Exhibit 4.58
DEBENTURE AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
FACE AMOUNT $132,000
PRICE $110,000
DEBENTURE NUMBER February - 0000-000
XXXXXXXX DATE February 1, 2006
MATURITY DATE February 1, 2011
FOR VALUE RECEIVED, Xtreme Companies, Inc. a Nevada corporation (the
"Company"), hereby promises to pay DUTCHESS PRIVATE EQUITIES FUND, LP (the
"Holder") by February 1, 2011 (the "Maturity Date"), the principal amount of One
Hundred Thirty-Two Thousand Dollars ($132,000) U.S., and to pay interest and
redemption on the principal amount hereof, and any accrued penalties, in such
amounts, at such times and on such terms and conditions as are specified herein.
The Debenture set forth in this Agreement is subject to automatic
conversion at the end of five (5) years from the date of issuance at which time
the Debenture outstanding will be automatically converted based upon the formula
set forth in Section 3.2 (c).
Article 1 Interest
The Company shall pay ten percent (10%) annual coupon on the unpaid Face
Amount of this Debenture (this "Debenture") at such times and in such amounts as
determined by the Holder. The Holder shall have the right to request interest
payments on the Face Amount anytime after closing and each month thereafter.
The Holder shall submit to the Company a notice requesting a payment in the
amount equal to the interest accruing for that month on the balance of the
Debenture. The Interest shall be compounded daily.
Any monies paid to the Holder in excess of the interest due when paid shall
be credited toward the Redemption of the Face Amount of the Debenture.
Article 2 Method of Payment
Section 2.1 Cash Payments
If requested by the Holder, the Company will make amortizing payments to
the Holder (a "Payment," or collectively, the "Payments") on a monthly basis on
the first day of each business day of each month while there is an outstanding
balance on the Debenture, in an amount to be determined by the Holder and the
Company based on the Company's then current financial position. ("Payment
Amount" or collectively, the "Payment Amounts"). In no event, shall the Payment
be less than the Interest accruing on the outstanding balance of the Debenture.
Notwithstanding any provision to the contrary in this Debenture, the Company may
pay in full to the Holder the Face Amount, or any balance remaining thereon, in
readily available funds, at any time and from time to time without penalty.
Section 2.2 Conversion Payments
The Holder, at its sole option, shall be entitled to either i) request a
Payment from the Company in the amounts set forth in the table in Section 2.1,
above; or, ii) the Holder may elect to convert a portion of the Debenture
pursuant to Article 3, below, in an amount equal to or greater than the Payment
Amount. In the event the Holder is unable to convert that portion of the
debenture equal to the Payment Amount during a calendar month, the Company shall
make a payment in cash in an amount equal to the difference between the amount
converted by the Holder and the Payment Amount due for that month.
Nothing contained in this Article 2 shall limit the amount the Holder can
elect to convert during a calendar month except as defined in Section 3.2 (i),
below.
All Payments made in under Article 2, shall be applied toward the
Redemption Amount as outlined in Article 14, herein.
Section 2.3 Prepayment
The Company is required make additional payments toward Redemption
("Prepayment") without any penalties. After Closing, the Company must make a
Prepayment to the Holder when the aggregate amount of financing received by a
third party, other than the Holder (a "Financing") by the Company is in excess
of $500,000 ("Threshold Amount"). The Threshold Amount shall also pertain to
any assets sold, transferred or disposed of by the Company. The Company agrees
to pay one hundred percent (100%) of any proceeds raised by the Company over the
Threshold Amount toward the Prepayment of the Debenture with Interest until such
time as the Face Amount of the Debenture has been paid in full. The Prepayments
shall be made to the Holder upon the Company's receipt of the financing. Failure
to do so will result in an Event of Default as set forth herein.
Article 3 Conversion
Section 3.1 Conversion Privilege
(a) The Holder of this Debenture shall have the right to convert any and all
amounts owing under this Debenture into shares of Common Stock at any time
following the Closing Date and which is before the close of business on the
Maturity Date, except as set forth in Section 3.2(c) below. The number of
shares of Common Stock issuable upon the conversion of this Debenture is
determined pursuant to Section 3.2 and rounding the result to the nearest whole
share.
(b) This Debenture may not be converted, whether in whole or in part, except
in accordance with this Article 3.
(c) In the event all or any portion of this Debenture remains outstanding on
the Maturity Date, the unconverted portion of such Debenture will
automatically be converted into shares of Common Stock on such date in the
manner set forth in Section 3.2.
Section 3.2 Conversion Procedure
(a) Conversion Procedures. The unpaid Face Amount of and accrued interest on
this Debenture may be converted, in whole or in part, at any time following
the Closing Date. Such conversion shall be effectuated by the Holder sending to
the Company a facsimile or electronic mail version of the signed Notice of
Conversion which evidences the Holder's intention to convert the Debenture
indicated. The date on which the Notice of Conversion is delivered ("Conversion
Date") shall be deemed to be the date on which the Holder has delivered to the
Company a facsimile or electronic mail of the signed Notice of Conversion.
Notwithstanding the above, any Notice of Conversion received by 5:00 P.M. EST,
shall be deemed to have been received the previous business day, with receipt
being via a confirmation of time of facsimile of the Holder.
(b) Common Stock to be Issued. Upon the Holder's conversion of any
Debenture, the Company shall issue the number of shares of Common Stock equal to
the Conversion. If, at the time of conversion, the Registration Statement
has ben declared effective, the Company shall instruct its transfer agent to
issue stock certificates without restrictive legend (other than a legend
referring to the registration statement and prospectus delivery requires) or
stop transfer instructions. If at the time of Holder's conversion, the
Registration Statement has not been declared effective, the Company shall
instruct the transfer agent to issue the certificates with an appropriate
legend. The Company shall act as Registrar and shall maintain an appropriate
ledger containing the necessary information with respect to each Debenture. The
Company warrants that no instructions, other than these instructions, have been
given or will be given to the transfer agent and that the Common Stock shall
otherwise be freely resold, except as may be otherwise set forth herein.
(c) Conversion Rate. Holder is entitled to convert the unpaid Face Amount
of this Debenture, plus accrued interest, any time following a Closing Date, at
the lesser of (i) 75% of the lowest closing bid price of the Common Stock for
the fifteen trading day period prior to a Conversion; or,(ii) at a "Fixed
Conversion Price" of ten cents ($.10) (each being referred to as a "Conversion
Price"). No fractional shares or scrip representing fractions of shares will be
issued on conversion, but the number of shares issuable shall be rounded
up, as the case may be, to the nearest whole share. The Holder shall retain all
rights of conversions during any partial trading days.
(d) Maximum Interest. Nothing contained in this Debenture shall be deemed
to establish or require the payment of interest to the Holder at a rate in
excess of the maximum rate permitted by governing law. In the event that the
rate of interest required to be paid exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law and
such excess, if so ordered, shall be credited on any remaining balances due to
the Holder with reasonable promptness by the Holder to the Company.
(e) Opinion Letter. It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Common Stock as
provided herein, including the responsibility and cost for delivery of an
opinion letter to the transfer agent, if so required. The person or entity in
whose name the certificate of Common Stock is to be registered shall be treated
as a shareholder of record on and after the conversion date. Upon surrender of
any Debentures that are to be converted in part, the Company shall issue to the
Holder a new Debenture equal to the unconverted amount, if so requested in
writing by Holder.
(f) Delivery of Shares. Within three (3) business days after receipt of the
documentation referred to above in Section 3.2(a), the Company shall
deliver a certificate, in accordance with Section 3.2(c) for the number of
shares of Common Stock issuable upon the conversion. In the event the Company
does not make delivery of the Common Stock, as instructed by Holder, within
three (3) business days after the Conversion Date, the Company shall pay to
Holder as liquidated damages three percent (3%) per day in cash, of the dollar
value of the Debentures being converted, compounded daily.
The Company acknowledges that its failure to deliver the Common
Stock within three (3) business days after the Conversion Date will cause the
Holder to suffer irreparable harm and, that the actual damage to the Holder will
be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Debenture a provision for liquidated damages.
The parties acknowledge and agree that the liquidated damages provision set
forth in this section represents the parties' good faith effort to quantify such
damages and, as such, agree that the form and amount of such liquidated damages
are reasonable and do not constitute a penalty. The payment of liquidated
damages shall not relieve the Company from its obligations to deliver the Common
Stock pursuant to the terms of this Debenture.
The Company shall make any payments required under this Section
3.2(f) in immediately available funds within three (3) business days from the
date the Common Stock is fully delivered. Nothing herein shall limit the
Holder's right to pursue actual damages or cancel the conversion for the
Company's failure to issue and deliver Common Stock to the Holder within three
(3) business days after the Conversion Date.
The Company shall at all times reserve (or make alternative written
arrangements for reservation or contribution of shares) and have available all
Common Stock necessary to meet conversion of the Debentures by Holder of the
entire amount of Debentures then outstanding. If, at any time, the Holder
submits a Notice of Conversion and the Company does not have sufficient
authorized but unissued shares of Common Stock (or alternative shares of Common
Stock as may be contributed by Stockholders) available to effect, in full, a
conversion of the Debentures (a "Conversion Default", the date of such default
being referred to herein as the "Conversion Default Date"), the Company shall
issue to the Holder all of the shares of Common Stock which are available, and
the Notice of Conversion as to any Debentures requested to be converted but not
converted (the "Unconverted Debentures"), may be deemed null and void upon
written notice sent by the Holder to the Company. The Company shall provide
notice of such Conversion Default ("Notice of Conversion Default") to the Holder
of outstanding Debentures, by facsimile, within three (3) business days of such
default (with the original delivered by overnight or two day courier), and the
Holder shall give notice to the Company by facsimile within five (5) business
days of receipt of the Notice of Conversion Default (with the original delivered
by overnight or two day courier) of Holder's election to either nullify or
confirm the Notice of Conversion.
In the event of Conversion Default, the Company will pay to the Holder the
amount of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Holder where N = the number
of days from the Conversion Default Date to the date that the Company authorizes
a sufficient number of shares of Common Stock to effect conversion of all
remaining Debentures (the "Authorization Date"). The Company shall send notice
to Holder of outstanding Debenture that additional shares of Common Stock have
been authorized; stating the Authorization Date and the amount of Holder's
accrued Conversion Default Payments ("Authorization Notice"). The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, upon written notice sent by the Holder to the
Company, as follows: (i) in the event Holder elects to take such payment in
cash, cash payments shall be made to such Holder of outstanding Debentures by
the fifth (5th) day of the following calendar month, or (ii) in the event Holder
elects to take such payment in stock, the Holder may convert such payment amount
into Common Stock at the conversion rate set forth in Section 3.2(c) at any
time after the fifth (5th) day of the calendar month following the month in
which the Authorization Notice was received, until the expiration of the
mandatory three (3) year conversion period.
The Company acknowledges that its failure to maintain a sufficient number
of authorized but unissued shares of Common Stock to effect in full a conversion
of the Debenture will cause the Holder to suffer irreparable harm, and that
damages will be difficult to ascertain. Accordingly, the parties agree that it
is appropriate to include in this Agreement a provision for liquidated damages.
The parties acknowledge and agree that the liquidated damages provision set
forth in this section represents the parties' good faith effort to quantify such
damages and, as such, agree that the form and amount of such liquidated damages
are reasonable and will not constitute a penalty. The payment of liquidated
damages shall not relieve the Company from its obligations to deliver the Common
Stock pursuant to the terms of this Debenture. Nothing herein shall limit the
Holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock.
If, by the third (3rd) business day after the Conversion Date of any
portion of the Debenture to be converted (the "Delivery Date"), the transfer
agent fails for any reason to deliver the Common Stock upon conversion by the
Holder, and after such Delivery Date the Holder purchases, in an open market
transaction or otherwise, shares of Common Stock (the "Covering Shares") solely
in order to make delivery in satisfaction of a sale of Common Stock by the
Holder (the "Sold Shares"), which delivery the Holder anticipated to make using
the Common Stock issuable upon conversion (a "Buy-In"), the Company shall pay to
the Holder, in addition to any other amounts due to Holder pursuant to this
Debenture, and not in lieu thereof, the Buy-In Adjustment Amount (as defined
below). The "Buy In Adjustment Amount" is the amount equal to the excess, if
any, of (x) the Holder's total purchase price (including brokerage commissions,
if any) for the Covering Shares over (y) the net proceeds (after brokerage
commissions, if any) received by the Holder from the sale of the Sold Shares.
The Company shall pay the Buy-In Adjustment Amount to the Holder in immediately
available funds within three (3) business days of written demand by the Holder.
By way of illustration and not in limitation of the foregoing, if the Holder
purchases shares of Common Stock having a total purchase price (including
brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of
Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount
which the Company will be required to pay to the Holder will be $1,000.
(g) Prospectus and Other Documents. The Company shall furnish to Holder such
number of prospectuses and other documents incidental to the registration
of the shares of Common Stock underlying the Debentures, including any amendment
of or supplements thereto. Any filings submitted via XXXXX will constitute
fulfillment of the Company's obligation under this Section.
(h) Limitation on Issuance of Shares. If the Company's Common Stock becomes
listed on the Nasdaq SmallCap Market after the issuance of the Debenture, the
Company may be limited in the number of shares of Common Stock it may issue by
virtue of (A) the number of authorized shares or (B) the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, including, but not necessarily limited to, NASDAQ Rule
4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable (collectively, the
"Cap Regulations"). Without limiting the other provisions thereof; (i) the
Company will take all steps reasonably necessary to be in a position to issue
shares of Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still
cannot issue such shares of Common Stock without violating the Cap Regulations,
the Holder cannot convert as result of the Cap Regulations (each such Debenture,
an "Unconverted Debenture") shall have the right to elect either of the
following remedies:
(x) if permitted by the Cap Regulations, require the Company to issue
shares of Common Stock in accordance with the Holder's Notice of Conversion at a
conversion purchase price equal to the average of the closing bid price per
share of Common Stock for any five (5) consecutive Trading Days (subject to
certain equitable adjustments for certain events occurring during such period)
during the sixty (60) Trading Days immediately preceding the Conversion Date; or
(y) require the Company to redeem each Unconverted Debenture for an amount
(the "Redemption Amount"), payable in cash, equal to the sum of (i) one hundred
thirty-three percent (133%) of the principal of an Unconverted Debenture, plus
(ii) any accrued but unpaid interest thereon through and including the date on
which the Redemption Amount is paid to the holder (the "Redemption Date").
The Holder of an Unconverted Debenture may elect one of the above remedies
with respect to a portion of such Unconverted Debenture and the other remedy
with respect to other portions of the Unconverted Debenture. The Debenture
shall contain provisions substantially consistent with the above terms, with
such additional provisions as may be consented to by the Holder. The provisions
of this section are not intended to limit the scope of the provisions otherwise
included in the Debenture.
(i) Limitation on Amount of Conversion and Ownership. Notwithstanding
anything to the contrary in this Debenture, in no event shall the Holder be
entitled to convert that amount of Debenture, and in no event shall the Company
permit that amount of conversion, into that number of shares, which when added
to the sum of the number of shares of Common Stock beneficially owned, (as such
term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange
Act of 1934, as may be amended, (the "1934 Act")), by the Holder, would exceed
4.99% of the number of shares of Common Stock outstanding on the Conversion
Date, as determined in accordance with Rule 13d-1(j) of the 1934 Act. In the
event that the number of shares of Common Stock outstanding as determined in
accordance with Section 13(d) of the 1934 Act is different on any Conversion
Date than it was on the Closing Date, then the number of shares of Common Stock
outstanding on such Conversion Date shall govern for purposes of determining
whether the Holder would be acquiring beneficial ownership of more than 4.99% of
the number of shares of Common Stock outstanding on such Conversion Date.
(j) Legend. The Holder acknowledges that each certificate representing the
Debentures, and the Common Stock unless registered pursuant to the Registration
Rights Agreement, shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) IF AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
(k) Prior to conversion of the Debenture, if at any time the conversion of
all the Debentures and exercise of all the Warrants outstanding would result in
an insufficient number of authorized shares of Common Stock being available to
cover all the conversions, then in such event, the Company will move to call and
hold a shareholder's meeting or have shareholder action with written consent of
the proper number of shareholders within thirty (30) days of such event, or such
greater period of time if statutorily required or reasonably necessary as
regards standard brokerage house and/or SEC requirements and/or procedures, for
the purpose of authorizing additional shares of Common Stock to facilitate the
conversions. In such an event management of the Company shall recommend to all
shareholders to vote their shares in favor of increasing the authorized number
of shares of Common Stock. Management of the Company shall vote all of its
shares of Common Stock in favor of increasing the number of shares of authorized
Common Stock to an amount equal to three hundred percent (300%) of the balance
on the DebentureThe Company represents and warrants that under no circumstances
will it deny or prevent the Holder's right to convert the Debentures as
permitted under the terms of this Subscription Agreement or the Registration
Rights Agreement. Nothing in this Section shall limit the obligation of the
Company to make the payments set forth in this Section 3. The Holder, at his
option, may request the company to authorize and issue additional shares if the
Holder feels it is necessary for conversions in the future. In the event the
Company's shareholder's meeting does not result in the necessary authorization,
the Company shall redeem the outstanding Debentures for an amount equal to the
sum of the principal of the outstanding Debentures plus accrued interest thereon
multiplied by 133%.
Section 3.3 Fractional Shares. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon the
conversion of this Debenture. Instead, the Company shall round up or down,
as the case may be, to the nearest whole share.
Section 3.4 Taxes on Conversion. The Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon the conversion of this Debenture. However, the Holder shall pay any
such tax which is due because the shares are issued in a name other than its
name.
Section 3.5 Company to Reserve Stock. The Company shall reserve the number
of shares of Common Stock required pursuant to and upon the terms set forth in
the Subscription Agreement to permit the conversion of this Debenture. All
shares of Common Stock which may be issued upon the conversion hereof shall upon
issuance by the Company be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof.
Section 3.6 Restrictions on Sale. This Debenture has not been registered
under the Securities Act of 1933, as amended (the "Act") and is being issued
under Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the
Act. This Debenture and the Common Stock issuable upon the conversion
thereof may only be sold pursuant to registration under or an exemption from the
Act.
Section 3.7 Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
Section 3.8 Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Fixed Conversion Price shall be proportionately reduced in
case of subdivision of shares or stock dividend or proportionately increased in
the case of combination of shares, in each such case by the ratio which the
total number of shares of Common Stock outstanding immediately after such event
bears to the total number of shares of Common Stock outstanding immediately
prior to such event.
Article 4 Mergers
The Company shall not consolidate or merge into, or transfer any or all of
its assets to, any person, unless such person assumes in writing the obligations
of the Company under this Debenture and immediately after such transaction no
Event of Default exists. Any reference herein to the Company shall refer to
such surviving or transferee corporation and the obligations of the Company
shall terminate only upon such written assumption of the Company's obligation.
Article 5 Intentionally Omitted
Article 6 Defaults and Remedies
Section 6.1 Events of Default. An "Event of Default" occurs if any one of
the following occur:
(a) the Company does not make the Payment of the principal, interest or
other sum due under this Debenture, on this Debenture by conversion into Common
Stock within five (5) business days of the Maturity Date, upon redemption,
Conversion Date or otherwise described herein; or,
(b) the Company does not make a Payment in cash for a period of three (3)
business days when due as described in this Agreement; or,
(c) any of the Company's representations or warranties contained in the
Debenture were false when made or the Company fails to comply with any of its
other agreements such failure continues for a period of five (5) business days;
or,
(d) the Company pursuant to or within the meaning of any Bankruptcy Law (as
hereinafter defined): (i) commences a voluntary case; (ii) consents to the
entry of an order for relief against it in an involuntary case; (iii) consents
to the appointment of a Custodian (as hereinafter defined) of it or for all or
substantially all of its property or (iv) makes a general assignment for the
benefit of its creditors or (v) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that: (A) is for relief against the
Company in an involuntary case; (B) appoints a Custodian of the Company or for
all or substantially all of its property or (C) orders the liquidation of the
Company, and the order or decree remains unstayed and in effect for sixty (60)
calendar days; or,
(e) the Company's Common Stock is suspended or no longer listed on any
recognized exchange including electronic over-the-counter bulletin board
("Principal Market") for in excess of three (3) consecutive Trading Days.
Failure to comply with the requirements for continued listing on a Principal
Market for a period of five (5) trading days; or notification from a Principal
Market that the Company is not in compliance with the conditions for such
continued listing on such Principal Market; or,
(f) the Company breaches any covenant or condition of the Debenture, and
such breach, if subject to cure, continues for a period of five (5) business
days; or,
(g) the Registration Statement underlying the Debenture is not declared
effective by the SEC within twelve (12) months of the Issuance Date.
As used in this Section 6.1, the term "Bankruptcy Law" means Title 11 of the
United States Code or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law. A default under clause (c) or (f)
above is not an Event of Default until the Holder of the Debentures outstanding
notifies the Company of such default and the Company does not cure it within
five (5) business days after the receipt of such notice, unless the Company
commences to cure such default within such period, in which case the Company
must specify the default, demand that it be remedied and state that it is a
"Notice of Default". Prior to the expiration of the time for curing a default as
set forth in the preceding sentence, the holders of a majority in aggregate
principal amount of the Debentures at the time outstanding (exclusive of
Debentures then owned by the Company or any subsidiary or affiliate) may, on
behalf of the holders of all of the Debentures, waive any past Event of Default
hereunder (or any past event which, with the lapse of time or notice and lapse
of time designated in subsection (a), would constitute an Event of Default
hereunder) and its consequences, except a default in the payment of the
principal of or interest on any of the Debentures. In the case of any such
waiver, such default or Event of Default shall be deemed to have been cured for
every purpose of this Debenture and the Company and the Holder of the Debentures
shall be restored to their former positions and rights hereunder, respectively;
but no such waiver shall extend to any subsequent or other default or impair any
right consequent thereon.
Section 6.2 Remedies. In the Event of Default, the Holder may elect to
secure a portion of the Company's assets in Pledged Collateral (as defined in
the Security Agreement). The Holder may also elect to garnish Revenue from the
Company in an amount that will repay the Holder on the schedules outlined in
this Agreement.
In the Event of Default, as outlined in this Agreement, the Holder can
exercise its right to increase the Face Amount of the Debenture by ten percent
(10%) as an initial penalty, and for each subsequent Event of Default under this
Agreement. In addition, the Holder may elect to increase the Face Amount by two
and one-half percent (2.5%) per month (pro-rata for partial periods) paid as a
penalty for liquated damages ("Liquidated Damages"). The Liquated Damages will
be compounded daily. It is the intention and acknowledgement of both parties
that the Liquidated Damages not be deemed as interest.
In the event of Default, under Section 6.1 (g), the Holder may elect to
switch the Conversion Price of the Debenture as outlined in Section 3.2 (c)
above ("Default Conversion Price"). The Default Conversion Price shall be equal
to the lesser of a) the Fixed Conversion Price or b) seventy percent (70%) of
the lowest closing bid price of the Common Stock during the fifteen (15) trading
days prior to conversion. Upon written notice being sent to the Company by the
Holder of Default under Section 6.1 (g), and the Holder's election to exercise
the remedy to switch the conversion price to the Default Conversion Price, the
Company shall immediately withdraw the Registration Statement. Further, the
Company agrees that the date of consideration for the Debenture shall remain the
Issuance Date stated herein. The Company shall provide an opinion letter from
counsel within two (2) business days of written request by the Holder stating
that the date of consideration for the Debenture is the Issuance Date and
submission of proper Rule 144 support documentation consisting of Form 144, a
broker's representation letter and a seller's representation letter. In the
event the Company does not deliver the opinion letter within two business days,
the Default Conversion Price shall immediately decrease by two percent (2%) for
each business day an opinion letter fails to be delivered. In the event that
counsel to the Company fails or refuses to render an opinion as required to
issue the Shares in accordance with this paragraph (either with or without
restrictive legends, as applicable), then the Company irrevocably and expressly
authorizes counsel to the Holder to render such opinion and shall authorize the
Transfer Agent to accept and to rely on such opinion for the purposes of
issuing the Shares (which is attached as Exhibit E to the Subscription Agreement
between the Company and the Holder of even date). Any costs incurred by Holder
for such opinion letter shall be added to the Face Amount of the Debenture.
Section 6.3 Acceleration. If an Event of Default occurs and is continuing
for a period of five (5) calendar days, the Holder hereof by notice to the
Company may declare the remaining principal amount of this Debenture, together
with all accrued interest and any liquidated damages, to be due and payable.
Section 6.4 Seniority. No indebtedness of the Company is senior to this
Debenture in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. And, the Company warrants that it
has taken all necessary steps to subordinate its other obligations to the rights
of the Holder hereunder.
Section 6.5 Cost of Collections. If an Event of Default occurs, the
Company shall pay the Holder hereof reasonable costs of collection, including
reasonable attorney's fees.
Article 7 Registered Debentures
Section 7.1 Record Ownership. The Company, or its attorney, shall maintain
a register of the Holder of the Debentures (the "Register") showing their names
and addresses and the serial numbers and principal amounts of Debentures issued
to them. The Register may be maintained in electronic, magnetic or other
computerized form. The Company may treat the person named as the Holder of this
Debenture in the Register as the sole owner of this Debenture. The Holder
of this Debenture is the person exclusively entitled to receive payments of
interest on this Debenture, receive notifications with respect to this
Debenture, convert it into Common Stock and otherwise exercise all of the rights
and powers as the absolute owner hereof.
Worn or Lost Debentures. If this Debenture becomes worn, defaced or
mutilated but is still substantially intact and recognizable, the Company or its
agent may issue a new Debenture in lieu hereof upon its surrender. Where the
Holder of this Debenture claims that the Debenture has been lost, destroyed or
wrongfully taken, the Company shall issue a new Debenture in place of the
Debenture if the Holder so requests by written notice to the Company actually
received by the Company before it is notified that the Debenture has been
acquired by a bona fide purchaser and the Holder has delivered to the Company an
indemnity bond in such amount and issued by such surety as the Company deems
satisfactory together with an affidavit of the Holder setting forth the facts
concerning such loss, destruction or wrongful taking and such other information
in such form with such proof or verification as the Company may request.
Article 8 Notice.
Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Debenture must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided a confirmation
of transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Xxxxx Xxxx
Xtreme Companies
000 Xxxxxxxx Xxx
Xxxxxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 636-390-
If to the Investor:
Xxxxxxx Xxxxxxxx
Dutchess Capital Management
00 Xxxxxxxxxxxx Xxx, Xxxxx 0
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
Article 9 Time
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. A "business day"
shall mean a day on which the banks in Boston, Massachusetts are generally open
for business.
Article 10 No Assignment
This Debenture and the obligation hereunder shall not be assignable by the
Company or the Holder.
Article 11 Rules of Construction.
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
Article 12 Governing Law
The validity, terms, performance and enforcement of this Debenture shall be
governed and construed by the provisions hereof and in accordance with the laws
of the Commonwealth of Massachusetts applicable to agreements that are
negotiated, executed, delivered and performed solely in the Commonwealth of
Massachusetts.
Article 13 Litigation
All disputes arising under this agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this agreement
will submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA"). The arbitrator shall be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an attorney admitted to practice law in the Commonwealth of Massachusetts. No
party to this agreement will challenge the jurisdiction or venue provisions as
provided in this section.
Article 14 Redemption
The Holder shall have the right to be redeemed from the Debenture, in
whole or in part, upon demand submitted in writing, within three (3) days of a
notice of redemption, at a price equal to one hundred and twenty percent (120%)
of the outstanding principal amount of the Debenture, including accrued interest
(and penalties if applicable). Any Payments, as defined in Article 2 above,
shall apply to the Redemption Amount.
Article 15 Structuring and Administration Expense
The Company agrees to pay for related expenses associated with the proposed
transaction of $10,000. This amount shall cover, but is not limited to, the
following: due diligence expenses, document creation expenses, closing costs,
and transaction administration expenses. This shall be deducted from the
Closing.
Article 16 Intentionally Omitted
Article 17 Waiver
The Holder's delay or failure at any time or times hereafter to require strict
performance by the Company of any undertakings, agreements or covenants shall
not waive, affect, or diminish any right of the Holder under this Agreement to
demand strict compliance and performance herewith. Any waiver by the Holder of
any Event of Default shall not waive or affect any other Event of Default,
whether such Event of Default is prior or subsequent thereto and whether of the
same or a different type. None of the undertakings, agreements and covenants of
the Company contained in this Agreement, and no Event of Default, shall be
deemed to have been waived by the Holder, nor may this Agreement be amended,
changed or modified, unless such waiver, amendment, change or modification is
evidenced by an instrument in writing specifying such waiver, amendment, change
or modification and signed by the Holder.
Article 18 Integration
This Note is the FINAL AGREEMENT between the Company and the holder with respect
to the terms and conditions set forth herein, and, the terms of this Debenture
may not be contradicted by evidence of prior, contemporaneous, or subsequent
oral agreements of the Parties. The Parties warrant that there are no other
agreements, either oral or written, on the terms set forth in this Note.
Article 19 Registration
The Company shall file a registration statement with the SEC, within 45
days following a written request by the Holder ("Filing Date"), covering the
Debentures. The number of shares of Stock registered shall be equivalent to the
sum of: 1) the Face Amount divided by the Fixed Conversion Price. The Company
agrees that if such registration statement has not been submitted to the SEC by
the Filing Date, the Fixed Conversion Price will initially drop ten percent
(10%) and an additional ten percent (10%) for every fifteen (15) day period
thereafter, the Company fails to file the Registration Statement. The Company
also agrees that if the Filing Date exceeds 45 days or the Effective Date
exceeds 90 days from the Filing Date ("Penalty Date" collectively the "Penalty
Dates"), a penalty of two percent (2%) per month, of the Face Amount of the
Debenture, shall accrue for each month the Filing Date and/or the Effective Date
exceeds the Penalty Date, pro-rated for partial periods. The Company agrees not
to include any other registration to this statement without the Investor's
consent.
*.*.*
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of the
date first written above and duly authorized to sign on behalf of:
XTREME COMPANIES, INC.
------------------------
By /s/ Xxxxx Xxxx
----------------
Name: Xxxxx Xxxx
Title: Chief Executive Officer
By /s/ Xxxxxx Xxxxxxxx
---------------------
Name: Xxxxxx Xxxxxxxx
Title: Chief Financial Officer
DUTCHESS PRIVATE EQUITIES FUND, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
By: /s/ Xxxxxxx X. Xxxxxxxx
--------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: A Managing Member
Exhibit A
NOTICE OF CONVERSION
--------------------
(To be Executed by the Registered Owner in order to Convert Debenture)
TO Xtreme Companies, Inc.
The undersigned hereby irrevocably elects, as of ________________, to
convert $________________ of its convertible debenture (the "Debenture") into
Common Stock of Xtreme Companies, Inc.(the "Company") according to the
------------------------
conditions set forth in the Debenture issued by the Company.
Date of Conversion________________________________________________
Applicable Conversion Price________________________________________
Number of Debentures Issuable upon this Conversion_______________________
Name(Print)___________Dutchess Private Equities Fund, II, LP _________________
----------------------------------------
Xxxxxxx______________00 Xxxxxxxxxxxx Xxx, Xxxxxx, XX 02116_____________
------------------------------------------
Phone_____000-000-0000_____________ Fax________000-000-0000___________
------------------------- ------------
By:_______________________________________
Xxxxxxx Xxxxxxxx
