THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND IS BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS
SECURITY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OR SUCH OTHER LAWS.
9 3/4 % CONVERTIBLE DEBENTURE
Due January 2, 2004 $200,000
Meltronix, Inc., a California corporation, with principal executive
offices located at 0000 Xxxxxxxxxx Xxxxx, Xxx Xxxxx, XX 00000
(the "Company"), for value received, hereby promises to pay to the
Holder (as such term is hereinafter defined), or such other Person
(as such term is hereinafter defined) upon order of the Holder, on
January 2, 2004 (the "Maturity Date"), the principal sum of Two Hundred
Thousand Dollars ($200,000), as such sum may be adjusted pursuant to
Article 3, and to pay interest thereon from the date hereof, monthly in
arrears, on the last day of each month (each an "Interest Payment Due
Date" and collectively, the "Interest Payment Due Dates"), commencing on
January 31, 2002, at the rate of nine and three-quarters percent
(9 3/4 %) per annum (the "Debenture Interest Rate"), until the Principal
Amount (as such term is hereinafter defined) of this Debenture has been
paid in full. The interest payable on any Interest Payment Due Date
shall be paid to the Person in whose name this Debenture is registered
at the close of business on the fifteenth (15th) day next preceding the
applicable Interest Payment Due Date and all interest payable on the
Principal Amount of this Debenture shall be calculated on the basis of
a 360-day year for the actual number of days elapsed. Payment of
interest on this Debenture shall be in cash.
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever
used in this Debenture have the following respective meanings:
(i) "Affiliate" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(ii) "Bankruptcy Code" means the United States Bankruptcy Code of
1986, as amended (11 U.S.C. 101 et. seq.).
(iii) "Business Day" means a day other than Saturday, Sunday or any
day on which banks located in the State of California are authorized
or obligated to close.
(iv) "Capital Shares" means the Common Stock and any other shares of
any other class or series of capital stock, whether now or hereafter
authorized and however designated, which have the right to participate
in the distribution of earnings and assets (upon dissolution,
liquidation or winding-up) of the Company.
(v) "Closing Date" means January 2, 2002.
(vi) "Common Shares" or "Common Stock" means shares of the Company's
Common Stock.
(vii) "Common Stock Issued at Conversion", when used with reference
to the securities deliverable upon conversion of this Debenture, means
all Common Shares now or hereafter Outstanding and securities of any
other class or series into which this Debenture hereafter shall have
been changed or substituted, whether now or hereafter created and
however designated.
(viii) "Company" means Meltronix, Inc., a California corporation, and
any successor or resulting corporation by way of merger, consolidation,
sale or exchange of all or substantially all of the Company's assets or
otherwise.
(ix) "Conversion" or "conversion" means the repayment by the Company of
the Principal Amount of this Debenture (and, to the extent the Holder
elects as permitted by Section 3.1, accrued and unpaid interest thereon)
by the delivery of Common Stock on the terms provided in Section 3.2,
and "convert," "converted," "convertible" and like words shall have a
corresponding meaning.
(x) "Conversion Date" means any day on which all or any portion of the
Principal Amount of this Debenture is converted in accordance with the
provisions hereof.
(xi) "Conversion Notice" means a written notice of conversion
substantially in the form annexed hereto as Exhibit A.
(xii) "Conversion Price" on any date of determination means the
applicable price for the conversion of this Debenture into Common
Shares on such day as set forth in Section 3.1(a).
(xiii) "Deadline" means the date which is the 90th day from the
Closing Date.
(xiv) "Debenture" or "Debentures" means this 93/4% Convertible
Debenture due January 2, 2004 of the Company or such other convertible
debenture(s) exchanged therefor as provided in Section 2.1.
(xv) "Default Interest Rate" shall be equal to the Debenture Interest
Rate plus an additional four percent (4%) per annum calculated on the
basis of a 360-day year.
(xvi) "Event of Default" has the meaning set forth in Section 6.1.
(xvii) "Holder" means La Jolla Cove Investors, Inc. and any successor
thereto, including without limitation any transferee under that certain
Put and Call Agreement of even date herewith between La Jolla Cove
Investors, Inc., Xxxxxx X. Xxxxxxxxxx, Xxxxxxx X. Xxxxx and Xxxxxxx X.
Xxxxxxxx.
(xviii) "Interest Payment Due Date" has the meaning set forth in the
opening paragraph of this Debenture.
(xix) "Market Disruption Event" means any event that results in a
material suspension or limitation of trading of the Common Shares.
(xx) "Maximum Rate" has the meaning set forth in Section 6.3.
(xxi) "Outstanding" when used with reference to Common Shares or
Capital Shares (collectively, "Shares") means, on any date of
determination, all issued and outstanding Shares, and includes all such
Shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in such Shares; provided, however,
that any such Shares directly or indirectly owned or held by or for the
account of the Company or any Subsidiary of the Company shall not be
deemed "Outstanding" for purposes hereof.
(xxii) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any
government or political subdivision or any agency or instrumentality
thereof.
(xxiii) "Principal Amount" means, for any date of calculation, the
principal sum set forth in the first paragraph of this Debenture (but
only such principal amount as to which the Holder has (a) actually
advanced pursuant to the Securities Purchase Agreement (b) not
theretofore furnished a Conversion Notice in compliance with
Section 3.2).
(xxiv) "Registration Rights Agreement" means that certain Registration
Rights Agreement dated as of January 2, 2002 by and between the
Company and Holder, as the same may be amended from time to time.
(xxv) "SEC" means the United States Securities and Exchange Commission.
(xxvi) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC thereunder, all as in effect
at the time.
(xxvii) "Securities Purchase Agreement" means that certain Securities
Purchase Agreement dated as of January 2, 2002 by and among the Company
and Holder, as the same may be amended from time to time.
(xxviii) "Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are
owned directly or indirectly by the Company.
All references to "cash" or "$" herein means currency of the United
States of America.
ARTICLE 2
EXCHANGES, TRANSFER AND OPTIONAL REDEMPTION
SECTION 2.1 Exchange and Registration of Transfer of Debentures. The
Holder may, at its option, surrender this Debenture at the principal
executive offices of the Company and receive in exchange therefor a
Debenture or Debentures, each in the denomination of $1,000 or an
integral multiple of $1,000 in excess thereof, dated as of the date of
this Debenture (which shall accrue interest from the most recent
Interest Payment Due Date on which an interest payment was made in
full), and payable to the Holder. The aggregate Principal Amount of the
Debenture or Debentures exchanged in accordance with this Section 2.1
shall equal the aggregate unpaid Principal Amount of this Debenture as
of the date of such surrender; provided, however, that upon any
exchange pursuant to this Section 2.1 there shall be filed with the
Company the name and address for all purposes hereof of the Holder or
Holders of the Debenture or Debentures delivered in such exchange.
This Debenture, when presented for registration of transfer or for
exchange or conversion, shall (if so required by the Company) be duly
endorsed, or be accompanied by a written instrument of transfer in
form reasonably satisfactory to the Company duly executed, by the
Holder duly authorized in writing.
SECTION 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Debenture and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of this Debenture, the Company shall
make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated Debenture, a new Debenture of like tenor and unpaid Principal
Xxxxxx dated as of the date hereof (which shall accrue interest from
the most recent Interest Payment Due Date on which an interest payment
was made in full). This Debenture shall be held and owned upon the
express condition that the provisions of this Section 2.2 are exclusive
with respect to the replacement of a mutilated, destroyed, lost or
stolen Debenture and shall preclude any and all other rights and
remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the Person
in whose name this Debenture shall be registered upon the registry
books of the Company to be, and may treat it as, the absolute owner of
this Debenture (whether or not this Debenture shall be overdue) for the
purpose of receiving payment of or on account of the Principal Amount
of this Debenture, for the conversion of this Debenture and for all
other purposes, and the Company shall not be affected by any notice to
the contrary. All such payments and such conversions shall be valid
and effectual to satisfy and discharge the liability upon this Debenture
to the extent of the sum or sums so paid or the conversion or conversions
so made.
SECTION 2.4 Repayment at Maturity. At the Maturity Date, the Company
shall repay the outstanding Principal Amount of this Debenture in whole
in cash, together with all accrued and unpaid interest thereon, in cash,
to the Maturity Date.
ARTICLE 3
CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Price. At the option of the Holder,
this Debenture may be converted, either in whole or in part, up to the
full Principal Amount hereof (in increments of $1,000 in Principal
Amount) into Common Shares (calculated as to each such conversion to
the nearest 1/100th of a share), at any time and from time to time on
any Business Day, subject to compliance with Section 3.2. The number
of Common Shares into which this Debenture may be converted is three
million five hundred eight thousand seven hundred and seventy-two
(3,508,772). The "Conversion Price" shall be $0.057. In addition, the
Company shall pay to the Holder on the Conversion Date, in cash, any
accrued and unpaid interest on the portion of the Debenture being
converted.
SECTION 3.2 Exercise of Conversion Privilege. (a) Conversion of this
Debenture may be exercised on any Business Day by the Holder by
telecopying an executed and completed Conversion Notice to the Company.
Each date on which a Conversion Notice is telecopied to the Company in
accordance with the provisions of this Section 3.2 shall constitute a
Conversion Date. The Company shall convert this Debenture and issue the
Common Stock Issued at Conversion in the manner provided below in this
Section 3.2, and all voting and other rights associated with the
beneficial ownership of the Common Stock Issued at Conversion shall vest
with the Holder, effective as of the Conversion Date at the time
specified in the Conversion Notice. The Conversion Notice also shall
state the name (with address) of the Holder. The Holder shall deliver
this Debenture by express courier within thirty (30) days following the
date on which the telecopied Conversion Notice has been transmitted to
the Company. Upon surrender for conversion, this Xxxxxxxxx shall be
accompanied by a proper assignment hereof to the Company or be endorsed
in blank. As promptly as practicable after the receipt of the Conversion
Notice as aforesaid, but in any event not more than five (5) Business
Days after the Company's receipt of such Conversion Notice, the Company
shall (i) issue the Common Stock Issued at Conversion in accordance with
the provisions of this Article 3 and (ii) cause to be mailed for delivery
by overnight courier to the Holder (x) a certificate or certificate(s)
representing the number of Common Shares to which the Holder is entitled
by virtue of such conversion, (y) cash, as provided in Section 3.3, in
respect of any fraction of a Common Share deliverable upon such
conversion and (z) cash representing the amount of accrued and unpaid
interest on this Debenture as of the Conversion Date. Such conversion
shall be deemed to have been effected at the time at which the Conversion
Notice indicates, and at such time the rights of the Holder of this
Debenture, as such (except if and to the extent that any Principal
Amount thereof remains unconverted), shall cease and the Holder
in whose name or names the Common Stock Issued at Conversion
shall be issuable shall be deemed to have become the holder or
holders of record of the Common Shares represented thereby,
and all voting and other rights associated with the beneficial
ownership of such Common Shares shall at such time vest with
such Person or Persons. The Conversion Notice shall constitute
a contract between the Holder and the Company, whereby the
Holder shall be deemed to subscribe for the number of Common
Shares which it will be entitled to receive upon such conversion
and, in payment and satisfaction of such subscription (and for
any cash adjustment to which it is entitled pursuant to
Section 3.4), to surrender this Debenture and to release the
Company from all liability thereon (except if and to the
extent that any Principal Amount thereof remains unconverted).
No cash payment aggregating less than $1.00 shall be required
to be given unless specifically requested by the Holder.
(b) If, at any time after the date of this Debenture, (i) the
Company challenges, disputes or denies the right of the Holder
hereof to effect the conversion of this Debenture into Common
Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 3.2 or (ii) any third
party who is not and has never been an Affiliate of the Holder
commences any lawsuit or legal proceeding or otherwise asserts
any claim before any court or public or governmental authority
which seeks to challenge, deny, enjoin, limit, modify, delay or
dispute the right of the Holder hereof to effect the conversion
of this Debenture into Common Shares, which lawsuit, proceeding
or assertion shall not have been dismissed or waived within
ninety (90) days, then the Holder shall have the right, by
written notice to the Company, to require the Company to promptly
redeem this Debenture for cash at the Principal Amount thereof,
together with all accrued and unpaid interest thereon to the date
of redemption. Under any of the circumstances set forth above,
the Company shall be responsible for the payment of all costs and
expenses of the Holder, including reasonable legal fees and
expenses, as and when incurred in defending itself in any such
action or pursuing its rights hereunder (in addition to any other
rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion
privilege notwithstanding the commencement of any case under the
Bankruptcy Code. In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. 362
in respect of the Holder's conversion privilege. The Company
hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. 362 in respect of the conversion of
this Debenture. The Company agrees, without cost or expense to the
Holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. 362.
SECTION 3.3 Fractional Shares. No fractional Common Shares or
scrip representing fractional Common Shares shall be delivered
upon conversion of this Debenture. Instead of any fractional
Common Shares which otherwise would be delivered upon conversion
of this Debenture, the Company shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction
multiplied by the Current Market Price on the Conversion Date.
No cash payment of less than $1.00 shall be required to be given
unless specifically requested by the Holder.
SECTION 3.4 Adjustments. The Conversion Price and the number of
shares deliverable upon conversion of this Debenture are subject
to adjustment from time to time as follows:
(i) Reclassification, Etc. In case the Company shall reorganize
its capital, reclassify its capital stock, consolidate or merge
with or into another Person (where the Company is not the survivor
or where there is a change in or distribution with respect to the
Common Stock of the Company), sell, convey, transfer or otherwise
dispose of all or substantially all its property, assets or business
to another Person, or effectuate a transaction or series of related
transactions in which more than fifty percent (50%) of the voting
power of the Company is disposed of (each, a "Fundamental Corporate
Change") and, pursuant to the terms of such Fundamental Corporate
Change, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common
stock of the successor or acquiring corporation ("Other Property")
are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder of this Debenture shall have the
right thereafter, at its sole option, to receive upon Conversion the
number of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation,
and Other Property as is receivable upon or as a result of such
Fundamental Corporate Change by a holder of the number of shares of
Common Stock into which such the outstanding portion of this
Debenture may be converted at the Conversion Price applicable
immediately prior to such Fundamental Corporate Change. For
purposes hereof, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class
which is not preferred as to dividends or assets over any other
class of stock of such corporation and which is not subject to
prepayment and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event
and any warrants or other rights to subscribe for or purchase any
such stock. The foregoing provisions shall similarly apply to
successive Fundamental Corporate Changes.
SECTION 3.5 Certain Conversion Limits.
Notwithstanding anything herein to the contrary, if and to
the extent
that, on any date (the "Section 16 Determination Date"), the
holding by the Holder of this Debenture would result in the
Holder's becoming subject to the provisions of Section 16(b) of the
Securities Exchange Act of 1934, as amended, by virtue of being deemed
the "beneficial owner" of more than ten percent (10%) of the then
Outstanding shares of Common Stock, then the Holder shall not have
the right, and the Company shall not have the obligation, to convert
any portion of this Debenture (the "Section 16 Prepayment Portion")
as shall cause such Holder to be deemed the beneficial owner of more
than ten percent (10%) of the then Outstanding shares of Common Stock
during the period ending sixty (60) days after the Section 16
Determination Date. If any court of competent jurisdiction shall
determine that the foregoing limitation is ineffective to prevent a
Holder from being deemed the beneficial owner of more than ten percent
(10%) of the then Outstanding shares of Common Stock for the purposes
of such Section 16(b), then the Company shall prepay the Section 16
Prepayment Portion. Upon such determination by a court of competent
jurisdiction, the Holder shall have no interest in or rights under such
Section 16 Prepayment Portion. Any and all interest paid on or prior
to the date of such determination shall be deemed interest paid on the
remaining portion of this Debenture held by the Holder. Such prepayment
shall be for cash at a prepayment price of the Principal Amount thereof,
together with all accrued and unpaid interest thereon to the date of
prepayment.
SECTION 3.6 Surrender of Debentures. Upon any redemption of this
Debenture pursuant to Sections 3.2, 3.5 or 6.2, or upon maturity pursuant
to Section 2.4, the Holder shall either deliver this Debenture by hand
to the Company at its principal executive offices or surrender the same
to the Company at such address by nationally recognized overnight
courier. Payment of the redemption price or the amount due on
maturity specified in Section 2.4, shall be made by the Company to the
Holder against receipt of this Debenture (as provided in this Section
3.5) by wire transfer of immediately available funds to such account(s)
as the Holder shall specify by written notice to the Company. If
payment of such redemption price is not made in full by the redemption
date, or the amount due on maturity is not paid in full by the Maturity
Date, the Holder shall again have the right to convert this Debenture
as provided in Article 3 hereof or to declare an Event of Default.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Debenture. This Debenture is an unsecured
obligation of the Company, and constitutes a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms
subject, as to enforceability, to general principles of equity and to
principles of bankruptcy, insolvency, reorganization and other similar
laws of general applicability relating to or affecting creditors'
rights and remedies generally.
SECTION 4.2 Restrictions on Transfer. This Debenture, and any Common
Shares deliverable upon the conversion hereof, have not been registered
under the Securities Act. The Holder by accepting this Debenture
agrees that this Debenture and the shares of Common Stock to be
acquired upon conversion of this Debenture may not be assigned or
otherwise transferred unless and until (i) the Company has received the
opinion of counsel for the Holder that this Debenture or such shares may
be sold pursuant to an exemption from registration under the Securities
Act or (ii) a registration statement relating to this Debenture or such
shares has been filed by the Company and declared effective by the SEC.
Each certificate for shares of Common Stock deliverable hereunder shall
bear a legend as follows unless and until such securities have been sold
pursuant to an effective registration statement under the Securities Act:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"). The
securities may not be offered for sale, sold or otherwise transferred
except (i) pursuant to an effective registration statement under the
Securities Act or (ii) pursuant to an exemption from registration under
the Securities Act in respect of which the issuer of this certificate has
received an opinion of counsel satisfactory to the issuer of this
certificate to such effect. Copies of the agreement covering both the
purchase of the securities and restrictions on their transfer may be
obtained at no cost by written request made by the holder of record of
this certificate to the Secretary of the issuer of this certificate at
the principal executive offices of the issuer of this certificate."
ARTICLE 5
COVENANTS
SECTION 5.1 Conversion. The Company shall, not later than five (5)
Business Days after the Company's receipt of a Conversion Notice,
issue and deliver to the Holder the requisite shares of Common Stock
Issued at Conversion.
SECTION 5.2 Notice of Default. If any one or more events occur which
constitute or which, with notice, lapse of time, or both, would
constitute an Event of Default, the Company shall forthwith give notice
to the Holder, specifying the nature and status of the Event of Default
or such other event(s), as the case may be.
SECTION 5.3 Payment of Obligations. So long as this Debenture shall
be outstanding, the Company shall pay, extend, or discharge at or
before maturity, all its respective material obligations and
liabilities, including, without limitation, tax liabilities, except
where the same may be contested in good faith by appropriate
proceedings.
SECTION 5.4 Compliance with Laws. So long as this Debenture shall be
outstanding, the Company shall comply with all applicable laws,
ordinances, rules, regulations and requirements of governmental
authorities, except for such noncompliance which would not have a
material adverse effect on the business, properties, prospects,
condition (financial or otherwise) or results of operations of the
Company and the Subsidiaries.
SECTION 5.5 Inspection of Property, Books and Records. So long as
this Debenture shall be outstanding, the Company shall keep proper
books of record and account in which full, true and correct entries
shall be made of all material dealings and transactions in relation
to its business and activities and shall in due course disclose such
financial information as required by the Securities Act and the
Exchange Act.
ARTICLE 6
REMEDIES
SECTION 6.1 Events of Default. "Event of Default" wherever used
herein means any one of the following events:
(i) the Company shall default in the payment of principal of or
interest on this Debenture as and when the same shall be due and
payable and such default shall continue for five (5) Business Days
after the date such payment was due, or the Company shall fail to
perform or observe in any other covenant, agreement, term, provision,
undertaking or commitment under this Debenture, the Securities
Purchase Agreement or the Registration Rights Agreement and such default
shall continue for a period of ten (10) Business Days after the
delivery to the Company of written notice that the Company is in default
hereunder or thereunder;
(ii) any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration Rights
Agreement or in any certificate or financial or other written
statements heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and delivery of this
Debenture, the Securities Purchase Agreement or the Registration
Rights Agreement shall be false or misleading in a material respect
on the Closing Date, in light of all information disclosed to Holder
in writing or otherwise;
(iii) under the laws of any jurisdiction not otherwise covered by
clauses (iv) and (v) below, the Company or any Subsidiary (A) becomes
insolvent or generally not able to pay its debts as they become due,
(B) admits in writing its inability to pay its debts generally or
makes a general assignment for the benefit of creditors, (C) institutes
or has instituted against it any proceeding seeking (x) to adjudicate
it a bankrupt or insolvent, (y) liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization
or relief of debtors including any plan of compromise or arrangement or
other corporate proceeding involving or affecting its creditors or (z)
the entry of an order for relief or the appointment of a receiver,
trustee or other similar person for it or for any substantial part of
its properties and assets, and in the case of any such official
proceeding instituted against it (but not instituted by it), either the
proceeding remains undismissed or unstayed for a period of sixty (60)
calendar days, or any of the actions sought in such proceeding
(including the entry of an order for relief against it or the
appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its properties and assets) occurs
or (D) takes any corporate action to authorize any of the above actions;
(iv) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect
of the Company under the Bankruptcy Code or any other applicable
Federal or state law, or appointing a receiver, liquidator, assignee,
trustee or sequestrator (or other similar official) of the Company or
of any substantial part of its property, or ordering the winding-up or
liquidation of its affairs, and any such decree or order continues and
is unstayed and in effect for a period of sixty (60) calendar days;
(v) the institution by the Company or any Subsidiary of proceedings
to be adjudicated a bankrupt or insolvent, or the consent by it to
the institution of bankruptcy or insolvency proceedings against it,
or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Bankruptcy Code or any other
applicable federal or state law, or the consent by it to the filing
of any such petition or to the appointment of a receiver, liquidator,
assignee, trustee or sequestrator (or other similar official) of the
Company or of any substantial part of its property, or the making by
it of an assignment for the benefit of creditors, or the admission by
it in writing of its inability to pay its debts generally as and when
they become due, or the taking of corporate action by the Company in
furtherance of any such action;
(vi) a final judgment or final judgments for the payment of money
shall have been entered by any court or courts of competent
jurisdiction against the Company and remains undischarged for a period
(during which execution shall be effectively stayed) of thirty (30)
days, provided that the aggregate amount of all such judgments at any
time outstanding (to the extent not paid or to be paid, as evidenced
by a written communication to that effect from the applicable insurer,
by insurance) exceeds Five Hundred Thousand Dollars ($500,000);
(vii) it becomes unlawful for the Company to perform or comply with
its obligations under this Debenture, the Securities Purchase Agreement
or the Registration Rights Agreement in any respect;
(viii) the Company shall default (giving effect to any applicable
grace period) in the payment of principal or interest as and when the
same shall become due and payable, under any indebtedness, individually
or in the aggregate, of more than Five Hundred Thousand Dollars
($500,000);
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in every
such case the Holder may, by a notice in writing to the Company,
rescind any outstanding Conversion Notice and declare that all amounts
owing or otherwise outstanding under this Debenture are immediately
due and payable and upon any such declaration this Debenture shall
become immediately due and payable in cash at a price of the Principal
Amount thereof, together with all accrued and unpaid interest thereon
to the date of payment; provided, however, in the case of any Event of
Default described in clauses (iii), (iv), (v) or (vii) of Section 6.1,
such amount automatically shall become immediately due and payable
without the necessity of any notice or declaration as aforesaid.
SECTION 6.3 Default Interest Rate.
(a) If any portion of the principal of or interest on this
Debenture shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise) such principal of and
interest on the Debenture which is due and owing but not paid shall,
without limiting the Holder's rights under this Debenture, bear
interest at the Default Interest Rate until paid in full.
(b) Notwithstanding anything herein to the contrary, if at any
time the applicable interest rate as provided for herein shall
exceed the maximum lawful rate which may be contracted for, charged,
taken or received by the Holder in accordance with any applicable
law (the "Maximum Rate"), the rate of interest applicable to this
Debenture shall be limited to the Maximum Rate. To the greatest
extent permitted under applicable law, the Company hereby waives
and agrees not to allege or claim that any provisions of this Note
could give rise to or result in any actual or potential violation
of any applicable usury laws.
SECTION 6.4 Remedies Not Waived. No course of dealing between
the Company and the Holder or any delay in exercising any rights
hereunder shall operate as a waiver by the Holder.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Notice of Certain Events. In the case of the occurrence
of any event described in Section 3.4 of this Debenture, the Company
shall cause to be mailed to the Holder of this Debenture at its last
address as it appears in the Company's security registry, at least
twenty (20) days prior to the applicable record, effective or
expiration date hereinafter specified (or, if such twenty (20) days'
notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice thereof,
including, if applicable, a statement of (y) the date on which a
record is to be taken for the purpose of such dividend, distribution,
issuance or granting of rights, options or warrants, or if a record
is not to be taken, the date as of which the holders of record of
Common Stock to be entitled to such dividend, distribution, issuance
or granting of rights, options or warrants are to be determined or (z)
the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of
record of Common Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale transfer, dissolution, liquidation or
winding-up.
SECTION 7.2 Register. The Company shall keep at its principal office
a register in which the Company shall provide for the registration of
this Debenture. Upon any transfer of this Debenture in accordance with
Article 2 hereof, the Company shall register such transfer on the
Debenture register.
SECTION 7.3 Withholding. To the extent required by applicable law, the
Company may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States
having jurisdiction over the Company from any payments made pursuant to
this Debenture.
SECTION 7.4 Transmittal of Notices. Except as may be otherwise provided
herein, any notice or other communication or delivery required or
permitted hereunder shall be in writing and shall be delivered
personally, or sent by telecopier machine or by a nationally recognized
overnight courier service, and shall be deemed given when so delivered
personally, or by telecopier machine or overnight courier service as
follows:
if to the Company, to:
Meltronix, Inc.
0000 Xxxxxxxxxx Xxxxx
Xxx Xxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
if to the Holder, to:
La Jolla Cove Investors, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
Each of the Holder or the Company may change the foregoing address by
notice given pursuant to this Section 7.4.
SECTION 7.5 Attorneys' Fees. Should any party hereto employ an
attorney for the purpose of enforcing or construing this Agreement, or
any judgment based on this Agreement, in any legal proceeding whatsoever,
including insolvency, bankruptcy, arbitration, declaratory relief or
other litigation, the prevailing party shall be entitled to receive from
the other party or parties thereto reimbursement for all reasonable
attorneys' fees and all reasonable costs, including but not limited to
service of process, filing fees, court and court reporter costs,
investigative costs, expert witness fees, and the cost of any bonds,
whether taxable or not, and that such reimbursement shall be included
in any judgment or final order issued in that proceeding. The
"prevailing party" means the party determined by the court to most nearly
prevail and not necessarily the one in whose favor a judgment is rendered.
SECTION 7.5 Governing Law. THIS DEBENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
(WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES). WITH RESPECT
TO ANY SUIT, ACTION OR PROCEEDINGS RELATING TO THIS DEBENTURE, THE
COMPANY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF CALIFORNIA SITTING IN SAN DIEGO AND THE UNITED STATES
DISTRICT COURT LOCATED IN THE CITY OF SAN DIEGO AND XXXXXX XXXXXX, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT ANY SUCH
SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
SUBJECT TO APPLICABLE LAW, THE COMPANY AGREES THAT FINAL JUDGMENT AGAINST
IT IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
DEBENTURE SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION WITHIN OR OUTSIDE THE UNITED STATES BY SUIT ON THE JUDGMENT,
A CERTIFIED COPY OF WHICH JUDGMENT SHALL BE CONCLUSIVE EVIDENCE THEREOF
AND THE AMOUNT OF ITS INDEBTEDNESS, OR BY SUCH OTHER MEANS PROVIDED BY
LAW.
SECTION 7.6 Headings. The headings of the Articles and Sections of
this Debenture are inserted for convenience only and do not constitute
part of this Debenture.
SECTION 7.7 Payment Dates. Whenever any payment hereunder shall be
due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
SECTION 7.8 Binding Effect. Each Holder by accepting this Xxxxxxxxx
agrees to be bound by and comply with the terms and provisions of this
Debenture.
SECTION 7.9 No Stockholder Rights. Except as otherwise provided herein,
this Debenture shall not entitle the Holder to any of the rights of a
stockholder of the Company, including, without limitation, the right to
vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other
proceedings of the Company, unless and to the extent converted into
shares of Common Stock in accordance with the terms hereof.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed by
its duly authorized officer on the date of this Debenture.
Meltronix, Inc.
By:
Title: _____________________________________
EXHIBIT A
[FORM OF CONVERSION NOTICE]
TO:
The undersigned owner of this 9 3/4 % Convertible Debenture due
January 2, 2004 (the "Debenture") issued by Meltronix, Inc. (the
"Company") hereby irrevocably exercises its option to convert $______
Principal Amount of the Debenture [and accrued and unpaid interest
thereon to the date of this Notice] into shares of Common Stock in
accordance with the terms of the Debenture. The undersigned hereby
instructs the Company to convert the portion of the Debenture
specified above into shares of Common Stock Issued at Conversion in
accordance with the provisions of Article 3 of the Debenture. The
undersigned directs that the Common Stock and certificates therefor
deliverable upon conversion, the Debenture reissued in the Principal
Amount not being surrendered for conversion hereby, [the check or
shares of Common Stock in payment of the accrued and unpaid interest
thereon to the date of this Notice,] together with any check in
payment for fractional Common Stock, be registered in the name of
and/or delivered to the undersigned unless a different name has been
indicated below. All capitalized terms used and not defined herein
have the respective meanings assigned to them in the Debenture. The
conversion pursuant hereto shall be deemed to have been effected at
the date and time specified below, and at such time the rights of the
undersigned as a Holder of the Principal Amount of the Debenture set
forth above shall cease and the Person or Persons in whose name or
names the Common Stock Issued at Conversion shall be registered
shall be deemed to have become the holder or holders of record of
the Common Shares represented thereby and all voting and other
rights associated with the beneficial ownership of such Common
Shares shall at such time vest with such Person or Persons.
Date and time: __________________
______________________________
By: ___________________________
Title: _________________________
Fill in for registration of Debenture:
Please print name and address
(including ZIP code number):
