Dated: December 27, 2005
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE 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.
No. MEP-2 $537,220
TECH LABORATORIES, INC.
Amended and Restated Secured Convertible Debenture
Due December 27, 2006
This Amended and Restated Secured Convertible Debenture (the "Debenture")
is issued by TECH LABORATORIES, INC., a New Jersey corporation (the "Obligor"),
to XXXXXXXXXX EQUITY PARTNERS, LTD (the "Holder"), pursuant to that certain
Securities Purchase Agreement (the "Securities Purchase Agreement") of even date
herewith. The Obligor issued to the Holder on April 22, 2005 secured debenture
in the amount of Four Hundred Twenty Thousand Five Hundred Fourteen Dollars
($420,514) (the "Prior Debenture"), reflecting the consolidation of the secured
debenture issued by the Company to Cornell Capital Partners, LP ("Cornell") on
May 17, 2004 in the original principal amount Two Hundred Fifty Thousand Dollars
($250,000) plus accrued and unpaid interest, which was assigned from Cornell to
the Holder on or about March 29, 2005, and the additional funding by the Holder
in the amount of One Hundred Sixty Thousand Dollars ($160,000). This Debenture
is being re-issued to the Holder to amend and restate the Prior Debenture plus
accrued and unpaid interest in the amount of Forty One Thousand Seven Hundred
Six Dollars ($41,706) and to reflect the fee of Seventy Five Thousand Dollars
($75,000) as and for the restructuring of the Prior Debenture, for a total
principal sum of Five Hundred Thirty Seven Thousand Two Hundred Twenty Dollars
($537,220).
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder or its
successors and assigns the principal sum of Five Hundred Thirty Seven Thousand
Two Hundred Twenty Dollars ($537,220) together with accrued but unpaid interest
on or before December 27, 2006 (the "Maturity Date") in accordance with the
following terms:
Interest. Interest shall accrue on the outstanding principal balance hereof
at an annual rate equal to fifteen percent (15%). Interest shall be calculated
1
on the basis of a 360-day year and the actual number of days elapsed, to the
extent permitted by applicable law. Interest hereunder will be paid to the
Holder or its assignee (as defined in Section 5) in whose name this Debenture is
registered on the records of the Obligor regarding registration and transfers of
Debentures (the "Debenture Register").
Right of Redemption. The Obligor at its option shall have the right, with
three (3) business days advance written notice (the "Redemption Notice"), to
redeem a portion or all amounts outstanding under this Debenture prior to the
Maturity Date provided that the Closing Bid Price of the of the Obligor's Common
Stock, as reported by Bloomberg, LP, is less than the Fixed Conversion Price at
the time of the Redemption Notice. The Obligor shall pay an amount equal to the
principal amount being redeemed plus a redemption premium ("Redemption Premium")
equal to twenty five percent (25%) of the principal amount being redeemed, and
accrued interest, (collectively referred to as the "Redemption Amount"). The
Obligor shall deliver to the Holder the Redemption Amount on the third (3rd)
business day after the Redemption Notice.
Notwithstanding the foregoing in the event that the Obligor has elected to
redeem a portion of the outstanding principal amount and accrued interest under
this Debenture the Holder shall be permitted to convert all or any portion of
this Debenture during such three business day period.
Security Agreements. This Debenture is secured by an Amended and Restated
Security Agreement (the "Security Agreement") of even date herewith by and
between the Obligor and the Holder and an Amended and Restated Pledge and Escrow
Agreement (the "Pledge Agreement") of even date herewith among the Obligor, the
Holder, the Pledgor and the Escrow Agent.
Consent of Holder to Sell Capital Stock or Grant Security Interests. So
long as any of the principal amount or interest on this Debenture remains unpaid
and unconverted, the Obligor shall not, without the prior consent of the Holder,
(i) issue or sell any shares of Common Stock or preferred stock with or without
consideration, (ii) issue or sell any preferred stock, warrant, option, right,
contract, call, or other security or instrument granting the holder thereof the
right to acquire Common Stock with or without consideration, (iii) enter into
any security instrument granting the holder a security interest in any of the
assets of the Obligor, or (iv) file any registration statements on Form S-8.
Rights of First Refusal. So long as any portion of this Debenture is
outstanding (including principal or accrued interest), if the Obligor intends to
raise additional capital by the issuance or sale of capital stock of the
Obligor, including without limitation shares of any class of Common Stock, any
class of preferred stock, options, warrants or any other securities convertible
or exercisable into shares of Common Stock (whether the offering is conducted by
the Obligor, underwriter, placement agent or any third party) the Obligor shall
be obligated to offer to the Holder such issuance or sale of capital stock, by
providing in writing the principal amount of capital it intends to raise and
outline of the material terms of such capital raise, prior to the offering such
issuance or sale of capital stock to any third parties including, but not
limited to, current or former officers or directors, current or former
shareholders and/or investors of the obligor, underwriters, brokers, agents or
other third parties. The Holder shall have ten (10) business days from receipt
2
of such notice of the sale or issuance of capital stock to accept or reject all
or a portion of such capital raising offer.
This Debenture is subject to the following additional provisions:
Section 1. 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.
Section 2. Events of Default.
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(a) An "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 the principal of, interest on or
other charges in respect of this Amended and Restated Convertible Debenture
or the Debenture of even date herewith issued by the Obligor to the Holder,
free of any claim of subordination, as and when the same shall become due
and payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise);
(ii) The Obligor shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Debenture (except as may be covered by
Section 2(a)(i) hereof) or any Transaction Document (as defined in Section
5) which is not cured with in the time prescribed;
(iii) The Obligor or any subsidiary of the Obligor shall commence, or
there shall be commenced against the Obligor or any subsidiary of the
Obligor under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Obligor or any
subsidiary of the Obligor 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 Obligor or any
subsidiary of the Obligor or there is commenced against the Obligor or any
subsidiary of the Obligor any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 61 days; or the
Obligor or any subsidiary of the Obligor is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Obligor or any subsidiary of the Obligor
suffers any appointment of any custodian, private or court appointed
receiver or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of sixty one (61) days; or
the Obligor or any subsidiary of the Obligor makes a general assignment for
the benefit of creditors; or the Obligor or any subsidiary of the Obligor
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 the Obligor or
any subsidiary of the Obligor shall call a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its debts;
or the Obligor or any subsidiary of the Obligor shall by any act or failure
3
to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the
Obligor or any subsidiary of the Obligor for the purpose of effecting any
of the foregoing;
(iv) The Obligor or any subsidiary of the Obligor shall default in any
of its obligations under any other debenture or 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 Obligor or any
subsidiary of the Obligor in an amount exceeding $100,000, 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;
(v) The Common Stock shall cease to be quoted for trading or listed
for trading on either the Nasdaq OTC Bulletin Board ("OTC"), Nasdaq
SmallCap Market, New York Stock Exchange, American Stock Exchange or the
Nasdaq National Market (each, a "Subsequent Market") and shall not again be
quoted or listed for trading thereon within five (5) Trading Days of such
delisting;
(vi) The Obligor or any subsidiary of the Obligor shall be a party to
any Change of Control Transaction (as defined in Section 5) without the
prior written consent of the Holder;
(vii) The Obligor shall fail to file the Underlying Shares
Registration Statement (as defined in Section 5) with the Commission (as
defined in Section 5), or the Underlying Shares Registration Statement
shall not have been declared effective by the Commission, in each case
within the time periods set forth in the Investor Registration Rights
Agreement ("Registration Rights Agreement") of even date herewith between
the Obligor and the Holder;
(viii) If the effectiveness of the Underlying Shares Registration
Statement lapses for any reason or the Holder shall not be permitted to
resell the shares of Common Stock underlying this Debenture under the
Underlying Shares Registration Statement, in either case, for more than
five (5) consecutive Trading Days or an aggregate of eight Trading Days
(which need not be consecutive Trading Days);
(ix) The Obligor shall fail for any reason to deliver Common Stock
certificates to a Holder prior to the fifth (5th) Trading Day after a
Conversion Date or the Obligor shall provide notice to the Holder,
including by way of public announcement, at any time, of its intention not
to comply with requests for conversions of this Debenture in accordance
with the terms hereof;
(x) The Obligor shall fail for any reason to deliver the payment in
cash pursuant to a Buy-In (as defined herein) within three (3) days after
notice is claimed delivered hereunder;
(b) During the time that any portion of this Debenture is outstanding, if
any Event of Default has occurred, 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
4
payable in cash, provided however, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Obligor.
In addition to any other remedies, the Holder shall have the right (but not the
obligation) to convert this Debenture at any time after (x) an Event of Default
or (y) the Maturity Date at the Conversion Price then in-effect. The Holder need
not provide and the Obligor 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. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon. Upon an Event of Default, notwithstanding any
other provision of this Debenture or any Transaction Document, the Holder shall
have no obligation to comply with or adhere to any limitations, if any, on the
conversion of this Debenture or the sale of the Underlying Shares.
Section 3. Conversion.
--------- ----------
(a) Conversion at Option of Holder.
(i) 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, after the Original Issue Date (as defined in Section 5) (subject to
the limitations on conversion set forth in Section 3(b) hereof). The number
of shares of Common Stock issuable upon a conversion hereunder equals the
quotient obtained by dividing (x) the outstanding amount of this Debenture
to be converted by (y) the Conversion Price (as defined in Section
3(c)(i)). The Obligor shall deliver Common Stock certificates to the Holder
prior to the Fifth (5th) Trading Day after a Conversion Date.
(ii) Notwithstanding anything to the contrary contained herein, if on
any Conversion Date: (1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury
stock, is insufficient to pay principal and interest hereunder in shares of
Common Stock; (2) the Common Stock is not listed or quoted for trading on
the OTC or on a Subsequent Market; (3) the Obligor has failed to timely
satisfy its conversion; or (4) the issuance of such shares of Common Stock
would result in a violation of Section 3(b), then, at the option of the
Holder, the Obligor, in lieu of delivering shares of Common Stock pursuant
to Section 3(a)(i), shall deliver, within three (3) Trading Days of each
applicable Conversion Date, an amount in cash equal to the product of the
outstanding principal amount to be converted plus any interest due therein
divided by the Conversion Price, chosen by the Holder, and multiplied by
the highest closing price of the stock from date of the conversion notice
till the date that such cash payment is made.
Further, if the Obligor shall not have delivered any cash due in respect of
conversion of this Debenture or as payment of interest thereon by the fifth
(5th) Trading Day after the Conversion Date, the Holder may, by notice to the
Obligor, require the Obligor to issue shares of Common Stock pursuant to Section
3(c), except that for such purpose the Conversion Price applicable thereto shall
be the lesser of the Conversion Price on the Conversion Date and the Conversion
Price on the date of such Holder demand. Any such shares will be subject to the
provisions of this Section.
5
(iii) The Holder shall effect conversions by delivering to the Obligor
a completed notice in the form attached hereto as Exhibit A (a "Conversion
Notice"). The date on which a Conversion Notice is delivered is the
"Conversion Date." Unless the Holder is converting the entire principal
amount outstanding under this Debenture, the Holder is not required to
physically surrender this Debenture to the Obligor in order to effect
conversions. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture plus all accrued and unpaid
interest thereon in an amount equal to the applicable conversion. The
Holder and the Obligor shall maintain records showing the principal amount
converted and the date of such conversions. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error.
(b) Certain Conversion Restrictions.
(i) A Holder may not convert this Debenture or receive shares of
Common Stock as payment of interest hereunder to the extent such conversion
or receipt of such interest payment would result in the Holder, together
with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 4.9% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, this Debenture held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Obligor
the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 4.9% of the then
outstanding shares of Common Stock without regard to any other shares which
may be beneficially owned by the Holder or an affiliate thereof, the Holder
shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of
the principal amount of this Debenture is convertible shall be the
responsibility and obligation of the Holder. If the Holder has delivered a
Conversion Notice for a principal amount of this Debenture that, without
regard to any other shares that the Holder or its affiliates may
beneficially own, would result in the issuance in excess of the permitted
amount hereunder, the Obligor shall notify the Holder of this fact and
shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date in accordance with the periods described
in Section 3(a)(i) and, at the option of the Holder, either retain any
principal amount tendered for conversion in excess of the permitted amount
hereunder for future conversions or return such excess principal amount to
the Holder. The provisions of this Section may be waived by a Holder (but
only as to itself and not to any other Holder) upon not less than 65 days
prior notice to the Obligor. Other Holders shall be unaffected by any such
waiver.
(c) Conversion Price and Adjustments to Conversion Price.
(i) The Holder shall be entitled to convert, at its sole option, at
any time a portion or all amounts of principal and interest due and
outstanding under this Debenture into shares of the Obligor's Common Stock
at the lesser of (i) at a price equal to $0.00525 ( the "Fixed Conversion
Price") or (ii) ninety percent (90%) of the lowest Closing Bid Price of the
Common Stock during the ten (10) trading days immediately preceding the
Conversion Date as quoted by Xxxxxxxxx, LP (the "Market Conversion Price").
6
The Fixed Conversion Price and the Market Conversion Price are collectively
referred to as the "Conversion Price." The Conversion Price may be adjusted
pursuant to the other terms of this Debenture.
(ii) If the Obligor, at any time while this Debenture is outstanding,
shall (a) pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c)
combine (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of the Common Stock any shares of capital stock
of the Obligor, then the Fixed 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 before such event and
of which the denominator shall be the number of shares of Common Stock
outstanding 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.
(iii) If the Obligor, at any time while this Debenture is outstanding,
shall issue rights, options or warrants to all holders of Common Stock (and
not to the Holder) entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Fixed Conversion Price,
then the Fixed Conversion Price shall be multiplied by a fraction, of which
the denominator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants (plus the number of additional shares of Common
Stock offered for subscription or purchase), and of which the numerator
shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or
warrants, plus the number of shares which the aggregate offering price of
the total number of shares so offered would purchase at the Fixed
Conversion Price. Such adjustment shall be made whenever such rights or
warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights, options or warrants. However, upon the expiration of any such
right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Fixed Conversion Price
pursuant to this Section, if any such right, option or warrant shall expire
and shall not have been exercised, the Fixed Conversion Price shall
immediately upon such expiration be recomputed and effective immediately
upon such expiration be increased to the price which it would have been
(but reflecting any other adjustments in the Fixed Conversion Price made
pursuant to the provisions of this Section after the issuance of such
rights or warrants) had the adjustment of the Fixed Conversion Price made
upon the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number of shares
of the Common Stock actually purchased upon the exercise of such rights,
options or warrants actually exercised.
(iv) If the Obligor or any subsidiary thereof, as applicable, at any
time while this Debenture is outstanding, shall issue shares of Common
Stock or rights, warrants, options or other securities or debt that are
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents") entitling any Person to acquire shares of Common Stock, at a
price per share less than the Fixed Conversion Price (if the holder of the
7
Common Stock or Common Stock Equivalent 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 a price per
share which is less than the Fixed Conversion Price, such issuance shall be
deemed to have occurred for less than the Fixed Conversion Price), then, at
the sole option of the Holder, the Fixed Conversion Price shall be adjusted
to mirror the conversion, exchange or purchase price for such Common Stock
or Common Stock Equivalents (including any reset provisions thereof) at
issue. Such adjustment shall be made whenever such Common Stock or Common
Stock Equivalents are issued. The Obligor shall notify the Holder in
writing, no later than one (1) business day following the issuance of any
Common Stock or Common Stock Equivalent subject to this Section, indicating
therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms. No adjustment
under this Section shall be made as a result of issuances and exercises of
options to purchase shares of Common Stock issued for compensatory purposes
pursuant to any of the Obligor's stock option or stock purchase plans.
(v) If the Obligor, at any time while this Debenture is outstanding,
shall distribute to all holders of Common Stock (and not to the Holder)
evidences of its indebtedness or assets or rights or warrants to subscribe
for or purchase any security, then in each such case the Fixed Conversion
Price at which this Debenture shall thereafter be convertible shall be
determined by multiplying the Fixed 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 Closing Bid Price determined as of the record date mentioned above,
and of which the numerator shall be such Closing Bid Price 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.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder shall have the right
thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts
then owing hereunder in respect of this Debenture into the shares of stock
and other securities, cash and property receivable upon or deemed to be
held by holders of the Common Stock following such reclassification or
share exchange, and the Holder of this Debenture shall be entitled upon
such event to receive such amount of securities, cash or property as the
shares of the Common Stock of the Obligor into which the then outstanding
principal amount, together with all accrued but unpaid interest and any
other amounts then owing hereunder in respect of this Debenture could have
been converted immediately prior to such reclassification or share exchange
would have been entitled, or (B) require the Obligor to prepay the
outstanding principal amount of this Debenture, plus all interest and other
amounts due and payable thereon. The entire prepayment price shall be paid
in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
8
(vii) The Obligor shall at all times reserve and keep available out of
its authorized Common Stock the full number of shares of Common Stock
issuable upon conversion of all outstanding amounts under this Debenture;
and within three (3) Business Days following the receipt by the Obligor of
a Holder's notice that such minimum number of Underlying Shares is not so
reserved, the Obligor shall promptly reserve a sufficient number of shares
of Common Stock to comply with such requirement.
(viii) All calculations under this Section 3 shall be rounded up to
the nearest $0.001 or whole share.
(ix) Whenever the Conversion Price is adjusted pursuant to Section 3
hereof, the Obligor shall promptly mail to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(x) If (A) the Obligor shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Obligor shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Obligor 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
Obligor shall be required in connection with any reclassification of the
Common Stock, any consolidation or merger to which the Obligor is a party,
any sale or transfer of all or substantially all of the assets of the
Obligor, of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; or (E) the Obligor shall
authorize the voluntary or involuntary dissolution, liquidation or winding
up of the affairs of the Obligor; then, in each case, the Obligor 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 address as it shall appear upon the stock books of the Obligor, at
least twenty (20) calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record
is to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be
specified in such notice. The Holder is entitled to convert this Debenture
during the 20-day calendar period commencing the date of such notice to the
effective date of the event triggering such notice.
(xi) In case of any (1) merger or consolidation of the Obligor or any
subsidiary of the Obligor with or into another Person, or (2) sale by the
Obligor or any subsidiary of the Obligor of more than one-half of the
assets of the Obligor in one or a series of related transactions, a Holder
shall have the right to (A) exercise any rights under Section 2(b), (B)
convert the aggregate amount of this Debenture then outstanding into the
9
shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such merger,
consolidation or sale, and such Holder shall be entitled upon such event or
series of related events to receive such amount of securities, cash and
property as the shares of Common Stock into which such aggregate principal
amount of this Debenture could have been converted immediately prior to
such merger, consolidation or sales would have been entitled, or (C) in the
case of a merger or consolidation, require the surviving entity to issue to
the Holder a convertible Debenture with a principal amount equal to the
aggregate principal amount of this Debenture then held by such Holder, plus
all accrued and unpaid interest and other amounts owing thereon, which such
newly issued convertible Debenture shall have terms identical (including
with respect to conversion) to the terms of this Debenture, and shall be
entitled to all of the rights and privileges of the Holder of this
Debenture set forth herein and the agreements pursuant to which this
Debentures were issued. In the case of clause (C), the conversion price
applicable for the newly issued shares of convertible preferred stock or
convertible Debentures shall be based upon the amount of securities, cash
and property that each share of Common Stock would receive in such
transaction and the Conversion Price in effect immediately prior to the
effectiveness or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to continue to
give the Holder the right to receive the securities, cash and property set
forth in this Section upon any conversion or redemption following such
event. This provision shall similarly apply to successive such events.
(d) Other Provisions.
(i) The Obligor 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, not less than such number of shares of the Common
Stock as shall (subject to any additional requirements of the Obligor as to
reservation of such shares set forth in this Debenture) be issuable (taking
into account the adjustments and restrictions of Sections 2(b) and 3(c))
upon the conversion of the outstanding principal amount of this Debenture
and payment of interest hereunder. The Obligor 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
Underlying Shares Registration Statement has been declared effective under
the Securities Act, registered for public sale in accordance with such
Underlying Shares Registration Statement.
(ii) Upon a conversion hereunder the Obligor 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 Closing Bid Price at such time.
If the Obligor 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.
(iii) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Obligor shall not be required to pay any tax that may be payable in respect
10
of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of such
Debenture so converted and the Obligor 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 Obligor the amount of such tax
or shall have established to the satisfaction of the Obligor that such tax
has been paid.
(iv) Nothing herein shall limit a Holder's right to pursue actual
damages or declare an Event of Default pursuant to Section 2 herein for the
Obligor 's failure to deliver certificates representing shares of Common
Stock upon conversion 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, in each case without the need to post a bond or
provide other security. 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) In addition to any other rights available to the Holder, if the
Obligor fails to deliver to the Holder such certificate or certificates
pursuant to Section 3(a)(i) by the fifth (5th) Trading Day after the
Conversion Date, and if after such fifth (5th) Trading Day the Holder
purchases (in an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by such Holder of the Underlying Shares
which the Holder anticipated receiving upon such conversion (a "Buy-In"),
then the Obligor 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 market price of the
Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue a Debenture
in the 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 Obligor timely complied with its
delivery requirements under Section 3(a)(i). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of Debentures with respect
to which the market price of the Underlying Shares on the date of
conversion was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Obligor shall be required to pay the Holder $1,000.
The Holder shall provide the Obligor written notice indicating the amounts
payable to the Holder in respect of the Buy-In.
Section 4. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms hereof
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 confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii)
one (1) trading 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:
11
If to the Company, to: Tech Laboratories, Inc.
c/o Anslow & Xxxxxx, LLP
000 Xxxxx 0 Xxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx
Telephone: (000) 000-0000
If to the Holder: Xxxxxxxxxx Equity Partners, Ltd
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
With a copy to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 5. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"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 are authorized or required by law or other government action to
close.
"Change of Control Transaction" means the occurrence of (a) 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 Obligor,
by contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Obligor (except that the acquisition of voting securities by
the Holder shall not constitute a Change of Control Transaction for purposes
hereof), (b) a replacement at one time or over time of more than one-half of the
members of the board of directors of the Obligor 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
12
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), (c) the merger, consolidation or sale of fifty percent (50%) or more of
the assets of the Obligor or any subsidiary of the Obligor in one or a series of
related transactions with or into another entity, or (d) the execution by the
Obligor of an agreement to which the Obligor is a party or by which it is bound,
providing for any of the events set forth above in (a), (b) or (c).
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the common stock, par value $0.01, of the Obligor and
stock of any other class into which such shares may hereafter be changed or
reclassified.
"Conversion Date" shall mean the date upon which the Holder gives the
Obligor notice of their intention to effectuate a conversion of this Debenture
into shares of the Company's Common Stock as outlined herein.
"Closing Bid Price" means the price per share in the last reported trade of
the Common Stock on the OTC or on the exchange which the Common Stock is then
listed as quoted by Bloomberg, LP.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Original Issue Date" shall mean the date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Trading Day" means a day on which the shares of Common Stock are quoted on
the OTC or quoted or traded on such Subsequent Market on which the shares of
Common Stock are then quoted or listed; provided, that in the event that the
shares of Common Stock are not listed or quoted, then Trading Day shall mean a
Business Day.
"Transaction Documents" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Amended and Restated Pledge Agreement, the
Irrevocable Transfer Agent Instructions, and the Investor Registration Rights
Agreement, and the Amended and Restated Convertible Debenture of even date
herewith.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
13
"Underlying Shares Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement,
covering among other things the resale of the Underlying Shares and naming the
Holder as a "selling stockholder" thereunder.
Section 6. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Obligor, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Obligor. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Obligor shall not and shall cause their subsidiaries not to,
without the consent of the Holder, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock or other equity securities other than as to
the Underlying Shares to the extent permitted or required under the Transaction
Documents; or (iii) enter into any agreement with respect to any of the
foregoing.
Section 7. This Debenture shall not entitle the Holder to any of the rights
of a stockholder of the Obligor, including without limitation, the right to
vote, to receive dividends and other distributions, or to receive any notice of,
or to attend, meetings of stockholders or any other proceedings of the Obligor,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
Section 8. If this Debenture is mutilated, lost, stolen or destroyed, the
Obligor shall execute and deliver, in exchange and substitution for and upon
cancellation of the 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 Obligor.
Section 9. No indebtedness of the Obligor is senior to this Debenture in
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution or otherwise. Without the Holder's consent, the Obligor will not
and will not permit any of their subsidiaries to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any indebtedness of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits there from that is senior in
any respect to the obligations of the Obligor under this Debenture.
Section 10. This Debenture shall be governed by and construed in accordance
with the laws of the State of New Jersey, without giving effect to conflicts of
laws thereof. Each of the parties consents to the jurisdiction of the Superior
Courts of the State of New Jersey sitting in Xxxxxx County, New Jersey and the
U.S. District Court for the District of New Jersey sitting in Newark, New Jersey
in connection with any dispute arising under this Debenture and hereby waives,
to the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens to the bringing of any such proceeding in such
jurisdictions.
14
Section 11. If the Obligor fails to strictly comply with the terms of this
Debenture, then the Obligor shall reimburse the Holder promptly for all fees,
costs and expenses, including, without limitation, attorneys' fees and expenses
incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the
Holder's rights, remedies and obligations, (ii) collecting any sums which become
due to the Holder, (iii) defending or prosecuting any proceeding or any
counterclaim to any proceeding or appeal; or (iv) the protection, preservation
or enforcement of any rights or remedies of the Holder.
Section 12. Any waiver by 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 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.
Section 13. 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 shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Obligor 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 Obligor 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 Obligor (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.
Section 14. 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.
Section 15. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
15
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16
IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
TECH LABORATORIES, INC.
By: /s/ Xxxxx Xxxxxxxxx
---------------------
Name: Xxxxx Xxxxxxxxx
Title: Chief Executive Officer
17
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal
amount of the above Debenture into Shares of Common Stock of Tech Laboratories,
Inc., according to the conditions stated therein, as of the Conversion Date
written below.
Conversion Date: --------------------------------------
Applicable Conversion Price: --------------------------------------
Signature: --------------------------------------
Name: --------------------------------------
Address: --------------------------------------
Amount to be converted: $-------------------------------------
Amount of Debenture unconverted: $-------------------------------------
Conversion Price per share: $-------------------------------------
Number of shares of Common Stock to be
issued: --------------------------------------
Please issue the shares of Common Stock
in the following name and to the
following address: --------------------------------------
Issue to: --------------------------------------
Authorized Signature: --------------------------------------
Name: --------------------------------------
Title: --------------------------------------
Phone Number: --------------------------------------
Broker DTC Participant Code: --------------------------------------
Account Number: --------------------------------------
