shall be made
whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no adjustment will be made under this
Section 5(b) in respect of an Exempt Issuance. The Company shall notify
the Holder in writing, no later than the Business Day following the
issuance of any Common Stock or Common Stock Equivalents subject to
this section, indicating therein the applicable issuance price, or of
applicable reset price, exchange price, conversion price and other
pricing terms (such notice the "Dilutive Issuance Notice"). For
purposes of clarification, whether or not the Company provides a
Dilutive Issuance Notice pursuant to this Section 5(b), immediately
after the occurrence of any Dilutive Issuance or Market Dilutive
Issuance, after the date of such Dilutive Issuance or Market Dilutive
Issuance the Holder is entitled to receive a number of Conversion
15
Shares based upon the Base Conversion Price or the price determined
pursuant to 5(b)(ii), as applicable, regardless of whether the Holder
accurately refers to the Base Conversion Price or the price determined
pursuant to 5(b)(ii) in the Notice of Conversion.
iv. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 5(b) for an Exempt Issuance (defined in the
Purchase Agreement.
c) Pro Rata Distributions. If the Company, at any time while
this Debenture is outstanding, shall distribute to all holders of
Common Stock (and not to the holders of the Debenture) evidences of its
indebtedness or assets (including cash and cash dividends) or rights or
warrants to subscribe for or purchase any security, then in each such
case the Conversion Price shall be adjusted by multiplying such
Conversion Price in effect immediately prior to the record date fixed
for determination of stockholders entitled to receive such distribution
by a fraction of which the denominator shall be the VWAP determined as
of the record date mentioned above, and of which the numerator shall be
such VWAP on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of the Common Stock
as determined by the Board of Directors in good faith. In either case
the adjustments shall be described in a statement provided to the
Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date mentioned above.
d) Fundamental Transaction. If, at any time while this
Debenture is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B) the
Company effects any sale of all or substantially all of its assets in
one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (in any such case, a "Fundamental Transaction"), then upon any
subsequent conversion of this Debenture, the Holder shall have the
right to receive, for each Conversion Share that would have been
issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction, the same kind and amount of securities,
cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of one share of
Common Stock (the "Alternate Consideration"). For purposes of any such
conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based
on the amount of Alternate Consideration issuable in respect of one
share of Common Stock in such Fundamental Transaction, and the
16
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 (d)
and insuring that this Debenture (or any such replacement security)
will be similarly adjusted upon any subsequent transaction analogous to
a Fundamental Transaction.
e) Calculations. All calculations under this Section 5 shall
be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 5, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
f) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion
Price is adjusted pursuant to any of this Section 5, the Company shall
promptly mail to each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment. If the Company issues a variable rate
security, despite the prohibition thereon in the Purchase Agreement,
the Company shall be deemed to have issued Common Stock or Common Stock
Equivalents at the lowest possible conversion or exercise price at
which such securities may be converted or exercised in the case of a
Variable Rate Transaction (as defined in the Purchase Agreement).
ii. Notice to Allow Conversion by 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;
17
then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture,
and shall cause to be mailed to the Holder at its last addresses as it
shall appear upon the stock books of the Company, at least 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 period commencing the date of such notice to the effective date
of the event triggering such notice.
SECTION 6. REDEMPTION AND FORCED CONVERSION.
a) Redemption at Election of Holder. If the Company shall
agree to sell substantially all of its assets in one or more
transactions in which the consideration consists solely of cash, cash
equivalents, assumption of indebtedness, or any combination thereof,
the Holder shall have the right to require the Company, by written
notice to the Company, to redeem this Debentures, in full and in cash,
at the closing of such Change of Control Transaction, Fundamental
Transaction or sale of assets. The aggregate amount payable upon such
Change of Control Transaction, Fundamental Transaction or sale of
assets shall be equal to the Cash Sale Redemption Amount. In the event
that the Company fails to pay the Cash Sale Redemption Amount on or
prior to the applicable closing date, the interest rate on this
Debenture shall accrue at the rate of 18% per annum, or such lower
maximum amount of interest permitted to be charged under applicable
law, until the Cash Sale Redemption Amount is paid in full.
Concurrently with the payment in full of the Cash Sale Redemption
Amount, the Holder shall surrender this Debenture to or as directed by
the Company (or the successor company). The Holder may elect to convert
the outstanding principal amount of the Debenture pursuant to Section 4
prior to actual payment in cash for the redemption under this Section 6
by fax delivery of a Notice of Conversion to the Company.
b). Forced Conversion. Notwithstanding anything herein to the
contrary, if after the Effective Date, each of the VWAPs for any 20
consecutive Trading Days (such period commencing only after the
Effective Date, such period the "Threshold Period") exceeds 400% of the
then effective Conversion Price, the Company may, within 1 Trading Day
of the end of any such period, deliver a notice to the Holder (a
"Forced
18
Conversion Notice" and the date such notice is received by the Holder,
the "Forced Conversion Notice Date") to cause the Holder to convert, at
the Company's sole discretion, all or part of the then outstanding
principal amount of Debentures pursuant to Section 4, it being
understood that the "Conversion Date" for purposes of Section 4 shall
be deemed to occur on the thirtieth Trading Day following the Forced
Conversion Notice Date (such thirtieth Trading Day being referred to as
the "Forced Conversion Date"). The Company may not deliver a Forced
Conversion Notice, and any Forced Conversion Notice delivered by the
Corporation shall not be effective, unless all of the Equity Conditions
are met on each Trading Day occurring during the 10 Trading Days
immediately prior to the applicable Threshold Period, during the
applicable Threshold Period and from the end of the Threshold Period
through and including the later of the Forced Conversion Date and the
date such Conversion Shares pursuant to such conversion are delivered
to the Holder. Any Forced Conversion shall be applied ratably to all
Holders based on their initial purchases of Debentures pursuant to the
Purchase Agreement. For purposes of clarification, a Forced Conversion
shall be subject to all of the provisions of Section 4, including,
without limitation, the provision requiring payment of liquidated
damages and limitations on conversions.
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 without the prior written consent of the holders of at
least 60% of the principal amount of Debentures and Prior Debentures then
outstanding:
a) other than Permitted Indebtedness, enter into, create,
incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee,
on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits
therefrom;
b) other than Permitted Liens, enter into, create, incur,
assume or suffer to exist any liens of any kind, on or with respect to
any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom;
c) amend its certificate of incorporation, bylaws or other
charter documents so as to materially and adversely affect any rights
of the Holder;
d) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a de minimis number of shares of Common
Stock or Common Stock Equivalents other than (i) as to the Conversion
Shares to the extent permitted or required under the Transaction
Documents, (ii) as otherwise permitted by the Transaction Documents or
(iii) shares of Common Stock held by former employees of the Company
which the Company is entitled to repurchased from such employees
pursuant to the contractual rights relating to their termination of
employment but not to exceed $50,000 in any 12 month period;
e) enter into any agreement with respect to any of the
foregoing;
19
f) pay cash dividends or distributions on any equity
securities of the Company; or
g) enter into any Fundamental Transaction or Change of Control
Transaction without the consent of the Holders of 60% of the
outstanding principal amount of the Debentures, Except with respect to
a sale of assets of the Company pursuant to which the Company is
required to (i) redeem all outstanding Debentures under Section 6(a)
hereof and (ii) redeem all the Warrants pursuant to Section 1(f)
therof.
SECTION 8. EVENTS OF DEFAULT.
a) "Event of Default", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of
any Debenture, or (B) interest (including Late Fees) on, or liquidated
damages in respect of, any Debenture, as and when the same shall become
due and payable (whether on a Conversion Date or the Maturity Date or
by acceleration or otherwise) which default is not cured within 3
Trading Days after written notice from the Holder;
ii. the Company shall materially fail to observe or perform
any other covenant or agreement contained in this Debenture or any
other Debenture (other than a breach by the Company of its obligations
to deliver shares of Common Stock to the Holder upon conversion which
breach is addressed in clause (xi) below) which failure is not cured,
if possible to cure, within the earlier to occur of (A) 10 Trading Days
after 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;
iii. a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents, or
(B) any other material agreement, lease, document or instrument to
which the Company or any Subsidiary is bound;
iv. any representation or warranty made herein, in any other
Transaction Documents, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate
made or delivered to the Holder shall be untrue or incorrect in any
material respect as of the date when made or deemed made;
20
v. (i) the Company or any of its Subsidiaries shall commence a
case, as debtor, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the
Company or any Subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company
or any Subsidiary thereof or (ii) there is commenced a case against the
Company or any Subsidiary thereof, in a court of competent
jurisdiction, under any applicable bankruptcy or insolvency laws, as
now or hereafter in effect or any successor thereto which remains
undismissed for a period of 60 days; or (iii) the Company or any
Subsidiary thereof is adjudicated by a court of competent jurisdiction
insolvent or bankrupt; or any order of relief or other order approving
any such case or proceeding is entered; or (iv) the Company or any
Subsidiary thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or (v) the Company or
any Subsidiary thereof makes a general assignment for the benefit of
creditors; or (vi) the Company shall fail to pay, or shall state in
writing that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or (vii) the Company or any Subsidiary
thereof shall call a meeting of its creditors with a view to arranging
a composition, adjustment or restructuring of its debts; or (viii) the
Company or any Subsidiary thereof shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence in any
of the foregoing; or (ix) any corporate or other action is taken by the
Company or any Subsidiary thereof for the purpose of effecting any of
the foregoing;
vi. the Company or any Subsidiary shall default in any of its
obligations (other than under any of the Transaction Documents) 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 $150,000,
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, and all applicable cure periods with respect
thereto shall have expired;
vii. the Common Stock shall not be eligible for quotation on
or quoted for trading on a Trading Market for at least five consecutive
Trading Days (other than as a result of events that affect the Trading
Market in general);
viii. the Company 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
21
shares of Common Stock or other equity securities of departing officers
and directors of the Company, provided that such repurchases shall not
exceed $200,000, in the aggregate, for all officers, directors and
employees during any 12 month period);
ix. the Company shall fail for any reason to deliver
certificates to or as directed by a Holder by the seventh Trading Day
after a Conversion Date or any Forced Conversion Date pursuant to and
in accordance with Section 4(d) or the Company shall provide notice to
the Holder, including by way of public announcement, at any time, of
its intention not to comply with requests for conversions of any
Debentures in accordance with the terms hereof; or
x. any monetary judgment, writ or similar final process shall
be entered or filed against the Company, any Subsidiary or any of their
respective property or other assets for than $100,000, and shall remain
unvacated, unbonded or unstayed for a period of 45 calendar days. i.
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 Default Amount. Commencing 5
days after the occurrence of any Event of Default that results in the
eventual acceleration of this Debenture, the interest rate on this
Debenture shall accrue at the rate of 18% per annum, or such lower
maximum amount of interest permitted to be charged under applicable
law. Concurrently with the payment in full of the Mandatory Default
Amount the Holder shall surrender this Debenture 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 election may be
rescinded and annulled by Xxxxxx at any time prior to payment hereunder
and the Holder shall have all rights as a Debenture holder until such
time, if any, as the full payment under this Section shall have been
received by it. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
SECTION 9. MISCELLANEOUS.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight
courier service, addressed to the Company, at the address set forth
above, facsimile number (000) 000-0000, ATTN: XXXX XXXXXXXX or such
other address or facsimile number as the Company may specify for such
purposes by notice to the Holder delivered in accordance with this
Section. Any and all notices or other
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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 Holder
appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business
of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified in this
Section prior to 5:30 p.m. (New York City time), (ii) the date after
the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified in this
Section later than 5:30 p.m. (New York City time) on any date and
earlier than 11:59 p.m. (New York City time) on such date, (iii) the
second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein,
no provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal
of, interest and liquidated damages (if any) on, this Debenture at the
time, place, and rate, and in the coin or currency, herein prescribed.
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.
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Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding
by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Debenture and agrees that such
service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted
by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Debenture, then
the prevailing party in such action or proceeding shall be reimbursed
by the other party for its attorneys fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such
action or proceeding.
e) Waiver. Any waiver by the Company or the Holder of a breach
of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach
of any other provision of this Debenture. The failure of the Company or
the Holder to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver or
deprive that 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.
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h) Headings. The headings contained herein are for convenience
only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
i) Assumption. Any successor to the Company or surviving
entity in a Fundamental Transaction shall (i) assume in writing all of
the obligations of the Company under this Debenture and the other
Transaction Documents pursuant to written agreements in form and
substance satisfactory to the Holder (such approval not to be
unreasonably withheld or delayed) prior to such Fundamental Transaction
and (ii) to issue to the Holder a new debenture of such successor
entity evidenced by a written instrument substantially similar in form
and substance to this Debenture, including, without limitation, having
a principal amount and interest rate equal to the principal amounts and
the interest rates of the Debentures held by the Holder and having
similar ranking to this Debenture, and satisfactory to the Holder (any
such approval not to be unreasonably withheld or delayed). The
provisions of this Section 9(i) shall apply similarly and equally to
successive Fundamental Transactions and shall be applied without regard
to any limitations of this Debenture.
*********************
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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.
XXXXXX.XXX, INC.
By: __________________________
Name: Xxxx Xxxxxxxx
Title: Chief Executive Officer
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 6% Secured
Convertible Debenture of XXXXxx.Xxx, Inc., a Delaware corporation (the
"Company"), due on December 28 , 2008 into shares of common stock, par value
$.0001 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the Exchange
Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on
Account of Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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SCHEDULE 1
CONVERSION SCHEDULE
The 6% Secured Convertible Debentures due on December 28, 2008 in the aggregate
principal amount of $________ issued by XXXXxx.xxx, Inc. This Conversion
Schedule reflects conversions made under Section 4 of the above referenced
Debenture.
Dated:
Aggregate Principal
Amount Remaining
Subsequent to
Date of Conversion Conversion
(or for first entry, Amount of (or original
Original Issue Date) Conversion Principal Amount) Company Attest
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