INFOSMART GROUP, INC. SECURED DEBENTURE
FOR
VALUE
RECEIVED, the undersigned, Infosmart Group, Inc., a California corporation
(referred to herein as the “Company”), with a business address at 5th
Floor,
QPL Industrial Building, ▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇, hereby
unconditionally promises to pay to the order of _____, its endorsees, successors
and/or assigns (the “Lender”), in lawful money of the United States, at ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or such other address as
the
Lender may from time to time designate, the principal sum of _____ ($_____)
(the
“Issue Amount”). This Debenture shall mature and become due and payable in full
on the one-year anniversary of the date of issue of this Debenture (the
“Maturity Date”).
1. Original
Issue Discount.
The
Lender shall purchase this Debenture at a price equal to 80% of the Issue Amount
which shall represent a 20% Original Issue Discount.
2. Terms
of Repayment.
Principal of and interest on this Debenture shall be paid by the Company as
follows:
(a) Interest
at the rate of twelve percent (12%) per annum from the date hereof through
the
Maturity Date shall be paid monthly by the Company in cash or, at the sole
option of the Company, in registered shares of the Company’s common stock, no
par value (“Common Stock”) at the average closing bid price of the Common Stock
for the five (5) trading days immediately preceding the payment date. Interest
payments shall be delivered to the Lender within five (5) business days of
the
first day of each month.
(b) Principal
shall be due and payable on the one-year anniversary of the date of issue of
this Debenture. The principal amount shall be repaid in cash and in full on
the
date it is due.
(c) The
Company further agrees that, if any payment made by the Company or any other
person is applied to this Debenture and is at any time annulled, set aside,
rescinded, invalidated, declared to be fraudulent or preferential or otherwise
required to be refunded or repaid, or the proceeds of any property hereafter
pledged as security for this Debenture is required to be returned by Lender
to
the Company, its estate, trustee, receiver or any other party, including,
without limitation, under any bankruptcy law, state or federal law, common
law
or equitable cause, then, to the extent of such payment or repayment, the
Company’s liability hereunder (and any lien, security interest or other
collateral securing such liability) shall be and remain in full force and
effect, as fully as if such payment had never been made, or, if prior thereto
any such lien, security interest or other collateral hereunder securing the
Company’s liability hereunder shall have been released or terminated by virtue
of such cancellation or surrender, this Debenture (and such lien, security
interest or other collateral) shall be reinstated in full force and effect,
and
such prior cancellation or surrender shall not diminish, release, discharge,
impair or otherwise affect the obligations of the Company in respect to the
amount of such payment (or any lien, security interest or other collateral
securing such obligation).
(d) All
computations of interest shall be made by Lender on the basis of a year of
360
days for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is payable. Whenever
any payment to be made hereunder shall be stated to be due on a day which is
not
a business day, such payment shall be made on the next succeeding day and such
extension of time shall in such case be included in the computation of payment
of interest.
(e) The
Company may prepay all or any part of the outstanding principal amount of this
Debenture, together with interest accrued, if any, excluding the interest that
was prepaid as described in Section 1 (a) above on the amount prepaid through
the date of prepayment, plus a premium, upon not fewer than ten (10) trading
days’ prior written notice to the Lender. In the event such prepayment occurs,
the amount paid shall be 125% of the prepaid principal plus any accrued
interest.
3. Restructure.
Upon the
earlier of: (a) September 1, 2008; or (b) the date that 100% of the Company’s
outstanding and unconverted Series B Convertible Preferred Stock is mandatorily
converted into shares of Common Stock pursuant to the terms of the Company’s
Certificate of Determination of Rights, Preferences, Privileges and Restrictions
of Series B Convertible Preferred Stock (the “Restructure Election Date”), the
Company shall have the option to convert this Debenture, which shall at such
time be deemed fully paid and shall be terminated, cancelled, and deemed null
and void, to a Secured Convertible Debenture that, at the sole option of the
Investor, is convertible into common stock of the Company (the “Restructure”).
The Company’s option to Restructure shall expire on the tenth day of September
2008 (the “Restructure Expiration Date”), unless all parties mutually agree in
writing to extend the Restructure Expiration Date. In the event that the Company
elects to Restructure, the Company shall deliver to the Investors an executed
Notice of Restructure in the form attached as Exhibit
A
along
with Board Resolutions authorizing and approving the Restructure and the duly
executed Secured Convertible Debenture. Upon receipt of the Notice, Board
Resolution and Convertible Debenture, the Investor shall return this Debenture,
in its originally executed form, to the Company for cancellation.
4. Liability
of the Company.
The
Company is unconditionally, and without regard to the liability of any other
person, liable for the payment and performance of this Debenture and such
liability shall not be affected by an extension of time, renewal, waiver, or
modification of this Debenture or the release, substitution, or addition of
collateral for this Debenture. Each person signing this Debenture consents
to
any and all extensions of time, renewals, waivers, or modifications, as well
as
to release, substitution, or addition of guarantors or collateral security,
without affecting the Company’s liabilities hereunder. Lender is entitled to the
benefits of any collateral agreement, guarantee, security agreement, assignment,
or any other documents which may be related to or are applicable to the debt
evidenced by this Debenture, all of which are collectively referred to as “Loan
Documents” as they now exist, may exist in the future, have existed, and as they
may be amended, modified, renewed, or substituted.
5. Representations
and Warranties.
The
Company represents and warrants as follows:
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(i)
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the
Company is a corporation duly organized, validly existing and in
good
standing under the laws of the State of
California;
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(ii)
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the
execution, delivery and performance by the Company of this Debenture
are
within the Company's powers, have been duly authorized by all necessary
action, and do not contravene: (A) the Company's Articles of Incorporation
or by-laws; or (B) any law or agreement or document binding on or
affecting the Company;
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(iii)
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other
than has been previously obtained, no other authorization or approval
or
other action by, and no notice to or filing with, any governmental
authority, regulatory body or third person is required for the due
execution, delivery and performance by the Company of this Debenture;
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(iv)
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this
Debenture constitutes the legal, valid and binding obligation of
the
Company, enforceable against the Company in accordance with its terms
except as enforcement hereof may be limited by bankruptcy, insolvency
or
other similar laws affecting the enforcement of creditors' rights
generally and subject to the applicability of general principles
of
equity;
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(v)
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the
Company has all requisite power and authority to own and operate
its
property and assets and to conduct its business as now conducted
and
proposed to be conducted and to consummate the transactions contemplated
hereby;
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(vi)
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the
Company is duly qualified to conduct its business and is in good
standing
in each jurisdiction in which the character of the properties owned
or
leased by it, or in which the transaction of its business makes such
qualification necessary;
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(vii)
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to
the Company’s knowledge, there is no pending or threatened action or
proceeding affecting the Company before any governmental agency or
arbitrator which challenges or relates to this Debenture or which
may
otherwise have a material adverse effect on the Company;
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(viii)
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after
giving effect to the transactions contemplated by this Debenture,
the
Company is Solvent;
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(ix)
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the
Company is not in violation or default of any provision of its Articles
of
Incorporation or by-laws, each as currently in effect, or any instrument,
judgment, order, writ, decree or contract, statute, rule or regulation
to
which the Company is subject; and
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(x)
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this
Debenture is validly issued, free of any taxes, liens, and encumbrances
related to the issuance, other than the holder of the current debt
issued
in connection with the initial plant, hereof and is not subject to
preemptive right or other similar right of members of the
Company.
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6. Covenants.
So long
as any principal or interest is due hereunder and shall remain unpaid, the
Company will, unless the Lender shall otherwise consent in writing:
(a) Maintain
and preserve its existence, rights and privileges;
(b) Other
than: (i) bank debt, whether existing as of the date of this Debenture or
accumulated in the future, in the aggregate amount of $12,000,000, except as
otherwise permitted in the Transaction Documents; and (ii) any financing
arrangements identified as permitted arrangements under the terms of the
Security Agreement, the Company will not incur any indebtedness, other than
indebtedness incurred in the ordinary course of business or outstanding on
the
date hereof, unless such indebtedness is subordinated to the prior payment
in
full of this Debenture on terms reasonably satisfactory to the Lender;
(c) Not:
(i)
directly or indirectly sell, lease or otherwise dispose of all or substantially
all of any of its property or assets other than in its ordinary course of
business, in the aggregate, to any person(s), whether in one transaction or
in a
series of transactions over any period of time; (ii) merge into, with or
consolidate with any other person, whereby such other person acquires more
than
50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other person or other persons making or party to,
or
associated or affiliated with the other persons making or party to, such merger
or other business combination) or whereby any “person” is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 50% of the aggregate ordinary voting power represented by
issued and outstanding Common Stock; or (iii) adopt any plan or arrangement
for
the dissolution or liquidation of the Company;
(d) Give
written notice to Lender upon the occurrence of an Event of Default (as defined
below) within five (5) Business Days of such event;
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(e) Not
use
the proceeds from the issuance of this Debenture in any way for any purpose
that
entails a violation of, or is inconsistent with, Regulation U of the Board
of
Governors of the Federal Reserve System of the United States of
America;
(f) Comply
in
all material respects with all applicable laws (whether federal, state or local
and whether statutory, administrative or judicial or other) and with every
applicable lawful governmental order (whether administrative or judicial).
(g) Not
redeem or repurchase any of its capital stock;
(h) Not
make
any advance or loan to any person, firm or corporation, except for reasonable
travel or business expenses advanced in the ordinary course of business;
and
(i) Not
take
any action which would impair the rights and privileges of this Debenture set
forth herein or the rights and privileges of the holder of this Debenture.
7. Events
of Default.
Each
and any of the following shall constitute a default and, after the Lender
provides notice to the Company of a default and such default is not cured within
the earlier to occur of (A) 5 trading days after notice of such failure sent
by
the Lender and (B) 10 trading days after the Company has become or should have
become aware of such failure, shall constitute an “Event of Default”
hereunder:
(a) the
nonpayment of principal, late charges or any other costs or expenses promptly
when due of any amount payable under this Debenture or the nonpayment by the
Company of any other obligation to the Lender;
(b) any
default under any material provision of this Debenture (other than a payment
default described above);
(c) any
failure of the Company to observe or perform any present or future agreement
of
any nature whatsoever with Lender, including, without limitation, any covenant
set forth in this Debenture;
(d) if
Company shall commence any case, proceeding or other action: (i) under any
existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have
an
order for relief entered with respect to it, or seeking to adjudicate it
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution, composition or other relief with respect to it or
its
debts; or (ii) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property,
or
the Company shall make a general assignment for the benefit of its creditors;
or
(iii) there shall be commenced against the Company any case, proceeding or
other
action of a nature referred to above or seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its property, which case, proceeding or other action results
in the entry of any order for relief or remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or (iii) the Company shall take any
action indicating its consent to, approval of, or acquiescence in, or in
furtherance of, any of the acts set forth; or (iv) the Company shall generally
not, or shall be unable to, pay its debts as they become due or shall admit
in
writing its inability to pay its debts;
(e) any
representation or warranty made by the Company or any other person or entity
under this Debenture or under any other Loan Documents shall prove to have
been
incorrect in any material respect when made;
(f) an
event
of default, which has not been waived or cured, or a default shall occur and
be
continuing under any other material agreement, document or instrument binding
upon the Company resulting in a liability in excess of one hundred thousand
dollars ($100,000) (whether or not any such event of default or default is
waived by the holder thereof) and including, without limitation, under any
other
Transaction Document (as defined in the Securities Purchase
Agreement);
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(g) the
entry
of any judgment against the Company or any of its property for an amount in
excess of one hundred thousand dollars ($100,000) that remains unsatisfied
for
thirty (30) days;
(h) the
sale
of all or substantially all of the assets, or change in ownership or the
dissolution, liquidation, merger, or consolidation of the Company without the
Lender’s written consent.
8. Lender’s
Rights Upon Default.
Upon
the occurrence of any Event of Default, the Lender may, at its sole and
exclusive option, do any or all of the following, either concurrently or
separately: (a) accelerate the maturity of this Debenture and demand immediate
payment in full, whereupon the outstanding principal amount of the Debenture
and
all obligations of Company to Lender, together with accrued interest thereon
and
accrued charges and costs, shall become immediately due and payable without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived; and (b) exercise all legally available rights and
privileges.
9. Default
Interest Rate.
Upon an
Event of Default, without any further action on the part of Lender, interest
will thereafter accrue at the rate of eighteen percent (18%) per annum (the
“Default Rate”), until all outstanding principal, interest and fees are repaid
in full by Company.
10. Usury.
In no
event shall the amount of interest paid or agreed to be paid hereunder exceed
the highest lawful rate permissible under applicable law. Any excess amount
of
deemed interest shall be null and void and shall not interfere with or affect
the Company’s obligation to repay the principal of and interest on the
Debenture. This confirms that the Company and, by its acceptance of this
Debenture, the Lender intend to contract in strict compliance with applicable
usury laws from time to time in effect. Accordingly, the Company and the Lender
stipulate and agree that none of the terms and provisions contained herein
shall
ever be construed to create a contract to pay, for the use or forbearance of
money, interest in excess of the maximum amount of interest permitted to be
charged by applicable law from time to time in effect.
11. No
Prepayment.
This
Debenture may not be prepaid in whole or in part, at any time, without the
prior
written consent of the Lender, except pursuant to the provisions of section
2(e).
12. Costs
of Enforcement.
Company
hereby covenants and agrees to indemnify, defend and hold Lender harmless from
and against all costs and expenses, including reasonable attorneys’ fees and
their costs, together with interest thereon at the prime rate, incurred by
Lender in enforcing its rights under this Debenture; or if Lender is made a
party as a defendant in any action or proceeding arising out of or in connection
with its status as a lender, or if Lender is requested to respond to any
subpoena or other legal process issued in connection with this Debenture; or
reasonable disbursements arising out of any costs and expenses, including
reasonable attorneys’ fees and their costs incurred in any bankruptcy case; or
for any legal or appraisal reviews, advice or counsel performed for Lender
following a request by Company for waiver, modification or amendment of this
Debenture or any of the other Loan Documents.
13. Governing
Law.
This
Debenture shall be binding upon and inure to the benefit of the Company and
the
Lender and their respective successors and assigns; provided that the Company
may not assign this Debenture, in whole or in part, by operation of law or
otherwise, without the prior written consent of the Lender. The Lender may
assign or otherwise participate out all or part of, or any interest in, its
rights and benefits hereunder and to the extent of such assignment or
participation such assignee shall have the same rights and benefits against
the
Company as it would have had if it were the Lender. This Debenture, and any
claims arising out of or relating to this Debenture, whether in contract or
tort, statutory or common law, shall be governed exclusively by, and construed
in accordance with the laws of the State of New York without regard to
principles of conflicts of laws.
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14. Jurisdiction.
THE
COMPANY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST IT UNDER, ARISING
OUT OF OR IN ANY MANNER RELATING TO THIS DEBENTURE, OR ANY OTHER INSTRUMENT
OR
DOCUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH SHALL BE BROUGHT
EXCLUSIVELY IN ANY COURT OF THE STATE OF NEW YORK OR IN THE UNITED STATES
DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK, IN EACH CASE, IN THE COUNTY
OF NASSAU. THE COMPANY, BY THE EXECUTION AND DELIVERY OF THIS DEBENTURE,
EXPRESSLY AND IRREVOCABLY CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION
OF
ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDINGS. THE COMPANY AGREES THAT
PERSONAL JURISDICTION OVER IT MAY BE OBTAINED BY THE DELIVERY OF A SUMMONS
BY
PERSONAL DELIVERY OR OVERNIGHT COURIER AT THE ADDRESS PROVIDED IN SECTION 16
OF
THIS DEBENTURE. ASSUMING DELIVERY OF THE SUMMONS IN ACCORDANCE WITH THIS
PROVISION, THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY ALLEGED
LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OF FORUM NON CONVENIENS OR ANY SIMILAR
BASIS.
15. Miscellaneous.
(a)
Company hereby waives protest, notice of protest, presentment, dishonor, and
demand.
(b)
Time
is of the essence for each of Company’s covenants under this Debenture.
(c)
The
rights and privileges of Lender under this Debenture shall inure to the benefit
of its successors and assigns. All obligations of Company in connection with
this Debenture shall bind Company’s successors and assigns.
(d)
If
any provision of this Debenture shall for any reason be held to be invalid
or
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof, but this Debenture shall be construed as if such invalid
or
unenforceable provision had never been contained herein.
(e)
The
waiver of any Event of Default or the failure of Lender to exercise any right
or
remedy to which it may be entitled shall not be deemed a waiver of any
subsequent Event of Default or ▇▇▇▇▇▇’s right to exercise that or any other
right or remedy to which ▇▇▇▇▇▇ is entitled. No delay or omission by ▇▇▇▇▇▇
in
exercising, or failure by Lender to exercise on any one or more occasions,
shall
be construed as a waiver or novation of this Debenture or prevent the subsequent
exercise of any or all such rights.
(f)
This
Debenture may not be waived, changed, modified, or discharged orally, but only
in writing.
16. Notice,
Etc.
Any
notice required by the provisions of this Debenture will be in writing and
will
be deemed effectively given: (a) upon personal delivery to the party to be
notified; (b) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient; if not, then on the next business day; (c)
five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt, and delivered as follows:
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If
to the
Company:
5th
Floor,
QPL Industrial Building
▇▇▇-▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇
▇▇▇, Hong Kong
With
a
copy to:
▇▇▇▇▇▇▇▇▇▇
& ▇▇▇▇▇, LLP
▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
Los
Angeles, California 90024-6525
Attn:
▇▇▇▇▇ ▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
If
to
Lender:
_____
With
a
copy to:
▇▇▇▇▇▇
& ▇▇▇▇▇▇, LLP
▇▇▇
▇▇▇▇▇
▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
Manalapan,
New Jersey 07726
Attention:
▇▇▇▇ ▇▇▇▇▇
Phone
Number (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile
Number: (▇▇▇) ▇▇▇-▇▇▇▇
or,
as to
each party, at such other address as shall be designated by such party in a
written notice to the other parties.
17. Definitions.
As used
herein, the following terms shall have the meaning ascribed to them
below:
(a) "Solvent"
shall mean, with respect to any person or entity on a particular date, that
on
such date: (i) the fair value of the property of such person or entity is not
less than the total amount of the liabilities of such person or entity; (ii)
the
present fair salable value of the assets of such person or entity is not less
than the amount required to pay the probable liability on such person's existing
debts as they become absolute and matured; (iii) such person or entity is able
to realize upon its assets and pay its debts and other liabilities; (iv) such
person or entity does not intend to, and does not believe that it will, incur
debts or liabilities beyond such person or entity's ability to pay as such
debts
and liabilities mature; and (v) such person or entity is not engaged in business
or a transaction, and is not about to engage in a business or a transaction,
for
which such person's or entity's property would constitute unreasonably small
capital.
(b) "Securities
Purchase Agreement" shall mean the Securities Purchase Agreement dated the
date
hereof among the Company, the Lender and the other purchasers identified
therein.
[REMAINDER
OF PAGE LEFT BLANK]
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[SIGNATURE
PAGE TO DEBENTURE]
IN
WITNESS WHEREOF,
the
undersigned has executed this Secured Debenture as of the date first set forth
above.
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By:
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Its:
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ATTORNEY
NOTARIZATION:
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Attorney Name:
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I.D.
No.:
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EXHIBIT
A
NOTICE
OF INTENTION TO RESTRUCTURE
(to
be
signed upon Restructure of Debt)
TO
_____:
The
Company hereby has decided to restructure the financing and agrees to terminate
the Secured Debenture and replace it with the Senior Convertible Debenture.
The
Company has attached a copy of its executed Board Resolution authorizing
approving its decision to Restructure and replace the Secured Debenture with
the
Secured Convertible Debenture and is delivering the executed Secured Convertible
Debenture. The Company, thereby, requests that the Secured Debenture be returned
to the Company for cancellation.
Dated:
_____________________
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(signature)
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(address)
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