EXHIBIT 10.3
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: _________ __, 2006
Original Conversion Price (subject to adjustment herein): $0.12
$---------------
____(1)% SECURED CONVERTIBLE DEBENTURE
DUE _________ ____, 2008
THIS SECURED CONVERTIBLE DEBENTURE is one of a series of duly
authorized and validly issued Secured Convertible Debentures of Armor Electric
Inc., a Florida corporation, having its principal place of business at
_____________________________ (the "COMPANY"), designated as its ___% Secured
Convertible Debenture, due _________ ___, 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, if paid on or before
_________ ___, 2007 $_______________(2) and if paid after _________ ___, 2007,
$_______(3) (any reference in the transactions documents to principal amount
shall automatically adjust upward after _________ __, 2007), or such earlier
date as this Debenture is required or permitted to be repaid as provided
hereunder (the "MATURITY DATE"), and to pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the
following additional provisions:
_________________________
(1) Prime plus 3% as of the date of the Purchase Agreement
(2) 100% of the Subscription Amount
(3) The Principal Amount
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SECTION 1. DEFINITIONS. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise
defined herein shall have the meanings set forth 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(e).
"BANKRUPTCY EVENT" means any of the following events: (a) the
Company or any Significant Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X) thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any
Significant Subsidiary thereof is adjudicated insolvent or bankrupt or
any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Significant Subsidiary
thereof suffers any appointment of any custodian or the like for it or
any substantial part of its property that is not discharged or stayed
within 60 calendar days after such appointment; (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the
benefit of creditors; (f) the Company or any Significant Subsidiary
thereof calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (g) the
Company or any Significant Subsidiary thereof, by any act or failure to
act, expressly indicates its consent to, approval of or acquiescence in
any of the foregoing or takes any corporate or other action for the
purpose of effecting any of the foregoing.
"BASE CONVERSION PRICE" shall have the meaning set forth in
Section 5(b).
"BUSINESS DAY" means any day except Saturday, Sunday, any day
which shall be a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized
or required by law or other governmental 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 (other than by means of conversion or exercise of the
Debentures and the Securities issued together with the Debentures), or
(ii) the Company merges into or consolidates with any other Person, or
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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 66% of the
aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers all or
substantially all of its assets to another Person and the stockholders
of the Company immediately prior to such transaction own less than 66%
of the aggregate voting power of the acquiring entity immediately after
the transaction, or (iv) a replacement at one time or within a three
year period of more than one-half of the members of the Company's board
of directors which is not approved by a majority of those individuals
who are members of the board of directors on the date hereof (or by
those individuals who are serving as members of the board of directors
on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on
the date hereof), or (v) the execution by the Company of an agreement
to which the Company is a party or by which it is bound, providing for
any of the events set forth in clauses (i) through (iv) above.
"COMMON STOCK" means the common stock, par value $.001 per
share, of the Company and stock of any other class of securities into
which such securities may hereafter be 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, collectively, the shares of Common
Stock issuable upon conversion of this Debenture in accordance with the
terms hereof.
"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 set forth 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 Notices of
Conversion of the Holder, if any, (ii) the Company shall have paid all
liquidated damages and other amounts owing to the Holder in respect of
this Debenture, (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
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such effectiveness will continue uninterrupted for the foreseeable
future), (iv) the Common Stock is trading on a Trading Market and all
of the shares issuable pursuant to the Transaction Documents are listed
for trading on such 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 no existing Event
of Default or no existing 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 herein, (viii) there has been no
public announcement of a pending or proposed Fundamental Transaction or
Change of Control Transaction that has not been consummated, (ix) the
Holder is not in possession of any information that constitutes, or may
constitute, material non-public information and (x) 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 principal Trading
Market exceeds _________ shares per Trading Day (subject to adjustment
for forward and reverse stock splits and the like).
"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.
"FORCED CONVERSION DATE" shall have the meaning set forth in
Section 6.
"FORCED CONVERSION NOTICE" shall have the meaning set forth in
Section 6.
"FORCED CONVERSION NOTICE DATE" shall have the meaning set
forth in Section 6.
"FUNDAMENTAL TRANSACTION" shall have the meaning set forth in
Section 5(e).
"LATE FEES" shall have the meaning set forth in Section 2(d).
"MANDATORY DEFAULT AMOUNT" means the sum of (i) the greater of
(A) 130% of the outstanding principal amount of this Debenture, plus
all accrued and unpaid interest hereon, or (B) the outstanding
principal amount of this Debenture, plus all accrued and unpaid
interest hereon, divided by the Conversion Price on the date the
Mandatory Default Amount is either (a) demanded (if demand or notice is
required to create an Event of Default) or otherwise due or (b) paid in
full, whichever has a lower Conversion Price, multiplied by the VWAP on
the date the Mandatory Default Amount is either (x) demanded or
otherwise due or (y) paid in full, whichever has a higher VWAP, and
(ii) all other amounts, costs, expenses and liquidated damages due in
respect of this Debenture.
"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).
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"ORIGINAL ISSUE DATE" means the date of the first issuance of
the Debentures, regardless of any transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debentures.
"PERMITTED INDEBTEDNESS" means: (1) the Indebtedness existing
on the Original Issue Date and set forth on SCHEDULE 3.1(GG) attached
to the Purchase Agreement, and (2) additional Indebtedness incurred by
the Company that does not mature or require payments of principal prior
to the 2 year anniversary of the Original Issue Date and is made
expressly subordinate in right of payment to the Indebtedness evidenced
by this Debenture, as reflected in a written agreement acceptable to
the Holder and approved by the Holder in writing.
"PERMITTED LIEN" means 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 and (b) Liens imposed by law which
were incurred in the ordinary course of the Company's business, such as
carriers', warehousemen's and mechanics' Liens, statutory landlords'
Liens, and other similar Liens arising in the ordinary course of the
Company's business, and which (x) 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) are being
contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing for the foreseeable future the forfeiture
or sale of the property or asset subject to such Lien.
"PERSON" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement
among the Company and the original Holders, dated as of April __, 2006
as amended, modified or supplemented from time to time in accordance
with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement among the Company and the original Holders, dated as of the
date of the Purchase Agreement, as amended, modified or supplemented
from time to time in accordance with its terms.
"REGISTRATION STATEMENT" means a registration statement that
registers the resale of all Conversion Shares of the Holder, who shall
be named as a "selling stockholder" therein, and meets the requirements
of the Registration Rights Agreement.
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"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SHARE DELIVERY DATE" shall have the meaning set forth in
Section 4(d).
"SUBSIDIARY" shall have the meaning set forth in the Purchase
Agreement.
"TRADING DAY" means a day on which the principal Trading
Market is open for business.
"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 American Stock Exchange, the Nasdaq Capital Market, the
Nasdaq National Market, the New York Stock Exchange 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 for trading as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time); (b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board; (c) if the Common
Stock is not then quoted for trading on the OTC Bulletin Board and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by 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 (d) in all other
cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and
reasonably acceptable to the Company.
SECTION 2. INTEREST.
--------- --------
a) PAYMENT OF INTEREST IN CASH. The Company shall pay interest
to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture at the rate of ___(4) % per annum,
payable annually, 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.
_________________________
(4) Prime plus 3% as of the date of the Purchase Agreement.
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b) 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, liquidated damages and
other amounts which may become due hereunder, has been made. 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").
c) LATE FEE. All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at an interest rate equal to the
lesser of 18% per annum or the maximum rate permitted by applicable law
("LATE FEES") which shall accrue daily from the date such interest is
due hereunder through and including the date of payment in full.
d) 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 payable 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
for transfer to the Company 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, in whole or in part, into shares of Common Stock
at the option of the Holder, at any time and from time to time (subject
to the conversion limitations set forth in Section 4(c) hereof). The
Holder shall effect conversions by delivering to the Company a Notice
of Conversion, the form of which is 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
shall 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 deemed delivered hereunder. To
effect conversions hereunder, the Holder shall not be required to
physically surrender this Debenture to the Company unless the entire
principal amount of this Debenture plus all accrued and unpaid interest
7
thereon has been paid. 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(s) converted and
the date of such conversion(s). The Company may deliver an objection to
any Notice of Conversion within 1 Business Day of delivery of such
Notice of Conversion. 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 $0.12 (subject to adjustment herein)
(the "CONVERSION PRICE").
c) HOLDER'S RESTRICTION ON CONVERSION. 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 the conversion set forth on the applicable
Notice of 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) 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 such determination is being
made, but shall exclude the number of shares of Common Stock which are
issuable upon (A) conversion of the remaining, unconverted principal
amount of this Debenture beneficially owned by such Holder or any of
its Affiliates and (B) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company subject to a
8
limitation on conversion or exercise analogous to the limitation
contained herein (including, without limitation, any other Debentures
or the Warrants) 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)(i), 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)(i) 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 principal amount
of this Debenture is 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
together with any Affiliates) and which principal amount of this
Debenture is 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)(i), in determining the
number of outstanding shares of Common Stock, a Holder may rely on the
number of outstanding shares of Common Stock as stated 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) a more recent 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 a Holder, the
Company shall within two Trading Days confirm orally and 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 "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)(i) 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)(i) 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 further
waived by such Holder. The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 4(c)(i) 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. i.
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ii. DELIVERY OF CERTIFICATE UPON CONVERSION. Not later
than three Trading Days after each Conversion Date (the
"SHARE DELIVERY DATE"), the Company shall deliver, or
cause to be delivered, to the Holder (A) a certificate
or certificates representing the Conversion Shares
which, on or after the Effective Date, shall be free of
restrictive legends and trading restrictions (other
than those which may then be required by the Purchase
Agreement) representing the number of shares of Common
Stock being acquired upon the conversion of this
Debenture and (B) a bank check in the amount of accrued
and unpaid interest. On or after the Effective Date,
the Company shall use its best efforts to deliver any
certificate or certificates required to be delivered by
the Company under this Section 4 electronically through
the Depository Trust Company 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 the
Conversion Date, the Holder shall be entitled to elect
by written notice to the Company at any time on or
before its receipt of such certificate or certificates,
to rescind such Conversion, in which event the Company
shall promptly return to the Holder any original
Debenture delivered to the Company and the Holder shall
promptly return the Common Stock certificates
representing the principal amount of this Debenture
tendered for conversion to the Company.
iv. OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES.
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, that 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 anyone 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 to Holder, 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 outstanding principal amount
of this Debenture, which is subject to the injunction,
which bond shall remain in effect until the completion
of arbitration/litigation of the underlying dispute and
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the proceeds of which shall be payable to such Holder
to the extent it obtains judgment. In the absence of
such injunction, the Company shall issue Conversion
Shares or, if applicable, cash, upon a properly noticed
conversion. 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 penalty, for each $1000 of principal amount being
converted, $10 per Trading Day (increasing to $20 per
Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading
Day after such third Trading Day until such
certificates are delivered. Nothing herein shall limit
a Xxxxxx's right to pursue actual damages or declare an
Event of Default pursuant to Section 8 hereof 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
hereunder, 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 by the Share Delivery Date
pursuant to Section 4(d)(ii), and if after such Share
Delivery Date the Holder is required by its brokerage
firm to purchase (in an open market transaction or
otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Conversion
Shares which the Holder was entitled to receive upon
the conversion relating to such Share Delivery Date (a
"BUY-IN"), then the Company shall (A) pay in
cash to the Holder (in addition to any other remedies
available to or elected by the Holder) the amount by
which (x) the Holder's total purchase price (including
any brokerage commissions) for the Common Stock so
purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder was
entitled to receive from the conversion at issue
multiplied by (2) the actual sale price at which the
sell order giving rise to such purchase obligation was
executed (including any brokerage commissions) 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 if the Company had
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 (including
any brokerage commissions) giving rise to such purchase
11
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
and, upon request of the Company, evidence of the
amount of such loss. Nothing herein shall limit a
Xxxxxx's right to pursue any other remedies available
to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure
to timely deliver certificates representing shares of
Common Stock upon conversion of this Debenture as
required pursuant to the terms hereof.
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 for the sole 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 aggregate 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. The Company
covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly authorized,
validly issued, fully paid and nonassessable and, if
the Registration Statement is then effective under the
Securities Act, shall be registered for public sale in
accordance with such Registration Statement.
vii. FRACTIONAL SHARES. Upon a conversion hereunder the
Company shall not be required to issue stock
certificates representing fractions of shares of 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, 1 whole share of Common
Stock.
viii. TRANSFER TAXES. The issuance of certificates for
shares of the Common Stock on conversion of this
Debenture shall be made without charge to the Holder
hereof for any documentary stamp or similar taxes that
may be payable in respect of the issue or delivery of
such certificates, 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.
12
SECTION 5. CERTAIN ADJUSTMENTS.
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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 payable in shares of
Common Stock on shares of Common Stock or any Common Stock Equivalents
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon conversion of this Debenture); (B)
subdivides outstanding shares of Common Stock into a larger number of
shares; (C) combines (including by way of a reverse stock split)
outstanding shares of Common Stock into a smaller number of shares; or
(D) issues, in the event of a 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 any treasury shares of
the Company) outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
b) SUBSEQUENT EQUITY SALES. If the Company or any Subsidiary
thereof, as applicable, at any time while this Debenture is
outstanding, sells or grants any option to purchase or sells or grants
any right to reprice its securities, or otherwise disposes of or issues
(or announces any 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 that is lower than the then Conversion Price (such lower price,
the "BASE CONVERSION PRICE" and such issuances collectively, a
"DILUTIVE ISSUANCE") (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 are issued in connection with such issuance,
be entitled to receive shares of Common Stock at an effective price per
share that is lower than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price on such date
of the Dilutive Issuance), then the Conversion Price shall be reduced
to equal the Base Conversion Price. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no adjustment will be made under this
Section 5(b) in respect of an Exempt Issuance. The Company shall notify
the Holder in writing, no later than the Business Day following the
issuance of any Common Stock or Common Stock Equivalents subject to
this Section 5(b), indicating therein the applicable issuance price, or
applicable reset price, exchange price, conversion price and other
pricing terms (such notice, the "DILUTIVE ISSUANCE NOTICE"). For
purposes of clarification, whether or not the Company provides a
Dilutive Issuance Notice pursuant to this Section 5(b), upon the
occurrence of any Dilutive Issuance, the Holder is entitled to receive
a number of Conversion Shares based upon the Base Conversion Price on
or after the date of such Dilutive Issuance, regardless of whether the
Holder accurately refers to the Base Conversion Price in the Notice of
Conversion.
13
c) SUBSEQUENT RIGHTS OFFERINGS. If the Company, at any time
while the Debenture is outstanding, shall issue rights, options or
warrants to all holders of Common Stock (and not to Holders) entitling
them to subscribe for or purchase shares of Common Stock at a price per
share that is lower than the VWAP on the record date referenced below,
then the Conversion Price shall be multiplied by a fraction of which
the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of
the Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered (assuming delivery to the
Company in full of all consideration payable upon exercise of such
rights, options or warrants) would purchase at such VWAP. Such
adjustment shall be made whenever such rights or warrants are issued,
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options
or warrants.
d) PRO RATA DISTRIBUTIONS. If the Company, at any time while
this Debenture is outstanding, distributes to all holders of Common
Stock (and not to the Holders) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe
for or purchase any security (other than the Common Stock, which shall
be subject to Section 5(b)), 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 1 outstanding share of the Common Stock as determined by
the Board of Directors of the Company in good faith. In either case the
adjustments shall be described in a statement delivered to the Holder
describing the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to 1 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.
e) 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 transaction 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,
14
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 1 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 1 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 Section 5(e) and insuring that this Debenture
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.
f) 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 any
treasury shares of the Company) issued and outstanding.
g) NOTICE TO THE HOLDER.
i. ADJUSTMENT TO CONVERSION PRICE. Whenever the
Conversion Price is adjusted pursuant to any provision
of this Section 5, the Company shall promptly mail to
each Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If
the Company issues a variable rate security, despite
the prohibition thereon in the Purchase Agreement, the
Company shall be deemed to have issued Common Stock or
Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities
may be converted or exercised in the case of a Variable
Rate Transaction (as defined in the Purchase
Agreement).
ii. NOTICE TO ALLOW CONVERSION BY HOLDER. If (A) the
Company shall declare a dividend (or any other
distribution in whatever form) 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 of 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
15
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 or
(E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the
Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of this
Debenture, and shall cause to be delivered to the
Holder at its last address as it shall appear upon the
Debenture Register, 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 deliver such notice or any defect
therein or in the delivery 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 on the date of such notice through the
effective date of the event triggering such notice.
h) ADJUSTMENT UPON EFFECTIVE DATE. In the event that
the average of the VWAPs for the 10 Trading Days
immediately prior to the Effective Date (the "TRIGGER
PRICE") is less than the then effective Conversion
Price, the Conversion Price shall be reduced to equal
the Trigger Price commencing on the Trading Day
immediately following the Effective Date.
Notwithstanding the foregoing, in no event shall the
Conversion Price be reduced pursuant to this Section
5(h) to a price less than $0.04 (subject to adjustment
for forward and reverse stock splits, stock dividends,
recapitalizations and the like).
SECTION 6. FORCED CONVERSION. Notwithstanding anything herein to the
contrary, if after the Effective Date, the VWAPs for each of any 20 consecutive
Trading Days, which period shall have commenced only after the Effective Date,
such period the "THRESHOLD PERIOD")) exceeds $0.50 (subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the Original Issue
Date), the Company may, within 1 Trading Day after the end of any such Threshold
Period, deliver a written notice to the Holder (a "FORCED CONVERSION NOTICE" and
the date such notice is delivered to the Holder, the "FORCED CONVERSION NOTICE
DATE") to cause the Holder to convert all or part of up to 25% of the then
outstanding principal amount of Debentures plus, if so specified in the Forced
Conversion Notice, accrued but unpaid interest, liquidated damages and other
16
amounts owing to the Holder pursuant to Section 4, it being agreed that the
"Conversion Date" for purposes of Section 4 shall be deemed to occur on the
third Trading Day following the Forced Conversion Notice Date (such third
Trading Day, the "FORCED CONVERSION DATE"). If during a Threshold Period the
VWAPs for each of any 20 consecutive Trading Days exceeds $1.00 (subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the Original Issue Date), the Company may, on the Forced Conversion Notice Date
applicable to such a Threshold Period, deliver a Forced Conversion Notice to
cause the Holder to convert all or part of up to 50% of the then outstanding
principal amount of Debentures plus, if so specified in the Forced Conversion
Notice, accrued but unpaid interest, liquidated damages and other amounts owing
to the Holder pursuant to Section 4 on the applicable the Forced Conversion
Date. Notwithstanding anything herein to the contrary, the maximum amount of
this Debenture that may be subject to this Section 6 shall not exceed, in the
aggregate among all such Forced Conversion Notices, $____________(5). The
Company may not deliver a Forced Conversion Notice, and any Forced Conversion
Notice delivered by the Company shall not be effective, unless all of the Equity
Conditions are met on each Trading Day occurring during the applicable Threshold
Period through and including the later of the Forced Conversion Date and the
Trading Day after 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, provided that any voluntary conversions by a Holder shall be
applied against such Holder's pro-rata allocation, thereby decreasing the
aggregate amount forcibly converted hereunder if only a portion of this
Debenture is forcibly converted. 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. As long as any portion of this Debenture
remains outstanding, the Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly:
a) other than Permitted Indebtedness, enter into, create,
incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee,
on or with respect to any of 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 charter documents, including without limitation,
the certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;
_________________________
(5) 50% of the original principal amount of this Debenture.
17
d) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a DE MINIMIS number of shares of its Common
Stock or Common Stock Equivalents other than as to (a) the Conversion
Shares or Warrant Shares as permitted or required under the Transaction
Documents and (b) repurchases of Common Stock or Common Stock
Equivalents of departing officers and directors of the Company,
provided that such repurchases shall not exceed an aggregate of
$100,000 for all officers and directors during the term of this
Debenture);
e) enter into any agreement with respect to any of the
foregoing; or
f) pay cash dividends or distributions on any equity
securities of the Company.
SECTION 8. EVENTS OF DEFAULT.
--------- -----------------
a) "EVENT OF DEFAULT" means, wherever used herein, any of the
following events (whatever the reason for such event and whether such
event 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, liquidated
damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and
payable (whether on a Conversion Date or the Maturity
Date or by acceleration or otherwise) which default,
solely in the case of an interest payment or other
default under clause (B) above, is not cured within 3
Trading Days;
ii. the Company shall fail to observe or perform any
other covenant or agreement contained in the Debentures
(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) 5 Trading Days after
notice of such failure sent by the Holder or by any
other Holder and (B) 10 Trading Days after the Company
has become or should have become aware of such failure;
iii. a default or event of default (subject to any
grace or cure period provided 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 obligated (and
not covered by clause (vi) below);
18
iv. any representation or warranty made in this
Debenture, any other Transaction Documents, any written
statement pursuant hereto or thereto or any other
report, financial statement or certificate made or
delivered to the Holder or any other Holder shall be
untrue or incorrect in any material respect as of the
date when made or deemed made;
v. the Company or any Significant Subsidiary shall be
subject to a Bankruptcy Event;
vi. the Company or any Subsidiary shall default on any
of its obligations under any mortgage, credit agreement
or other facility, indenture agreement, factoring
agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced,
any indebtedness for borrowed money or money due under
any long term leasing or factoring arrangement that (a)
involves an obligation greater than $150,000, whether
such indebtedness now exists or shall hereafter be
created, and (b) results 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 listing
or quotation for trading on a Trading Market and shall
not be eligible to resume listing or quotation for
trading thereon within five Trading Days;
viii. the Company shall be a party to any Change of
Control Transaction or Fundamental Transaction or shall
agree to sell or dispose of all or in excess of 33% of
its assets in one transaction or a series of related
transactions (whether or not such sale would constitute
a Change of Control Transaction);
ix. a Registration Statement shall not have been
declared effective by the Commission on or prior to the
210th calendar day after the Closing Date;
x. if, during the Effectiveness Period (as defined in
the Registration Rights Agreement), either (a) the
effectiveness of the Registration Statement lapses for
any reason or (b) the Holder shall not be permitted to
resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Registration
Statement for a period of more than 20 consecutive
Trading Days or 30 non-consecutive Trading Days during
any 12 month period; PROVIDED, HOWEVER, that if 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 pending transaction(s) or
the parties thereto which information is not available
or may not be publicly disclosed at the time, the
Company shall be permitted an additional 10 consecutive
Trading Days during any 12 month period pursuant to
this Section 8(a)(x);
19
xi. the Company shall fail for any reason to deliver
certificates to a Holder prior to the fifth Trading Day
after a Conversion Date pursuant to Section 4(d) or the
Company shall provide at any time notice to the Holder,
including by way of public announcement, of the
Company's intention to not honor requests for
conversions of any Debentures in accordance with the
terms hereof; or
xii. 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 more than $50,000, and such judgment,
writ or similar final process shall remain unvacated,
unbonded or unstayed for a period of 45 calendar days.
b) REMEDIES UPON EVENT OF DEFAULT. If any Event of Default
occurs, the outstanding principal amount of this Debenture, plus
accrued but unpaid interest, liquidated damages and other amounts owing
in respect thereof through the date of acceleration, shall become, at
the Holder's election, immediately due and payable in cash at 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 an
interest rate equal to the lesser of 18% per annum or the maximum rate
permitted under applicable law. Upon the payment in full of the
Mandatory Default Amount, the Holder shall promptly surrender this
Debenture to or as directed by the Company. In connection with such
acceleration described herein, 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 acceleration may be rescinded and annulled by Xxxxxx at any time
prior to payment hereunder and the Holder shall have all rights as a
holder of the Debenture until such time, if any, as the Holder receives
full payment pursuant to this Section 8(b). 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, or sent by a nationally recognized overnight
courier service, addressed to the Company, at the address set forth
above, facsimile number ______________, ATTN:
______________________________________or such other facsimile number or
address as the Company may specify for such purpose by notice to the
Holder delivered in accordance with this Section 9. 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,
or sent by a nationally recognized overnight courier service addressed
to each Holder at the facsimile number or address of such Xxxxxx
appearing on the books of the Company, or if no such facsimile 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
20
transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section 9 prior to
5:30 p.m. (New York City time), (ii) the date immediately following the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section 9 between
5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on
any 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, liquidated damages and accrued interest, as applicable, 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, 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
conflict of laws thereof. Each party agrees that all legal proceedings
concerning the interpretation, 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 such New York Courts, 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
21
to serve process in any other manner permitted by applicable 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 in 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
by the Company or the Holder 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 the applicable law
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum rate of interest
permitted under applicable law. The Company covenants (to the extent
that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives
all benefits or advantage of any such law, and covenants that it will
not, by resort to any such law, hinder, delay or impeded the execution
of any power herein granted to the Holder, but will suffer and permit
the execution of every such as though no such law has been enacted.
g) NEXT BUSINESS DAY. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
h) HEADINGS. The headings contained herein are for convenience
only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
i) ASSUMPTION. Any successor to the Company or any surviving
entity in a Fundamental Transaction shall (i) assume, prior to such
Fundamental Transaction, 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) and (ii) 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 amount and the interest rate of
this Debenture and having similar ranking to this Debenture, which
shall be 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.
ARMOR ELECTRIC INC.
By:__________________________________________
Name:
Title:
23
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the _ %
Secured Convertible Debenture of Armor Electric Inc., a Florida corporation (the
"COMPANY"), due on _________ ___, 2008, into shares of common stock, par value
$.001 per share (the "COMMON STOCK"), of the Company according to the conditions
hereof, as of the date written below. If shares are to be issued in the name of
a person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No fee
will be charged to the holder for any conversion, except for such transfer
taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the Exchange
Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on
Account of Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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SCHEDULE 1
CONVERSION SCHEDULE
The [____________ % Secured Convertible Debentures due on _________ ___, 2008 in
the aggregate principal amount of $____________ issued by Armor Electric 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, Original (or original
Issue Date) Amount of Conversion Principal Amount) Company Attest
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