EXHIBIT 4.2
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NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: June 8, 2005
Original Conversion Price (subject to adjustment herein): $2.00
$____________
SERIES A VARIABLE RATE SECURED CONVERTIBLE DEBENTURE
THIS SERIES A VARIABLE RATE SECURED CONVERTIBLE DEBENTURE is one of a
series of duly authorized and issued Series A Variable Rate Secured Convertible
Debentures of Western Power & Equipment Corp., a Delaware Company (the
"Company"), having a principal place of business at 0000 X.X. 00xx Xxxxxx,
Xxxxxxxxx, Xxxxxxxxxx 00000, designated as its Series A Variable Rate Secured
Convertible Debentures (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 $_______________, due June 7, 2010 (except
that, upon the Company timely honoring the Holder Optional Redemption pursuant
to Section 6(c) if exercised by the Holder, such date shall be June 7, 2011), 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:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the
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meanings given to such terms in the Purchase Agreement, and (b) the following
terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in Section 5(d).
"Base Conversion Price" shall have the meaning set forth in Section 5(b).
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions in the State of New York are authorized or required by law or other
government action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the date hereof
of any of (i) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of 40% of the voting securities of the Company, or (ii) the Company
merges into or consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such transaction, the
stockholders of the Company immediately prior to such transaction own less than
60% of the aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers its assets, as an entirety
or substantially as an entirety, to another Person and the stockholders of the
Company immediately prior to such transaction own less than 60% of the aggregate
voting power of the acquiring entity immediately after the transaction, (iv) a
replacement at one time or within a 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 above in (i) or (iv).
"Common Stock" means the common stock, par value $0.001 per share, of the
Company and stock of any other class of securities into which such securities
may hereafter have been reclassified or changed into.
"Conversion Date" shall have the meaning set forth in Section 4(a).
"Conversion Price" shall have the meaning set forth in Section 4(b).
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms.
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"Debenture Register" shall have the meaning set forth in Section 2(c).
"Dilutive Issuance" shall have the meaning set forth in Section 5(b).
"Dilutive Issuance Notice" shall have the meaning set forth in Section
5(b).
"Effectiveness Period" shall have the meaning given to such term in the
Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question, (i) the
Company shall have duly honored all conversions and redemptions scheduled to
occur or occurring by virtue of one or more Notice of Conversions of the Holder,
if any, (ii) all liquidated damages and other amounts owing to the Holder in
respect of this Debenture shall have been paid; (iii) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (iv) the
Common Stock is trading on the Trading Market and all of the shares issuable
pursuant to the Transaction Documents are listed for trading on a Trading Market
(and the Company believes, in good faith, that trading of the Common Stock on a
Trading Market will continue uninterrupted for the foreseeable future), (v)
there is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the shares issuable pursuant
to the Transaction Documents, (vi) there is then existing no Event of Default or
event which, with the passage of time or the giving of notice, would constitute
an Event of Default, (vii) the issuance of the shares in question (or, in the
case of a redemption, the shares issuable upon conversion in full of the
redemption amount) to the Holder would not violate the limitations set forth in
Section 4(c) and (viii) no public announcement of a pending or proposed
Fundamental Transaction, Change of Control Transaction or acquisition
transaction has occurred that has not been consummated.
"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.
"Fundamental Transaction" shall have the meaning set forth in Section 5(d).
"Holder Optional Redemption" shall have the meaning set forth in Section
6(a).
"Holder Optional Redemption Amount" shall mean the sum of (i) 100% of the
principal amount of this Debenture then outstanding, (ii) accrued but unpaid
interest thereon and (iii) all liquidated damages and other amounts due in
respect of this Debenture.
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"Holder Optional Redemption Notice" shall have the meaning set forth in
Section 6(a).
"Holder Optional Redemption Notice Date" shall have the meaning set forth
in Section 6(a).
"Interest Conversion Rate" means the lesser of (a) the Conversion Price and
(b) 90% of the lesser of (i) the arithmetic average of the 20 VWAPs immediately
prior to the applicable Interest Payment Date or (ii) the arithmetic average of
the 20 VWAPs immediately prior to the date the applicable interest payment
shares are issued and delivered if after the Interest Payment Date.
"Interest Payment Date" shall have the meaning set forth in Section 2(a).
"Interest Period" means, initially, the period beginning on and including
the Original Issue Date and ending on and including June 30, 2005 and each
successive period as follows: the period beginning on and including July 1 and
ending on and including September 30; the period beginning on and including
October 1 and ending on and including December 31; the period beginning on and
including January 1 and ending on and including March 31; and the period
beginning on and including April 1 and ending on and including June 30.
"Inventory Floor Plan Financing Agreement" means that certain Wholesale
Financing and Security Agreement, dated November 17, 1992, between the Company,
Case Corporation, and Case Credit Corporation, as amended prior to the Original
Issue Date, granting Case Corporation and Case Credit Corporation a security
interest on inventory purchased by the Company for resale from Case Corporation.
"Late Fees" shall have the meaning set forth in Section 2(d).
"LIBOR" means, for each Interest Period (i) the six-month London Interbank
Offered Rate for deposits in U.S. dollars, as shown on such the Trading Day
immediately prior to the beginning of such Interest Period in The Wall Street
Journal (Eastern Edition) under the caption "Money Rates - London Interbank
Offered Rates (LIBOR)"; or (ii) if The Wall Street Journal does not publish such
rate, the offered one-month rate for deposits in U.S. dollars which appears on
the Reuters Screen LIBO Page as of 10:00 a.m., New York time, the Trading Day
immediately prior to the beginning of such Interest Period, provided that if at
least two rates appear on the Reuters Screen LIBO Page on any such Trading Day,
the "LIBOR" for such day shall be the arithmetic mean of such rates.
"Mandatory Default Amount" shall equal the sum of (i) the greater of: (A)
120% of the principal amount of this Debenture to be prepaid, plus all accrued
and unpaid interest thereon, or (B) the principal amount of this Debenture to be
prepaid, plus all other accrued and unpaid interest hereon, divided by the
Conversion Price on (x) the date the Mandatory Default Amount is demanded or
otherwise due or (y) the date the Mandatory Default Amount is paid in full,
whichever is less, multiplied by the VWAP on
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(x) the date the Mandatory Default Amount is demanded or otherwise due or (y)
the date the Mandatory Default Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
this Debenture.
"Monthly Conversion Price" shall have the meaning set forth in Section 6(b)
hereof.
"Monthly Redemption" shall mean the redemption of this Debenture pursuant
to Section 6(b) hereof.
"Monthly Redemption Amount" shall mean $_____________(1); provided,
however, upon the Company timely honoring a Holder Optional Redemption pursuant
to Section 6(c), if exercised by the Holder, the Monthly Redemption Amount
thereafter shall be equal to the outstanding principal amount of this Debenture
at the time such Holder Optional Redemption is honored divided by the number of
months (based on the 1st of the month) remaining until June 7, 2011.
"Monthly Redemption Date" means the 1st of each month, commencing on the
7th month after the Original Issue Date and ending upon the full redemption of
this Debenture.
"Monthly Redemption Period" shall have the meaning set forth in Section
6(b) hereof.
"Monthly Redemption Share Amount" shall have the meaning set forth in
Section 6(b) hereof.
"New York Courts" shall have the meaning set forth in Section 9(d).
"Notice of Conversion" shall have the meaning set forth in Section 4(a).
"Original Issue Date" shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
"Permitted Indebtedness" shall mean the individual and collective reference
to the following: (a) Indebtedness incurred pursuant to the Series A Debentures
and the Series B Debentures, (b) Existing Indebtedness as it exists on the date
of the Purchase Agreement but excluding any Existing Indebtedness paid off at
the Closing, including the GE Facility and the APM Purchase Note, (c) additional
Indebtedness to Case Corporation pursuant to the Inventory Floor Plan Financing
Agreement, (d) additional Indebtedness incurred in connection with the
acquisition of capital assets and obligations under sale-leaseback arrangements
with respect to newly acquired or leased assets to Persons, other than Case
Corporation, up to, in the aggregate at any one time outstanding, and together
_____________________________
(1) 1/54th of the original principal amount of this Debenture.
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with any then outstanding Existing Indebtedness, a maximum of $3,200,000 from
the Original Issue Date until the 18 month anniversary of the Original Issue
Date (with no such obligation (other than Existing Indebtedness as it exists on
the date of the Purchase Agreement but excluding any Existing Indebtedness paid
off at the Closing, including the GE Facility) individually exceeding $100,000);
provided such aggregate maximum aggregate (subject still to the $100,000
individual maximum amount) shall increase to $4,100,000 during the period
following such 18 month anniversary to the 30 month anniversary of the Original
Issue Date and to $5,000,000 after the 30 month anniversary of the Original
Issue Date until this Debenture is no longer outstanding and (e) Indebtedness
incurred by the Company that does not mature or require payments of principal
prior to the four year anniversary of the Original Issue Date and is made
expressly subordinate in right of payment to the Indebtedness evidenced by this
Xxxxxxxxx, as reflected in a written agreement acceptable to the Holder and
approved by the Holder in writing.
"Permitted Lien" shall mean the individual and collective reference to the
following: (a) Liens for taxes, assessments and other governmental charges or
levies not yet due or Liens for taxes, assessments and other governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves (in the good faith judgment of the management of the
Company) have been established in accordance with GAAP; (b) any Liens incurred
in connection with Permitted Indebtedness under clause (d) in the definition of
Permitted Indebtedness above, provided that such liens are not secured by assets
of the Company or its Subsidiaries other than the assets so acquired or leased;
(c) Liens imposed by law which were incurred in the ordinary course of business,
such as carriers', warehousemen's and mechanics' Liens, statutory landlords'
Liens, and other similar Liens arising in the ordinary course of business, and
(x) which do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use thereof in the
operation of the business of the Company and its consolidated Subsidiaries or
(y) which are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the property
or asset subject to such Lien; (d) Liens created in favor of the Purchasers
pursuant to the Security Documents and (e) Existing Liens as they exist on the
date of the Purchase Agreement, but excluding any Existing Liens on Existing
Indebtedness paid off at the Closing, including Liens on the GE Facility.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Pre-Redemption Conversion Shares" shall have the meaning set forth in
Section 6(b) hereof.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
June 8, 2005, to which the Company and the original Holder are parties, as
amended, modified or supplemented from time to time in accordance with its
terms.
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"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date of the Purchase Agreement, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among
other things the resale of the Conversion Shares and naming the Holder as a
"selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" shall have the meaning given to such term in the Purchase
Agreement.
"Trading Day" means a day on which the Common Stock is traded on a Trading
Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the Nasdaq
SmallCap Market, the American Stock Exchange, the New York Stock Exchange, the
Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" shall have the meaning set forth in the Purchase
Agreement.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the primary Trading Market on
which the Common Stock is then listed or quoted as reported by Bloomberg
Financial L.P. (based on a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern
Time) using the VAP function; (b) if the Common Stock is not then listed or
quoted on the Trading Market and if prices for the Common Stock are then
reported in the "Pink Sheets" published by the Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (c) in all
other cases, the fair market value of a share of Common Stock as determined by a
nationally recognized-independent appraiser selected in good faith by Purchasers
holding a majority of the principal amount of Debentures then outstanding.
Section 2. Interest.
a) Payment of Interest in Cash or Kind. The Company shall pay interest
to the Holder on the aggregate unconverted and then outstanding principal amount
of this Debenture at the rate per annum equal to LIBOR for the applicable
Interest Period plus
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6.0% or such lesser rate as shall be the highest rate permitted by applicable
law (the "Debenture Interest Rate"), payable quarterly on April 1, July 1,
October 1 and January 1, beginning on the first such date after the Original
Issue Date, on each Monthly Redemption Date (as to that principal amount then
being redeemed), on each Conversion Date (as to that principal amount then being
converted), on each Holder Optional Redemption Date (as to that principal amount
being redeemed) and on the Maturity Date (except that, if any such date is not a
Business Day, then such payment shall be due on the next succeeding Business
Day) (each such date, an "Interest Payment Date"), in cash or shares of Common
Stock at the Interest Conversion Rate, or a combination thereof (the amount to
be paid in shares, the "Interest Share Amount"); provided, however, (i) payment
in shares of Common Stock may only occur if during the 20 Trading Days
immediately prior to the applicable Interest Payment Date ("Interest Notice
Period") and through and including the date such shares of Common Stock are
issued to the Holder all of the Equity Conditions, unless waived by the Holder
in writing, have been met and the Company shall have given the Holder notice in
accordance with the notice requirements set forth below and (ii) as to such
Interest Payment Date, prior to the such Interest Notice Period (but not more 5
Trading Days prior to the commencement of the Interest Notice Period), the
Company shall have delivered to the Holder's account with The Depository Trust
Company a number of shares of Common Stock to be applied against such Interest
Share Amount equal to the quotient of (x) the applicable Interest Share Amount
divided by (y) the then Conversion Price (the "Interest Conversion Shares").
Notwithstanding anything herein to the contrary, immediately after the Company
has redeemed, pursuant to a Holder Optional Redemption as defined in Section
6(a) or a Monthly Redemption as set forth in Section 6(b), a principal amount of
outstanding Debentures in one or more redemptions, in the aggregate, equal to
(i) greater than $10,000,000, the Debenture Interest Rate shall be reduced to
equal LIBOR for the applicable Interest Period plus 5.25% and (ii) greater than
$20,000,000, the Debenture Interest Rate shall be reduced to equal LIBOR for the
applicable Interest Period plus 4.0%.
b) Company's Election to Pay Interest in Kind. Subject to the terms and
conditions herein, the decision whether to pay interest hereunder in shares of
Common Stock or cash shall be at the discretion of the Company. Prior to the
commencement of an Interest Notice Period, the Company shall provide the Holder
with written notice of its election to pay interest hereunder on the applicable
Interest Payment Date either in cash, shares of Common Stock or a combination
thereof (the Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised) and the Interest
Share Amount as to the applicable Interest Payment Date. During any Interest
Notice Period, the Company's election (whether specific to an Interest Payment
Date or continuous) shall be irrevocable as to such Interest Payment Date.
Subject to the aforementioned conditions, failure to timely provide such written
notice shall be deemed an election by the Company to pay the interest on such
Interest Payment Date in cash. The aggregate number of shares of Common Stock
otherwise issuable to the Holder on an Interest Payment Date shall be reduced by
the number of Interest Conversion Shares previously issued to the Holder in
connection with such Interest Payment Date.
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c) Interest Calculations. Interest shall be calculated on the basis of
a 360-day year and shall accrue daily commencing on the Original Issue Date
until payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Payment of interest in shares of Common Stock (other than the Interest
Conversion Shares issued prior to an Interest Notice Period) shall otherwise
occur pursuant to Section 4(d)(ii) and only for purposes of the payment of
interest in shares, the Interest Payment Date shall be deemed the Conversion
Date. Interest shall cease to accrue with respect to any principal amount
converted, provided that the Company in fact delivers the Conversion Shares
within the time period required by Section 4(d)(ii). Interest hereunder will be
paid to the Person in whose name this Debenture is registered on the records of
the Company regarding registration and transfers of Debentures (the "Debenture
Register"). Except as otherwise provided herein, if at any time the Company pays
interest partially in cash and partially in shares of Common Stock to the
holders of the Debentures, then such payment shall be distributed ratably among
the holders of the Debentures based on their (or their predecessor's) initial
purchases of Debentures pursuant to the Purchase Agreement.
d) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 18% per annum (or such lower
maximum amount of interest permitted to be charged under applicable law) ("Late
Fees") which will accrue daily, from the date such interest is due hereunder
through and including the date of payment. Notwithstanding anything to the
contrary contained herein, if on any Interest Payment Date the Company has
elected to pay interest in Common Stock and is not able to pay accrued interest
in the form of Common Stock because it does not then satisfy the conditions for
payment in the form of Common Stock set forth above, then, at the option of the
Holder, the Company, in lieu of delivering either shares of Common Stock
pursuant to this Section 2 or paying the regularly scheduled cash interest
payment, shall deliver, within three Trading Days of each applicable Interest
Payment Date, an amount in cash equal to the product of the number of shares of
Common Stock otherwise deliverable to the Holder in connection with the payment
of interest due on such Interest Payment Date and the average VWAP during the
period commencing on the Interest Payment Date and ending on the Trading Day
prior to the date such payment is made. If any Interest Conversion Shares are
issued to the Holder in connection with an Interest Payment Date and are not
applied against an Interest Share Amount, then the Holder shall promptly return
such excess shares to the Company.
e) Prepayment. Except as otherwise set forth in this Debenture, the
Company may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
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b) Investment Representations. This Debenture has been issued subject
to certain investment representations of the original Holder set forth in the
Purchase Agreement and may be transferred or exchanged only in compliance with
the Purchase Agreement and applicable federal and state securities laws and
regulations.
c) Reliance on Debenture Register. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the Company
may treat the Person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date
until this Debenture is no longer outstanding, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time (subject to the limitations on
conversion set forth in Section 4(c) hereof). The Holder shall effect
conversions by delivering to the Company the form of Notice of Conversion
attached hereto as Annex A (a "Notice of Conversion"), specifying therein the
principal amount of this Debenture to be converted and the date on which such
conversion is to be effected (a "Conversion Date"). If no Conversion Date is
specified in a Notice of Conversion, the Conversion Date shall be the date that
such Notice of Conversion is provided hereunder. To effect conversions
hereunder, the Holder shall not be required to physically surrender this
Debenture to the Company unless the entire principal amount of this Debenture
plus all accrued and unpaid interest thereon has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of
this Debenture in an amount equal to the applicable conversion. The Holder and
the Company shall maintain records showing the principal amount converted and
the date of such conversions. The Company shall deliver any objection to any
Notice of Conversion within 1 Business Day of receipt of such notice. In the
event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder and
any assignee, by acceptance of this Debenture, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of a portion of
this Debenture, the unpaid and unconverted principal amount of this Debenture
may be less than the amount stated on the face hereof.
b) Conversion Price. The conversion price in effect on any Conversion
Date shall be equal to $2.00 (subject to adjustment herein)(the "Conversion
Price").
c) Xxxxxx's Restriction on Conversion. The Company shall not effect any
conversion of this Debenture, and the Holder shall not have the right to convert
any portion of this Debenture, pursuant to Section 4(a) or otherwise, to the
extent that after giving effect to such conversion, the Holder (together with
the Holder's affiliates), as set forth on the applicable Notice of Conversion,
would beneficially own in excess of 4.99%
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of the number of shares of the Common Stock outstanding immediately after giving
effect to such conversion. For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion of this
Debenture with respect to which the determination of such sentence is being
made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) conversion of the remaining, nonconverted portion of this
Debenture beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Debentures
or the Warrants) subject to a limitation on conversion or exercise analogous to
the limitation contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 4(c), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act. To the extent that the limitation contained
in this section applies, the determination of whether this Debenture is
convertible (in relation to other securities owned by the Holder) and of which a
portion of this Debenture is convertible shall be in the sole discretion of such
Holder, absent manifest error by the Holder. To ensure compliance with this
restriction, the Holder will be deemed to represent to the Company each time it
delivers a Notice of Conversion that such Notice of Conversion has not violated
the restrictions set forth in this paragraph and the Company shall have no
obligation to verify or confirm the accuracy of such determination. For purposes
of this Section 4(c), in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock
as reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the
case may be, (y) a more recent public announcement by the Company or (z) any
other notice by the Company or the Company's Transfer Agent setting forth the
number of shares of Common Stock outstanding. Upon the written or oral request
of the Holder, the Company shall within two Trading Days confirm orally and in
writing to the Holder the number of shares of Common Stock then outstanding. In
any case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company,
including this Debenture, by the Holder or its affiliates since the date as of
which such number of outstanding shares of Common Stock was reported. The
provisions of this Section 4(c) may be waived by the Holder, at the election of
the Holder, upon not less than 61 days' prior notice to the Company, and the
provisions of this Section 4(c) shall continue to apply until such 61st day (or
such later date, as determined by the Holder, as may be specified in such notice
of waiver).
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.
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ii. Delivery of Certificate Upon Conversion. Not later than three
Trading Days after any Conversion Date, the Company will deliver or cause
to be delivered to the Holder (A) a certificate or certificates
representing the Conversion Shares which shall be free of restrictive
legends and trading restrictions (other than those required by the Purchase
Agreement) representing the number of shares of Common Stock being acquired
upon the conversion of this Debenture (including, if the Company has given
continuous notice pursuant to Section 2(b) for payment of interest in
shares of Common Stock at least 20 Trading Days prior to the date on which
the Conversion Notice is delivered to the Company, shares of Common Stock
representing the payment of accrued interest otherwise determined pursuant
to Section 2(a) but assuming that the Interest Payment Period is the 20
Trading Days period immediately prior to the date on which the Conversion
Notice is delivered to the Company and excluding for such issuance the
condition that the Company deliver Interest Conversion Shares as to such
interest payment) and (B) a bank check in the amount of accrued and unpaid
interest (if the Company is required to pay accrued interest in cash). The
Company shall, if available and if allowed under applicable securities
laws, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions.
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 fifth Trading Day after a
Conversion Date, the Holder shall be entitled by written notice to the
Company at any time on or before its receipt of such certificate or
certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return the certificates representing the
principal amount of this Debenture tendered for conversion.
iv. Obligation Absolute; Partial Liquidated Damages. If the Company
fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the fifth 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
after 5 Trading Days after such damages begin to accrue) for each Trading
Day after such fifth Trading Day until such certificates are delivered. The
Company's obligations to issue and deliver the Conversion Shares upon
conversion of this Debenture in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction by the
Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder or
any other Person of any obligation to the Company or any violation or
alleged violation of law by the
12
Holder or any other person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares; provided, however,
such delivery shall not operate as a waiver by the Company of any such
action the Company may have against the Holder. In the event a Holder of
this Debenture shall elect to convert any or all of the outstanding
principal amount hereof, the Company may not refuse conversion based on any
claim that the Holder or any one associated or affiliated with the Holder
has been engaged in any violation of law, agreement or for any other
reason, unless, an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of this Debenture shall have been
sought and obtained and the Company posts a surety bond for the benefit of
the Holder in the amount of 150% of the principal amount of this Debenture
outstanding, which is subject to the injunction, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and
the proceeds of which shall be payable to such Holder to the extent it
obtains judgment. In the absence of an injunction precluding the same, the
Company shall issue Conversion Shares or, if applicable, cash, upon a
properly noticed conversion. Nothing herein shall limit the Holder's right
to pursue actual damages or declare an Event of Default pursuant to Section
8 herein for the Company's failure to deliver Conversion Shares within the
period specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief. The exercise of
any such rights shall not prohibit the Holder from seeking to enforce
damages pursuant to any other Section hereof or under applicable law.
v. Compensation for Buy-In on Failure to Timely Deliver Certificates
Upon Conversion. In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 4(d)(ii) by the fifth
Trading Day after the Conversion Date, and if after such fifth Trading Day
the Holder is required by its brokerage firm to purchase (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale
by such Holder of the Conversion Shares which the Holder anticipated
receiving upon such conversion (a "Buy-In"), then the Company shall (A) pay
in cash to the Holder (in addition to any remedies available to or elected
by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common
Stock that such Holder anticipated receiving from the conversion at issue
multiplied by (2) the actual sale price of the Common Stock at the time of
the sale (including brokerage commissions, if any) giving rise to such
purchase obligation and (B) at the option of the Holder, either reissue (if
surrendered) this Debenture in a principal amount equal to the principal
amount of the attempted conversion or deliver to the Holder the number of
shares of Common Stock that would have been issued had the Company timely
complied with its delivery requirements under Section 4(d)(ii). For
example, if the Holder purchases
13
Common Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted conversion of this Debenture with respect to
which the actual sale price of the Conversion Shares at the time of the
sale (including brokerage commissions, if any) giving rise to such purchase
obligation was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Company shall be required to pay the Holder $1,000.
The Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In. Notwithstanding anything
contained herein to the contrary, if a Holder requires the Company to make
payment in respect of a Buy-In for the failure to timely deliver
certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages
under Section 4(d)(iv) in respect of the certificates resulting in such
Buy-In.
vi. Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of this Debenture and payment of interest on this
Debenture, each as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holder
(and the other holders of the Debentures), not less than such number of
shares of the Common Stock as shall (subject to the terms and conditions
set forth in the Purchase Agreement, with particular reference to Section
4.12(b) thereof) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the outstanding principal
amount of this Debenture and payment of interest hereunder. The Company
covenants that all shares of Common Stock that shall be so issuable shall,
upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Registration Statement is then effective under
the Securities Act, 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 the Common Stock, but may if otherwise permitted, make a cash
payment in respect of any final fraction of a share based on the VWAP at
such time. If the Company elects not, or is unable, to make such a cash
payment, the Holder shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
viii. Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of this Debenture shall be made without charge
to the Holder hereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificate, provided
that the Company shall not be required to pay any tax that may be payable
in respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a
14
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while
this Debenture is outstanding: (A) pays a stock dividend or otherwise makes a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of Common Stock (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Company pursuant to this Debenture, including as interest thereon), (B)
subdivides outstanding shares of Common Stock into a larger number of shares,
(C) combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by reclassification
of shares of the Common Stock any shares of capital stock of the Company, then
the Conversion Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary of the
Company thereof, as applicable, at any time while this Debenture is outstanding,
shall offer, sell, grant any option to purchase or offer, sell or grant any
right to reprice its securities, or otherwise dispose of or issue (or announce
any offer, sale, grant or any option to purchase or other disposition) any
Common Stock or Common Stock Equivalents entitling any Person to acquire shares
of Common Stock, at an effective price per share less than the then Conversion
Price (such lower price, the "Base Conversion Price" and such issuances
collectively, a "Dilutive Issuance"), as adjusted hereunder (if the holder of
the Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which is issued in connection with such issuance, be
entitled to receive shares of Common Stock at an effective price per share which
is less than the Conversion Price, such issuance shall be deemed to have
occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then (i) if the Dilutive Issuance occurred on or prior to the 18
month anniversary of the Original Issue Date, the Conversion Price shall be
reduced to equal the Base Conversion Price, (ii) if the Dilutive Issuance
occurred after the 18 month anniversary of the Original Issue Date and on or
prior to the 24 month anniversary of the Original Issue Date, the Conversion
Price as to 75% of the principal amount of this Debenture then outstanding shall
be reduced to equal the Base Conversion
15
Price, (iii) if the Dilutive Issuance occurred after the 24 month anniversary of
the Original Issue Date and on or prior to the 30 month anniversary of the
Original Issue Date, the Conversion Price as to 50% of the principal amount of
this Debenture then outstanding shall be reduced to equal the Base Conversion
Price and (iv) if the Dilutive Issuance occurred after the 30 month anniversary
of the Original Issue Date, the Conversion Price as to 25% of the principal
amount of this Debenture then outstanding shall be reduced to equal the Base
Conversion Price. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued and, for purposes of calculating any such
adjustments, any resets, amendments or other adjustments to the securities
issued in a Dilutive Issuance resulting in a reduction of the Base Conversion
Price and occurring subsequent to the Dilutive Issuance shall be deemed to have
occurred on the date of the Dilutive Issuance. In the event portions of the
principal amount of this Debenture have different Conversion Prices as a result
of this Section 5(b), the Holder, in its sole discretion, shall determine which
portions of this Debenture and their respective Conversion Prices are subject to
any Notices of Conversions or redemptions hereunder. Notwithstanding the
foregoing, no adjustment will be made under this Section 5(b) in respect of an
Exempt Issuance. The Company shall notify the Holder in writing, no later than
the Business Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this section, indicating therein the applicable issuance
price, or of applicable reset price, exchange price, conversion price and other
pricing terms (such notice the "Dilutive Issuance Notice"). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice
pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance,
after the date of such Dilutive Issuance the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price regardless of
whether the Holder accurately refers to the Base Conversion Price in the Notice
of Conversion.
c) Pro Rata Distributions. If the Company, at any time while this
Debenture is outstanding, shall distribute to all holders of Common Stock (and
not to holders of the Debentures) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for or
purchase any security, then in each such case the Conversion Price shall be
adjusted by multiplying such Conversion Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the numerator shall be such
VWAP on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be described in a
statement provided to the Holder of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date mentioned
above.
16
d) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or consolidation of the Company
with or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (C)
any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Conversion Share
that would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of one share of Common Stock (the
"Alternate Consideration"). For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the 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 (i) assume in writing all of the obligations
of the Company under this Debenture and the other Transaction Documents pursuant
to written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) prior to such Fundamental
Transaction and (ii) to issue to the Holder a new debenture of such successor
entity evidenced by a written instrument substantially similar in form and
substance to this Debenture, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of this Debenture and having similar ranking to this Debenture, and satisfactory
to the Holder (any such approval not to be unreasonably withheld or delayed).
The provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
on the conversion or redemption of this Debenture.
e) Calculations. All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 5, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.
17
f) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any of this Section 5, the Company shall promptly mail
to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. If the Company issues a variable rate security, despite the
prohibition thereon in the Purchase Agreement, the Company shall be deemed
to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be
converted or exercised in the case of a Variable Rate Transaction (as
defined in the Purchase Agreement).
ii. Notice to Allow Conversion by Xxxxxx. If (A) the Company shall
declare a dividend (or any other distribution) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock; (C) the Company shall authorize the
granting to all holders of the Common Stock rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of any rights;
(D) the approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any consolidation
or merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory share
exchange whereby the Common Stock is converted into other securities, cash
or property; (E) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then,
in each case, the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Debenture, and shall cause
to be mailed to the Holder at its last addresses as it shall appear upon
the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of the Common Stock of
record to be entitled to such dividend, distributions, redemption, rights
or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, that the failure to mail such
notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
The Holder is entitled to convert the Debenture during the 20-day period
commencing the date of such notice to the effective date of the event
triggering such notice.
Section 6. Optional Redemption and Monthly Redemption.
18
a) Optional Redemption at Election of Holder. Subject to the provisions
of this Section 6, at any time after the 36-month anniversary of the Original
Issue Date, the Holder may deliver a notice to the Company (a "Holder Optional
Redemption Notice" and the date such notice is deemed delivered hereunder, the
"Holder Optional Redemption Notice Date") of its election to require the Company
to redeem up to 50% of the then outstanding principal amount of this Debenture,
for an amount, in cash, equal to the Holder Optional Redemption Amount (such
redemption, the "Holder Optional Redemption"). The Holder Optional Redemption
Amount is due in full on the 5th Trading Day immediately following the Holder
Optional Redemption Notice Date (the "Holder Optional Redemption Date").
b) Monthly Redemption. On each Monthly Redemption Date, the Company
shall redeem the Monthly Redemption Amount plus accrued but unpaid interest, the
sum of all liquidated damages and any other amounts then owing to such Holder in
respect of this Debenture. The Monthly Redemption Amount due on each Monthly
Redemption Date shall be paid in cash; provided, however, as to any Monthly
Redemption and upon 25 Trading Days' prior written irrevocable notice ("Monthly
Redemption Notice"), in lieu of a cash redemption payment the Company may elect
to pay up to 50% of the Monthly Redemption Amount in Conversion Shares (such
dollar amount to be paid on a Monthly Redemption Date in Conversion Shares, the
"Monthly Redemption Share Amount") based on a conversion price equal to the
lesser of (i) the then Conversion Price and (ii) 90% of the average of the 20
VWAPs during the 20 consecutive Trading Days immediately prior to the applicable
Monthly Redemption Date (subject to adjustment for any stock dividend, stock
split, stock combination or other similar event affecting the Common Stock
during such 20 Trading Day period, such period, the "Monthly Redemption Period"
and such price, the "Monthly Conversion Price"); provided, further, that the
Company may not pay up to 50% of such Monthly Redemption Amount in Conversion
Shares unless (i) from the date the Holder receives the Monthly Redemption
Notice through and until the date such Monthly Redemption is paid in full, the
Equity Conditions, unless waived in writing by the Holder, have been satisfied,
(ii) the daily trading volume for the Common Stock exceeds $100,000 per Trading
Day for the applicable Monthly Redemption Period and (iii) as to such Monthly
Redemption, prior to such Monthly Redemption Period (but not more 5 Trading Days
prior to the commencement of the Monthly Redemption Period), the Company shall
have delivered to the Holder's account with The Depository Trust Company a
number of shares of Common Stock to be applied against such Monthly Redemption
Share Amount equal to the quotient of (x) the applicable Monthly Redemption
Share Amount divided by (y) the then Conversion Price (the "Pre-Redemption
Conversion Shares"). The Holder may convert, pursuant to Section 4(a), any
principal amount of this Debenture subject to a Monthly Redemption at any time
prior to the date that the Monthly Redemption Amount and all amounts owing
thereon are due and paid in full. Unless otherwise indicated by the Holder in
the applicable Notice of Conversion, any principal amount of this Debenture
converted during the applicable Monthly Redemption Period until the date the
Monthly Redemption Amount is paid in full shall be first applied to the
principal amount
19
subject to the Monthly Redemption Amount payable in cash and then to the Monthly
Redemption Share Amount. Any principal amount of this Debenture converted during
the applicable Monthly Redemption Period in excess of the Monthly Redemption
Amount shall be applied against the last principal amount of this Debenture
scheduled to be redeemed hereunder, in reverse time order from the Maturity
Date; provided, however, if any such conversion is applied to such Monthly
Redemption Amount, the Pre-Redemption Conversion Shares, if any were issued in
connection with such Monthly Redemption or were not already applied to such
conversions, shall be first applied against such conversion. The Company
covenants and agrees that it will honor all Notice of Conversions tendered up
until such amounts are paid in full. The Company's determination to pay a
Monthly Redemption in cash, shares of Common Stock or a combination thereof
shall be applied ratably to all holders of the Debentures based on their (or
their predecessor's) initial purchases of Debentures pursuant to the Purchase
Agreement. Within 1 Trading Day of the Company notifying the Holder of its
election to issue the Holder Conversion Shares in lieu of a cash redemption
payment hereunder, the Company shall file with the Commission a prospectus
supplement to the Registration Statement pursuant to Rule 424 under the
Securities Act disclosing the material terms of the Company's election make such
payments in shares.
c) Redemption Procedure. The payment of cash and/or issuance of Common
Stock (other than the Pre-Redemption Conversion Shares), as the case may be,
pursuant to a Monthly Redemption or the payment of cash pursuant to a Holder
Optional Redemption shall be made on the Monthly Redemption Date or the Holder
Optional Redemption Date, as applicable. The aggregate number of Conversion
Shares otherwise issuable to the Holder pursuant to a Monthly Redemption on a
Monthly Redemption Date shall be reduced by the number of Pre-Redemption
Conversion Shares issued to the Holder in connection with such Monthly
Redemption (adjusted appropriately for any such shares applied to conversion
during the Monthly Redemption Period). If any portion of the cash payment and/or
issuance of Common Stock, as the case may be, for a Monthly Redemption or the
payment of cash pursuant to a Holder Optional Redemption, as applicable, shall
not be paid by the Company by the respective due date, interest shall accrue
thereon at the rate of 18% per annum (or the maximum rate permitted by
applicable law, whichever is less) until the payment of the Monthly Redemption
Amount, or the Holder Optional Redemption Amount, as applicable, plus all
amounts owing thereon is paid in full. Alternatively, if any portion of the
Monthly Redemption Amount or the Holder Optional Redemption Amount, as
applicable, remains unpaid after such date, the Holder may elect, by written
notice to the Company given at any time thereafter, to invalidate ab initio such
redemption, notwithstanding anything herein contained to the contrary, and the
Holder's right to exercise a Holder Optional Redemption in the future shall be
restored. The Holder may elect to convert the outstanding principal amount of
this Debenture pursuant to Section 4 prior to actual payment in cash for any
redemption under this Section 6 by fax delivery of a Notice of Conversion to the
Company. If any Pre-Redemption Conversion Shares are issued to the Holder in
connection with a Monthly Redemption and are not applied against either the
Monthly Redemption Amount
20
or against optional conversions during the Monthly Redemption Period, then the
Holder shall promptly return such excess shares to the Company.
Section 7. Negative Covenants. So long as any portion of this Debenture is
outstanding, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly:
a) except in connection with Permitted Indebtedness, enter into,
create, incur, assume, guarantee or suffer to exist any Indebtedness;
b) except in connection with Permitted Liens, enter into, create,
incur, assume or suffer to exist any Lien;
c) amend its certificate of incorporation, bylaws or other charter
documents so as to materially and adversely affect any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise acquire
more than a de minimis number of shares of its Common Stock or Common Stock
Equivalents other than as to the Conversion Shares to the extent permitted or
required under the Transaction Documents or as otherwise permitted by the
Transaction Documents;
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", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
i. any default in the payment of (A) the principal amount of any
Debenture, or (B) interest (including Late Fees) on, or liquidated damages
in respect of, any Debenture, as and when the same shall become due and
payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of an interest
payment or other default under clause (B) above, is not cured, within 15
calendar days;
ii. the Company shall fail to observe or perform any other covenant
or agreement contained in this Debenture or any other Debenture (other than
a breach by the Company of its obligations to deliver shares of Common
Stock to the Holder upon conversion which breach is addressed in clause
(xi) below) which failure is not cured, if possible to cure, within the
earlier to occur of (A) 10 calendar days after notice of such default sent
by the Holder or by any other Holder and (B)10 Trading Days after the
Company shall become or should have become aware of such failure;
21
iii. a default or event of default (subject to any grace or cure
period provided for in the applicable agreement, document or instrument)
shall occur under (A) any of the Transaction Documents, or (B) any other
material agreement, lease, document or instrument to which the Company or
any Subsidiary of the Company is bound;
iv. any representation or warranty made herein, in any other
Transaction Documents, in any written statement pursuant hereto or thereto,
or in any other report, financial statement or certificate made or
delivered to the Holder or any other holder of Debentures shall be untrue
or incorrect in any material respect as of the date when made or deemed
made;
v. if (i) the Company or any of its material Subsidiaries shall
commence a case, as debtor, or there shall be commenced against the Company
or any material Subsidiary of the Company, a case under any applicable
bankruptcy or insolvency laws as now or hereafter in effect or any
successor thereto, or the Company or any such material Subsidiary of the
Company commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency
or liquidation or similar law of any jurisdiction whether now or hereafter
in effect relating to the Company or any such Subsidiary of the Company or
(ii) there is commenced against the Company or any material Subsidiary of
the Company any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or (iii) the Company or any
material Subsidiary of the Company is adjudicated by a court of competent
jurisdiction insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or (iv) the Company or
any material Subsidiary of the Company suffers any appointment of any
custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or (v) the
Company or any material Subsidiary of the Company makes a general
assignment for the benefit of creditors; or (vi) the Company shall fail to
pay, or shall state that it is unable to pay, or shall be unable to pay,
its debts generally as they become due; or (vii) the Company or any
material Subsidiary of the Company thereof shall call a meeting of its
creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (viii) the Company or any Subsidiary of the
Company thereof shall by any act or failure to act expressly indicate its
consent to, approval of or acquiescence in any of the foregoing; or (ix)
any corporate or other action is taken by the Company or any material
Subsidiary of the Company for the purpose of effecting any of the
foregoing;
22
vi. the Company or any Subsidiary of the Company shall default in
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 of the Company in an amount exceeding
$300,000, whether such Indebtedness now exists or shall hereafter be
created and such default shall result in such Indebtedness becoming or
being declared due and payable prior to the date on which it would
otherwise become due and payable;
vii. the Common Stock shall not be eligible for quotation on or
quoted for trading on a Trading Market and shall not again be eligible for
and quoted or listed for trading thereon within ten Trading Days;
viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or dispose of
all or in excess of 40% of its assets in one or more transactions (whether
or not such sale would constitute a Change of Control Transaction) or shall
redeem or repurchase more than a de minimis number of its outstanding
shares of Common Stock or other equity securities of the Company (other
than redemptions of Conversion Shares and repurchases of shares of Common
Stock or other equity securities of departing officers and directors of the
Company; provided such repurchases shall not exceed $100,000, in the
aggregate, for all officers and directors during the term of this
Debenture);
ix. a Registration Statement shall not have been declared effective
by the Commission on or prior to the 180th calendar day after the Closing
Date;
x. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the Registration
Statement lapses for any reason or the Holder shall not be permitted to
resell Registrable Securities (as defined in the Registration Rights
Agreement) under the Registration Statement, in either case, for more than
15 consecutive Trading Days or 25 non-consecutive Trading Days during any
12 month period; provided, however, that in the event that the Company is
negotiating a merger, consolidation, acquisition or sale of all or
substantially all of its assets or a similar transaction and in the written
opinion of counsel to the Company, the Registration Statement, would be
required to be amended to include information concerning such transactions
or the parties thereto that is not available or may not be publicly
disclosed at the time, the Company shall be permitted an additional 15
consecutive Trading Days during any 12 month period relating to such an
event; or
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
and in accordance with Section 4(d) or the Company shall provide notice to
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the Holder, including by way of public announcement, at any time, of its
intention not to comply with requests for conversions of any Debentures in
accordance with the terms hereof. i.
b) Remedies Upon Event of Default. If any Event of Default occurs, the
full principal amount of this Debenture, together with interest and other
amounts owing in respect thereof, to the date of acceleration shall become, at
the Holder's election, immediately due and payable in cash. The aggregate amount
payable upon an Event of Default shall be equal to the Mandatory Default Amount.
Commencing 5 days after the occurrence of any Event of Default that results in
the eventual acceleration of this Debenture, the interest rate on this Debenture
shall accrue at the rate of 18% per annum, or such lower maximum amount of
interest permitted to be charged under applicable law. Upon the payment in full
of the Mandatory Default Amount on this entire Debenture the Holder shall
promptly surrender this Debenture to or as directed by the Company. The Holder
need not provide and the Company hereby waives any presentment, demand, protest
or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Xxxxxx at any time prior to payment
hereunder and the Holder shall have all rights as a Debenture holder until such
time, if any, as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event of Default
or impair any right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries
to be provided by the Holder hereunder, including, without limitation, any
Notice of Conversion, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service, addressed
to the Company, at the address set forth above, facsimile number (000) 000-0000,
ATTN: CHIEF EXECUTIVE OFFICER or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holder delivered in
accordance with this Section. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile telephone number or
address of such Xxxxxx appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 5:30 p.m. (New
York City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 5:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) the second
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.
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b) Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, interest and
liquidated damages (if any) on, this Debenture at the time, place, and rate, and
in the coin or currency, herein prescribed. This Debenture is a direct debt
obligation of the Company. This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms set forth herein.
c) Security Interest. This Debenture is a direct debt obligation of the
Company and pursuant to the Security Agreement shall be secured by a perfected
security interest in all of the assets of the Company for the benefit of the
holders of the Series A Debentures and Series B Debentures.
d) Lost or Mutilated Debenture. If this Debenture shall be mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Debenture, or in lieu
of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
e) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the "New
York Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest
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extent permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its attorneys fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.
f) Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
g) Severability. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder
violates applicable laws governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum permitted rate of
interest. The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law or other
law which would prohibit or forgive the Company from paying all or any portion
of the principal of or interest on this Debenture as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
h) 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.
i) Headings. The headings contained herein are for convenience only, do
not constitute a part of this Debenture and shall not be deemed to limit or
affect any of the provisions hereof.
*********************
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
WESTERN POWER & EQUIPMENT CORP.
By:____________________________
Name:
Title:
27
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Variable Rate
Secured Convertible Debenture of Western Power & Equipment Corp., a Delaware
corporation (the "Company"), due on June 7, 2010, into shares of common stock,
par value $0.001 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts determined in accordance with Section 13(d) of the Exchange Act,
specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account of
Conversion at Issue.
Conversion Price: $_________
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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SCHEDULE 1
CONVERSION SCHEDULE
The Variable Rate Secured Convertible Debenture due on June 7, 2010, in the
aggregate principal amount of $____________ issued by Western Power & Equipment
Corp. This Conversion Schedule reflects conversions made under Section 4 of the
above referenced Debenture.
Dated:
=================== =================== =================== -------------------
Aggregate Principal
Amount Remaining
Subsequent to
Date of Conversion Conversion
(or for first entry, Amount of (or original Company
Original Issue Date) Conversion Principal Amount) Attest
------------------- ------------------- ------------------- -------------------
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