EXHIBIT A
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: JULY __, 2004
Original Set Price (subject to adjustment herein): $0.20
$_______________
CONVERTIBLE DEBENTURE
DUE JULY _____, 2006
THIS DEBENTURE is one of a series of duly authorized and issued
Convertible Debentures of Xxxxxx Capital Corp., a Nevada corporation, having a
principal place of business at _____________________________ (the "Company"),
designated as its Convertible Debenture, due July __, 2006 (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "Holder"), the principal
sum of $_______________ on July __, 2006 or such earlier date as the Debentures
are required or permitted to be repaid as provided hereunder (the "Maturity
Date"). EXCEPT AS SET FORTH IN THIS DEBENTURE, tHE COMPANY MAY NOT PREPAY ANY
PORTION OF THE PRINCIPAL AMOUNT OF THIS DEBENTURE WITHOUT THE PRIOR WRITTEN
CONSENT OF THE HOLDER.
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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. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations. Prior to due
presentment to the Company for transfer of this Debenture, the Company and any
agent of the Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 3. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
i) any default in the payment of (A) the principal of amount
of any Debenture, or (B) liquidated damages in respect of, any
Debenture, in each case 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) which
default is not cured, within 3 Trading Days;
ii) the Company shall fail to observe or perform any other
covenant or agreement contained in this Debenture or any of the
other Transaction Documents (other than a breach by the Company of
its obligations to deliver shares of Common Stock to the Holder upon
conversion which breach is addressed in clause (xii) below) which
failure is not cured, if possible to cure, within the earlier to
occur of (A) 5 Trading Days after notice of such default sent by the
Holder or by any other Holder and (B) 10 Trading Days after the
Company shall become or should have become aware of such failure;
iii) a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents
other than the Debentures, or (B) any other material agreement,
lease, document or instrument to which the Company or any Subsidiary
is bound;
iv) any representation or warranty made herein, in any other
Transaction Document, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate
made or delivered to the Holder or any other holder of Debentures
shall be untrue or incorrect in any material respect as of the date
when made or deemed made;
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v) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary
a case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company or any
Subsidiary commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether
now or hereafter in effect relating to the Company or any subsidiary
thereof or there is commenced against the Company or any subsidiary
thereof any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial
part of its property which continues undischarged or unstayed for a
period of 60 days; or the Company or any subsidiary thereof makes a
general assignment for the benefit of creditors; or the Company
shall fail to pay, or shall state that it is unable to pay, or shall
be unable to pay, its debts generally as they become due; or the
Company or any subsidiary thereof shall call a meeting of its
creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or the Company or any subsidiary thereof
shall by any act or failure 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 Company or any subsidiary
thereof for the purpose of effecting any of the foregoing;
vi) the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an
amount exceeding $150,000, whether such indebtedness now exists or
shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable;
vii) the Common Stock shall not be eligible for quotation on
or quoted for trading on a Trading Market and shall not again be
eligible for and quoted or listed for trading thereon within five
Trading Days;
viii) the Company shall be a party to any Change of Control
Transaction, shall agree to sell or dispose of all or in excess of
33% of its assets in one or more transactions (whether or not such
sale would constitute a Change of Control Transaction) or shall
redeem or repurchase more than a de minimis number of its
outstanding shares of Common Stock or other equity securities of the
Company (other than redemptions of Conversion Shares and repurchases
of shares of Common Stock or other equity securities of departing
officers and directors of the Company; provided such repurchases
shall exceed $100,000, in the aggregate, for all officers and
directors during the term of this Debenture);
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ix) a Registration Statement shall not have been declared
effective by the Commission on or prior to the 180th calendar day
after the Closing Date or any other Event (as defined in the
Registration Rights Agreement) shall have occurred;
x) if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the
Registration Statement lapses for any reason or the Holder shall not
be permitted to resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Registration Statement, in
either case, for more than 15 consecutive Trading Days or 25
non-consecutive Trading Days during any 12 month period; provided,
however, that in the event that the Company is negotiating a merger,
consolidation, acquisition or sale of all or substantially all of
its assets or a similar transaction and in the written opinion of
counsel to the Company, the Registration Statement, would be
required to be amended to include information concerning such
transactions or the parties thereto that is not available or may not
be publicly disclosed at the time, the Company shall be permitted an
additional 10 consecutive Trading Days during any 12 month period
relating to such an event;
xi) an Event (as defined in the Registration Rights Agreement)
shall not have been cured to the satisfaction of the Holder prior to
the expiration of thirty days from the Event Date (as defined in the
Registration Rights Agreement) relating thereto (other than an Event
resulting from a failure of an Registration Statement to be declared
effective by the Commission on or prior to the Effectiveness Date
(as defined in the Registration Rights Agreement), which shall be
covered by Section 3(a)(vii));
xii) the Company shall fail for any reason to deliver
certificates to a Holder prior to the fifth Trading Day after a
Conversion Date pursuant to and in accordance with Section 4(b) or
the Company 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 any Debentures in accordance with
the terms hereof; or
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xiii) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within five
days after notice thereof is delivered hereunder; or
xiv) the Company shall not have amended its certificate of
articles of incorporation to increase the number of authorized but
unissued shares of Common Stock to at least the Required Minimum as
of the Closing date.
b) If any Event of Default occurs, the full principal amount of this
Debenture and other amounts owing in respect thereof, to the date of
acceleration shall become, at the Holder's election, immediately due and payable
in cash. The aggregate amount payable upon an Event of Default shall be equal to
the Mandatory Prepayment Amount. Commencing 5 days after the occurrence of any
Event of Default that results in the eventual acceleration of this Debenture,
interest shall accrue at the rate of 18% per annum, or such lower maximum amount
of interest permitted to be charged under applicable law. All Debentures for
which the full Mandatory Prepayment Amount hereunder shall have been paid in
accordance herewith shall promptly be surrendered to or as directed by the
Company. The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Xxxxxx at any
time prior to payment hereunder and the Holder shall have all rights as a
Debenture holder until such time, if any, as the full payment under this Section
shall have been received by it. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 4. Conversion.
a) i) At any time after the Original Issue Date until this Debenture is no
longer outstanding, this Debenture shall be convertible into shares of
Common Stock at the option of the Holder, in whole or in part at any time
and from time to time (subject to the limitations on conversion set forth
in Section 4(a)(ii) hereof). The Holder shall effect conversions by
delivering to the Company the form of Notice of Conversion attached hereto
as Annex A (a "Notice of Conversion"), specifying therein the principal
amount of Debentures to be converted and the date on which such conversion
is to be effected (a "Conversion Date"). If no Conversion Date is
specified in a Notice of Conversion, the Conversion Date shall be the date
that such Notice of Conversion is provided hereunder. To effect
conversions hereunder, the Holder shall not be required to physically
surrender Debentures to the Company unless the entire principal amount of
this Debenture has been so converted. Conversions hereunder shall have the
effect of lowering the outstanding principal amount of this Debenture in
an amount equal to the applicable conversion. The Holder and the
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Company shall maintain records showing the principal amount converted and
the date of such conversions. The Company shall deliver any objection to
any Notice of Conversion within 1 Business Day of receipt of such notice.
In the event of any dispute or discrepancy, the records of the Holder
shall be controlling and determinative in the absence of manifest error.
The Holder and any assignee, by acceptance of this Debenture, acknowledge
and agree that, by reason of the provisions of this paragraph, following
conversion of a portion of this Debenture, the unpaid and unconverted
principal amount of this Debenture may be less than the amount stated on
the face hereof.
ii) Conversion Limitations.
(A) Reserved.
(B) The Company shall not effect any conversion of this
Debenture, and the Holder shall not have the right to convert any
portion of this Debenture, pursuant to Section 4(a)(i) or otherwise,
to the extent that after giving effect to such conversion, the
Holder (together with the Holder's affiliates), as set forth on the
applicable Notice of Conversion, would beneficially own in excess of
4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to such conversion. For purposes of
the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include
the number of shares of Common Stock issuable upon conversion of
this Debenture with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Debenture beneficially owned
by the Holder or any of its affiliates and (B) exercise or
conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other
Debentures or the Warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set forth in
the preceding sentence, for purposes of this Section 4(a)(ii),
beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act. To the extent that the limitation
contained in this section applies, the determination of whether this
Debenture is convertible (in relation to other securities owned by
the Holder) and of which a portion of this Debenture is convertible
shall be in the sole discretion of such Holder. To ensure compliance
with this restriction, the Holder will be deemed to represent to the
Company each time it delivers a Notice of Conversion that such
Notice of Conversion has not violated the restrictions set forth in
this paragraph and the Company shall have no obligation to verify or
confirm the accuracy of such determination. For purposes of
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this Section 4(a)(ii), in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company's
most recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a
more recent public announcement by the Company or (z) any other
notice by the Company or the Company's Transfer Agent setting forth
the number of shares of Common Stock outstanding. Upon the written
or oral request of the Holder, the Company shall within two Trading
Days confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Debenture, by the Holder or its affiliates since the
date as of which such number of outstanding shares of Common Stock
was reported. The provisions of this Section 4(a)(ii) may be waived
by the Holder upon, at the election of the Holder, not less than 61
days' prior notice to the Company, and the provisions of this
Section 4(a)(ii)(B) shall continue to apply until such 61st day (or
such later date, as determined by the Holder, as may be specified in
such notice of waiver).
iii) Conversion Shares Issuable Upon Conversion of Principal Amount.
The number of shares of Common Stock issuable upon a conversion shall be
determined by the quotient obtained by dividing (x) the outstanding
principal amount of this Debenture to be converted by (y) the Set Price.
(b) i) Not later than three Trading Days after any Conversion Date, the
Company will deliver to the Holder a certificate or certificates
representing the Conversion Shares which shall be free of restrictive
legends and trading restrictions (other than those required by the
Purchase Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of Debentures. The Company shall, if
available and if allowed under applicable securities laws, use its best
efforts to deliver any certificate or certificates required to be
delivered by the Company under this Section electronically through the
Depository Trust Corporation or another established clearing corporation
performing similar functions. If in the case of any Notice of Conversion
such certificate or certificates are not delivered to or as directed by
the applicable Holder by the fifth Trading Day after a Conversion Date,
the Holder shall be entitled by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter,
to rescind such conversion, in which event the Company shall immediately
return the certificates representing the principal amount of Debentures
tendered for conversion.
ii) If the Company fails for any reason to deliver to the Holder
such certificate or certificates pursuant to Section 4(b)(i) by the third
Trading Day after
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the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, for each $5,000 of principal
amount being converted, $50 per Trading Day (increasing to $100 per
Trading Day after 3 Trading Days after such damages begin to accrue and
increasing to $200 per Trading Day 6 Trading Days after such after such
damages begin to accrue) for each Trading Day after such third Trading Day
until such certificates are delivered. The Company's obligations to issue
and deliver the Conversion Shares upon conversion of this Debenture in
accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same,
any waiver or consent with respect to any provision hereof, the recovery
of any judgment against any Person or any action to enforce the same, or
any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any
obligation to the Company or any violation or alleged violation of law by
the Holder or any other person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder
in connection with the issuance of such Conversion Shares; provided,
however, such delivery shall not operate as a waiver by the Company of any
such action the Company may have against the Holder. In the event a Holder
of this Debenture shall elect to convert any or all of the outstanding
principal amount hereof, the Company may not refuse conversion based on
any claim that the Holder or any one associated or affiliated with the
Holder of has been engaged in any violation of law, agreement or for any
other reason, unless, an injunction from a court, on notice, restraining
and or enjoining conversion of all or part of this Debenture shall have
been sought and obtained and the Company posts a surety bond for the
benefit of the Holder in the amount of 150% of the principal amount of
this Debenture outstanding, which is subject to the injunction, which bond
shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such Holder to
the extent it obtains judgment. In the absence of an injunction precluding
the same, the Company shall issue Conversion Shares or, if applicable,
cash, upon a properly noticed conversion. Nothing herein shall limit a
Xxxxxx's right to pursue actual damages or declare an Event of Default
pursuant to Section 3 herein for the Company's failure to deliver
Conversion Shares within the period specified herein and such Holder shall
have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the
Holders from seeking to enforce damages pursuant to any other Section
hereof or under applicable law.
iii) In addition to any other rights available to the Holder, if the
Company fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i) by the third Trading Day after
the Conversion Date, and if after such third Trading Day the Holder is
required by its brokerage firm to purchase (in an open market transaction
or otherwise) Common
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Stock to deliver in satisfaction of a sale by such Holder of the
Conversion Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Company shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by the Holder)
the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds
(y) the product of (1) the aggregate number of shares of Common Stock that
such Holder anticipated receiving from the conversion at issue multiplied
by (2) the actual sale price of the Common Stock at the time of the sale
(including brokerage commissions, if any) giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue Debentures
in principal amount equal to the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its
delivery requirements under Section 4(b)(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 actual sale price of the Conversion Shares at the time of the
sale (including brokerage commissions, if any) giving rise to such
purchase obligation was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder
requires the Company to make payment in respect of a Buy-In for the
failure to timely deliver certificates hereunder and the Company timely
pays in full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 4(b)(ii) in respect of the
certificates resulting in such Buy-In.
(c) i) THE CONVERSION PRICE IN EFFECT ON ANY CONVERSION DATE SHALL
BE EQUAL TO $0.20 (SUBJECT TO ADJUSTMENT HEREIN AND SUBJECT TO ADJUSTMENT
PURSUANT TO SECTION 4.16 OF THE PURCHASE AGREEMENT)(THE "SET PRICE").
ii) If the Company, at any time while the Debentures are
outstanding: (A) shall 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
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company pursuant to this Debenture), (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 Company, then the Set 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
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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 Company or any subsidiary thereof, as applicable, at any
time while Debentures are outstanding, shall offer, sell, grant any option
to purchase or offer, sell or grant any right to reprice its securities,
or otherwise dispose of or issue (or announce any offer, sale, grant or
any option to purchase or other disposition) any Common Stock or Common
Stock Equivalents entitling any Person to acquire shares of Common Stock,
at an effective price per share less than the then Set Price ("Dilutive
Issuance"), as adjusted hereunder (if the holder of the Common Stock or
Common Stock Equivalents so issued shall at any time, whether by operation
of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or
rights per share which is issued in connection with such issuance, be
entitled to receive shares of Common Stock at an effective price per share
which is less than the Set Price, such issuance shall be deemed to have
occurred for less than the Set Price), then the Set Price shall be reduced
to equal the effective 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 Company shall notify the
Holder in writing, no later than the business day following the issuance
of any Common Stock or Common Stock Equivalents subject to this section,
indicating therein the applicable issuance price, or of applicable reset
price, exchange price, conversion price and other pricing terms.
iv) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of Common Stock (and not to Holders)
evidences of its indebtedness or assets or rights or warrants to subscribe
for or purchase any security, then in each such case the Set Price shall
be determined by multiplying such price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive
such distribution by a fraction of which the denominator shall be the VWAP
determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the
Common Stock as determined by the Board of Directors in good faith. In
either case the adjustments shall be described in a statement provided to
the Holders 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.
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v) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 4, the number of shares of Common Stock
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares, if any) outstanding.
vi) Whenever the Set Price is adjusted pursuant to any of Section
4(c)(ii) - (v), the Company shall promptly mail to each Holder a notice
setting forth the Set Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. If the Company
issues a variable rate security, despite the prohibition thereon in the
Purchase Agreement, the Company shall be deemed to have issued Common
Stock or Common Stock Equivalents at the lowest possible conversion or
exercise price at which such securities may be converted or exercised in
the case of a Variable Rate Transaction (as defined in the Purchase
Agreement), or the lowest possible adjustment price in the case of an MFN
Transaction (as defined in the Purchase Agreement).
vii) If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights; (D) the approval of any stockholders
of the Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets of
the Company, of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding
up of the affairs of the Company; then, in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of the Debentures, and shall cause to be mailed to the Holders
at their last addresses as they shall appear upon the stock books of the
Company, at least 20 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Common Stock of record to
be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, that the failure to mail such
notice or any defect therein or in the mailing thereof shall not affect
the validity of the corporate action required to be specified in such
notice. Holders are entitled to convert Debentures during the 20-day
period commencing the date of such notice to the effective date of the
event triggering such notice.
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viii) If, at any time while this Debenture is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into
another Person, (B) the Company effects any sale of all or substantially
all of its assets in one or a series of related transactions, (C) any
tender offer or exchange offer (whether by the Company or another Person)
is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or
(D) the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (in any such case, a "Fundamental Transaction"), then upon any
subsequent conversion of this Debenture, the Holder shall have the right
to receive, for each Underlying Share that would have been issuable upon
such conversion absent such Fundamental Transaction, the same kind and
amount of securities, cash or property as it would have been entitled to
receive upon the occurrence of such Fundamental Transaction if it had
been, immediately prior to such Fundamental Transaction, the holder of one
share of Common Stock (the "Alternate Consideration"). For purposes of any
such conversion, the determination of the Set Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock
in such Fundamental Transaction, and the Company shall apportion the Set
Price among the Alternate Consideration in a reasonable manner reflecting
the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Debenture following
such Fundamental Transaction. To the extent necessary to effectuate the
foregoing provisions, any successor to the Company or surviving entity in
such Fundamental Transaction shall issue to the Holder a new debenture
consistent with the foregoing provisions and evidencing the Holder's right
to convert such debenture into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply
with the provisions of this paragraph (c) and insuring that this Debenture
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.
ix) Notwithstanding the foregoing, no adjustment will be made under
this paragraph (c) in respect of an Exempt Issuances.
12
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of the Debentures, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares of
the Common Stock as shall (subject to any additional requirements of the Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 4(b))
upon the conversion of the outstanding principal amount of the Debentures. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Registration Statement is then effective under the
Securities Act, registered for public sale in accordance with such Registration
Statement.
(e) Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of the Common Stock, but may
if otherwise permitted, make a cash payment in respect of any final fraction of
a share based on the VWAP at such time. If the Company elects not, or is unable,
to make such a cash payment, the Holder shall be entitled to receive, in lieu of
the final fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders 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 Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Notice of
Conversion, shall be in writing and delivered personally, by facsimile, sent by
a nationally recognized overnight courier service, addressed to the Company, at
the address set forth above, facsimile number 203.546.3427, ATTN: XXXXXX XXXXXXX
or such other address or facsimile number as the Company may specify for such
purposes by notice to the Holders delivered in accordance with this Section. Any
and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service addressed to each
Holder at the facsimile telephone number or address of such Xxxxxx appearing on
the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the Holder. Any notice or other
13
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 5:30 p.m. (New York City time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 5:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the second Business Day following the date of mailing, if sent
by nationally recognized overnight courier service, or (iv) upon actual receipt
by the party to whom such notice is required to be given.
Section 5. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
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 in the State of New York are authorized or
required by law or other government action to close.
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 33% of the voting securities of the Company, or
(ii) a replacement at one time or within a three year period of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving
as members of the board of directors on any date whose nomination to the
board of directors was approved by a majority of the members of the board
of directors who are members on the date hereof), or (iii) the execution
by the Company of an agreement to which the Company is a party or by which
it is bound, providing for any of the events set forth above in (i) or
(ii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $0.001 par value per share,
of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Date" shall have the meaning set forth in Section
4(a)(i) hereof.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of Debentures in accordance with the terms hereof.
14
"Equity Conditions" shall mean, during the period in question, (i)
the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Conversion
Notices, if any, (ii) all liquidated damages and other amounts owing in
respect of the Debentures shall have been paid; (iii) there is an
effective Registration Statement pursuant to which the Holder is permitted
to utilize the prospectus thereunder to resell all of the shares issuable
pursuant to the Transaction Documents (and the Company believes, in good
faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iv) the Common Stock is trading on the Trading
Market and all of the shares issuable pursuant to the Transaction
Documents are listed for trading on a Trading Market (and the Company
believes, in good faith, that trading of the Common Stock on a Trading
Market will continue uninterrupted for the foreseeable future), (v) there
is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the shares issuable
pursuant to the Transaction Documents, (vi) there is then existing no
Event of Default or event which, with the passage of time or the giving of
notice, would constitute and Event of Default and (vii) all of the shares
issued or issuable pursuant to the transaction documents in full, ignoring
for such purposes any conversion or exercise limitation therein, would not
violate the limitation set forth in Section 4(a)(ii)(B) and (ix) no public
announcement of a pending or proposed Fundamental Transaction or
acquisition transaction has occurred that has not been consummated.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Late Fees" shall have the meaning set forth in the second paragraph
to this Debenture.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the greater of: (A) 130% of the principal amount of Debentures to
be prepaid, or (B) the principal amount of Debentures to be prepaid
divided by the Set Price on (x) the date the Mandatory Prepayment Amount
is demanded or otherwise due or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the VWAP on (x)
the date the Mandatory Prepayment Amount is demanded or otherwise due or
(y) the date the Mandatory Prepayment Amount is paid in full, whichever is
greater, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of such Debentures.
"Original Issue Date" shall mean the date of the first issuance of
the Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
15
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of July __, 2004, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering
among other things the resale of the Conversion Shares and naming the
Holder as a "selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Set Price" shall have the meaning set forth in Section 4(c)(i).
"Trading Day" means (a) a day on which the shares of Common Stock
are traded on a Trading Market on which the shares of Common Stock are
then listed or quoted, or (b) if the shares of Common Stock are not quoted
on a Trading Market, a day on which the shares of Common Stock are quoted
in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, that in the event that the
shares of Common Stock are not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean a Business Day.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a trading day from 9:30 a.m. Eastern
Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then
listed or quoted on a Trading Market and if prices for the Common Stock
are then quoted on the OTC Bulletin Board, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on
the OTC Bulletin Board; (c) if the Common Stock is not then listed or
quoted on the OTC Bulletin Board and if prices for the Common Stock are
then reported in the "Pink Sheets" published by the National Quotation
Bureau Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchasers and reasonably acceptable to the
Company.
16
Section 6. Reserved.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and liquidated damages (if any) on,
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct debt obligation of the Company. This
Debenture ranks pari passu with all other Debentures now or hereafter issued
under the terms set forth herein. The Company acknowledges and agrees that the
amount actually paid for this Debenture is less than the principal amount
issued, such difference representing an original issue discount to the Holder.
As long as this Debenture is outstanding, the Company shall not and shall cause
it subsidiaries not to, without the consent of the Holder, (a) amend its
certificate of incorporation (except to increase its authorized Common Stock),
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (b) repay, repurchase or offer to repay, repurchase or otherwise acquire
more than a de minimis number of shares of its Common Stock or other equity
securities other than as to the Conversion Shares to the extent permitted or
required under the Transaction Documents or as otherwise permitted by the
Transaction Documents; or (c) enter into any agreement with respect to any of
the foregoing.
Section 8. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 9. So long as any portion of this Debenture is outstanding, the
Company will not and will not permit any of its subsidiaries to, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness or liens of any kind, on or with respect to any of its property or
assets now owned or hereafter acquired or any income or profits therefrom that
is senior to, or pari passu with, in any respect, the Company's obligations
under the Debentures without the prior consent of the Holder.
Section 10. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the "New
York Courts"). Each party hereto
17
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or such
New York Courts are improper or inconvenient venue for such proceeding. Each
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Debenture and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Debenture or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
Section 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
Section 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of this Debenture as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Company (to the extent it may lawfully do
so) hereby expressly waives all benefits or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or impeded
the execution of any power herein granted to the Holder, but will suffer and
permit the execution of every such as though no such law has been enacted.
18
Section 13. 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.
*********************
19
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to
be duly executed by a duly authorized officer as of the date first above
indicated.
XXXXXX CAPITAL CORP.
By:________________________________
Name:
Title:
20
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Convertible
Debenture of Xxxxxx Capital Corp., a Nevada corporation (the "Company"), due on
July ____, 2006, into shares of common stock, $0.001 par value per share (the
"Common Stock"), of the Company according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debentures to be Converted:
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
21
SCHEDULE 1
CONVERSION SCHEDULE
Convertible Debentures due on July _____, 2006, in the aggregate principal
amount of $____________ issued by Xxxxxx Capital Corp. This Conversion Schedule
reflects conversions made under Section 4 of the above referenced Debenture.
Dated:
==================================== ------------------------------ ========================== ------------------------------------
Aggregate Principal
Date of Conversion Amount Remaining
(or for first entry, Original Subsequent to Conversion
Issue Date) Amount of Conversion (or original Principal Company Attest
Amount)
------------------------------------ ------------------------------ -------------------------- ------------------------------------
------------------------------------ ------------------------------ -------------------------- ------------------------------------
------------------------------------ ------------------------------ -------------------------- ------------------------------------
------------------------------------ ------------------------------ -------------------------- ------------------------------------
------------------------------------ ------------------------------ -------------------------- ------------------------------------
------------------------------------ ------------------------------ -------------------------- ------------------------------------
------------------------------------ ------------------------------ -------------------------- ------------------------------------
------------------------------------ ------------------------------ -------------------------- ------------------------------------
------------------------------------ ------------------------------ -------------------------- ------------------------------------
==================================== ============================== ========================== ------------------------------------
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