*** Execution Version
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement"), dated as of March 4, 2008, by
and among SEAWAY VALLEY CAPITAL CORPORATION, a Delaware corporation (the
"Company"), and YA GLOBAL INVESTMENTS, L.P. (the "Buyer").
WITNESSETH
WHEREAS, pursuant to that certain Assignment Agreements (the "Assignment
Agreement") dated the date hereof the Buyer purchased from Community Bank, N.A.
(the "Bank") the following loans (i) Mortgage, dated February 14, 2006, between
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Hardware Company ("▇▇▇▇▇▇▇") and the Bank in the original amount
of $380,000, and the promissory note and assignment of rents entered in
connection therewith (the "Ogdenberg Mortgage"), (ii) Mortgage, dated November
6, 2001, between ▇▇▇▇▇▇▇ and the Bank in the original amount of $150,000 and the
promissory note and assignment of rents entered in connection therewith (the
"Canton Mortgage"), (iii) the Commercial Promissory Note (No. C-06-03-008249),
dated April 5, 2006, between ▇▇▇▇▇▇▇ and the Bank in the original amount of
$250,000 (the "April Note"), (iv) the Commercial Promissory Note (No.
C-06-09-017697), dated September 1, 2006, between ▇▇▇▇▇▇▇ and the Bank in the
original amount of $1,000,000 (the "September Note"), and (v) the Commercial
Line of Credit Agreement and Note (No. C-06-03-008243), dated April 5, 2006,
between ▇▇▇▇▇▇▇ and the Bank in the amount of $950,000 (the "April Line of
Credit" and together with the Ogdenberg Mortgage, the Canton Mortgage, the April
Note and the September Note, the "Loans" and each a "Loan);
WHEREAS, total aggregate balance of the Loans (including principal,
interest, and costs) is $2,249,073.08;
WHEREAS, pursuant to the terms hereof, the parties desire to exchange the
Loans for a secured convertible debenture in the form of Exhibit A attached
hereto in the aggregate principal amount equal to $2,249,073.08 (the
"Debenture"), which Debenture shall be convertible into common stock, par value
$0001, per share of the Company ("Common Stock", and as converted the
"Conversion Shares");
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions (the "Irrevocable Transfer Agent Instructions");
WHEREAS, the Company was formerly known as Directview, Inc.;
WHEREAS, the Buyer was formerly known as Cornell Capital Partners, LP;
WHEREAS, pursuant to the Securities Purchased Agreement, dated as of March
23, 2006, by and among the Company, the Buyer and Highgate House Funds, Ltd.,
the Buyer purchased Secured Convertible Debenture (No. CCP-1) in the original
principal amount of One Hundred Fifty Thousand Dollars ($150,000) ("Debenture
CCP-1");
WHEREAS, pursuant to the Securities Purchase Agreement (the "2007 SPA"),
dated as of November 30, 2007, by and among the Company and the Buyer, the Buyer
purchased Secured Convertible Debenture (No. SWVC-5-1) in the Original Principal
Amount of Three Hundred Seventy Five Thousand Dollars ($375,000) which was
subsequently amended and restated as Amended and Restated Secured Convertible
Debenture (No. SWVC-5-1/A) ("Debenture 5-1/A");
WHEREAS, pursuant to the 2007 SPA, the Buyer purchased Secured Convertible
Debenture (No. SWVC-5-2) in the original principal amount of One Hundred Seventy
Five Thousand Dollars ($175,000) ("Debenture 5-2" and together with Debenture
5-1/A, and Debenture CCP-1, the "Amended Debentures"); and
WHEREAS, the parties hereto desire to amend the terms of the Amended
Debentures.
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:
1. ISSUANCE OF SECURITIES.
(a) Exchange of Loans. Pursuant to the terms and conditions of this
Agreement, contemporaneously with the execution and delivery of this
Agreement, (i) the Buyer shall exchange the instruments evidencing the
Loans for the Debenture for no consideration. Upon surrender, the
instruments evidence the Loans shall be retired by the Company and the
outstanding balances shall hereinafter be evidenced by the Debenture.
(b) Warrants. Pursuant to the terms and conditions of this Agreement,
contemporaneously with the execution and delivery of this Agreement,
the Company shall issue to the Buyer a warrant in the form attached
hereto as Exhibit B (the "Warrant") exercisable to purchase additional
shares of Common Stock (the "Warrants Shares") on a cashless basis.
(c) Fees and Expenses.
(i) Pursuant to the terms and conditions of this Agreement, within 3
business days of the execution and delivery of this Agreement,
the Company shall place into escrow $185,000 (collectively, the
"Monitoring Fees," and as deposited into escrow, the "Escrow
Funds") which shall be used to compensate Yorkville Advisors LLC
("Investment Manager") for monitoring and managing the investment
made by Buyer described herein, pursuant to the Investment
Manager's existing advisory obligations to Buyer. The Company,
Investment Manager, and Buyer shall enter into an Escrow
Agreement of even date herewith in the form attached hereto as
Exhibit D (the "Escrow Agreement") appointing an escrow agent
(the "Escrow Agent") to hold the Escrow Funds and to periodically
disburse portions of such Escrow Funds to the Investment Manager
from escrow in accordance with the terms of the Escrow Agreement.
The Investment Manager shall periodically receive portions of the
Escrow Funds in accordance with the Escrow Agreement until
either: (1) the Escrow Funds shall have been fully disbursed
pursuant the Escrow Agreement or (2) the Securities (as defined
below) shall have been Fully Retired. "Fully Retired" shall mean
that the Buyer shall have fully disposed of all the Securities
(as defined below) issued or issuable hereunder, shall no longer
have any investment in, or ownership of, any of the Securities
(as defined below), all amounts owed to Buyer under the
Transaction Documents shall have been paid, and the Transaction
Documents shall have been terminated. When the Securities (as
defined below) are Fully Retired, the remaining Escrow Funds
shall be returned to the Company or otherwise disbursed in
accordance with the Escrow Agreement.
(ii) Pursuant to the terms and conditions of this Agreement, within 3
business days of the execution and delivery of this Agreement,
the Company shall pay a structuring and due diligence fee (the
"Structuring and Due Diligence Fee") to the Investment Manager of
Seventy Five Thousand Dollars ($75,000).
2. AMENDMENT OF AMENDED DEBENTURES. Pursuant to the terms and conditions of
this Agreement, contemporaneously with the execution and delivery of this
Agreement, the Company will amend each of the Amended Debentures by
executing an amendment (the "Amendments") in substantially the form
attached hereto as Exhibit C for each such Amended Debenture.
3. HOLDING PERIOD, TACKING, AND LEGAL OPINION. The Company represents,
warrants and agrees that for the purposes of Rule 144, the Company
acknowledges and agrees that the holding period of the Debenture issued
hereunder (including the corresponding Conversion Shares) will include the
holding period of the Loans from November 7, 2007, the date that the
Company guarantied the obligations under the Loans. The Company agrees not
to take a position contrary to this Section 3. At the Closing, counsel to
the Company shall provide an opinion in a form reasonably satisfactory to
the Buyer to the forgoing. Assuming (A) no change in facts and
circumstances and no contrary law or any rule, regulation or instruction of
or from the Commission, (B) that the Buyer is not, at any relevant time, an
"affiliate" of the Company as defined in Securities Act Rule 144(a)(1), and
(C) that the Buyer provides a written representation to the Company and its
counsel that it is not an affiliate of the Company and has not been an
affiliate of the Company during the preceding 3 months, as well as other
representations customarily given in connection with the removal of
restrictive legends under Rule 144, the Company will rely upon the opinion
provided to it by counsel to the Company contemporaneous with consummation
of the transactions contemplated hereby, that the holding period for the
Debenture issued to the Buyer (and the corresponding Conversion Shares
issuable thereunder) in exchange for the Loans will include the holding
period for such surrendered Loans from November 7, 2007. The Company
acknowledges and understands that the representations and agreements of the
Company in this Section 3 is a material inducement to the Buyer's decision
to consummate the transaction contemplated herein.
4. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. The Buyer is acquiring the Debenture and the
underlying Conversion Shares, the Warrant, and the underlying Warrant
Shares (collectively, the "Securities") for its own account for
investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the Securities Act;
provided, however, that by making the representations herein, the
Buyer reserves the right to dispose of the Securities at any time in
accordance with or pursuant to an effective registration statement
covering such Securities or an available exemption under the
Securities Act. The Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute
any of the Securities.
(b) Accredited Investor Status. The Buyer is an "Accredited Investor" as
that term is defined in Rule 501(a)(3) of Regulation D of the
Securities Act of 1933 (the "Securities Act").
(c) Transfer or Resale. The Buyer understands that: (i) the Securities
have not been and are not being registered under the Securities Act or
any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (A) subsequently registered thereunder,
(B) the Buyer shall have delivered to the Company an opinion of
counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration
requirements, or (C) the Buyer provides the Company with reasonable
assurances (in the form of seller and broker representation letters)
that such Securities can be sold, assigned or transferred pursuant to
Rule 144 in each case following the applicable holding period set
forth therein; (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of the Securities
under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other
exemption under the Securities Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is
under any obligation to register the Securities under the Securities
Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
(d) Legends. The Buyer agrees to the imprinting, so long as is required by
this Section 4(d), of a restrictive legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN
A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
Certificates evidencing the Conversion Shares or Warrant Shares shall
not contain any legend (including the legend set forth above), (i)
while a registration statement covering the resale of such security is
effective under the Securities Act, (ii) following any sale of such
security pursuant to Rule 144, (iii) if such Conversion Shares or
Warrant Shares are eligible for sale without any restrictions under
Rule 144, or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations
and pronouncements issued by the staff of the SEC). The Buyer, agrees
that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4(d) is
predicated upon the Company's reliance that the Buyer will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are
sold pursuant to a registration statement, they will be sold in
compliance with the plan of distribution set forth therein.
(e) Authorization, Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a
valid and binding agreement of the Buyer enforceable in accordance
with its terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth under the corresponding section of the Disclosure
Schedules which Disclosure Schedules shall be deemed a part hereof and to
qualify any representation or warranty otherwise made herein to the extent of
such disclosure, the Company hereby makes the representations and warranties set
forth below to the Buyer (in addition to those set forth in Section 3 hereof):
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
subsidiary free and clear of any liens, and all the issued and
outstanding shares of capital stock of each subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and
similar rights to subscribe for or purchase securities.
(b) Organization and Qualification. The Company and its subsidiaries are
corporations duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power to own their properties and to
carry on their business as now being conducted. Each of the Company
and its subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the
nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or
be in good standing would not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material adverse
effect on the results of operations, assets, business or condition
(financial or otherwise) of the Company and the subsidiaries, taken as
a whole, or (iii) a material adverse effect on the Company's ability
to perform in any material respect on a timely basis its obligations
under any Transaction Document (any of (i), (ii) or (iii), a "Material
Adverse Effect") and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification..
(c) Authorization, Enforcement, Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement, the Debentures, the
Warrants, the Irrevocable Transfer Agent Instructions, the Amendments
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement
(collectively the "Transaction Documents") and to issue the Securities
and amend the Amended Debentures in accordance with the terms hereof
and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Securities, the reservation for
issuance and the issuance of the Conversion Shares, and the
reservation for issuance and the issuance of the Warrant Shares, have
been duly authorized by the Company's Board of Directors and no
further consent or authorization is required by the Company, its Board
of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, (iv) the Transaction
Documents constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity
or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies.
(d) Issuance of Securities. The issuance of the Debentures and Warrants is
duly authorized and the Debentures and Warrants are free and clear of
all taxes, liens, claims, pledges, mortgages, restrictions,
obligations, security interests and encumbrances of any kind, nature
and description. Upon conversion in accordance with the terms of the
Debenture or exercise in accordance with the Warrants, as the case may
be, the Conversion Shares and Warrant Shares, respectively, when
issued will be validly issued, fully paid and nonassessable, free from
all taxes, liens, claims, pledges, mortgages, restrictions,
obligations, security interests and encumbrances of any kind, nature
and description. The Company has reserved from its duly authorized
capital stock the appropriate number of shares of Common Stock as set
forth in this Agreement.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Securities and
reservation for issuance and issuance of the Conversion Shares and the
Warrant Shares) will not (i) result in a violation of any certificate
of incorporation, certificate of formation, any certificate of
designations or other constituent documents of the Company or any of
its subsidiaries, any capital stock of the Company or any of its
subsidiaries or bylaws of the Company or any of its subsidiaries or
(ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) in any respect
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party,
or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including foreign, federal and state securities
laws and regulations and the rules and regulations of the National
Association of Securities Dealers Inc.'s OTC Bulletin Board)
applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound
or affected; except in the case of each of clauses (ii) and (iii),
such as could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect. The
business of the Company and its subsidiaries is not being conducted,
and shall not be conducted in violation of any material law,
ordinance, or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the
Securities Act and any applicable state securities laws, the Company
is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency
in order for it to execute, deliver or perform any of its obligations
under or contemplated by this Agreement in accordance with the terms
hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the
date hereof. The Company and its subsidiaries are unaware of any facts
or circumstance, which might give rise to any of the foregoing.
(f) SEC Documents; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to
be filed by it with the SEC under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), for the two years preceding the date
hereof (or such shorter period as the Company was required by law or
regulation to file such material) (all of the foregoing filed prior to
the date hereof or amended after the date hereof and all exhibits
included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter
referred to as the "SEC Documents") on timely basis or has received a
valid extension of such time of filing and has filed any such SEC
Document prior to the expiration of any such extension. The Company
has delivered to the Buyers or their representatives, or made
available through the SEC's website at ▇▇▇▇://▇▇▇.▇▇▇.▇▇▇., true and
complete copies of the SEC Documents. As of their respective dates,
the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
SEC promulgated thereunder applicable to the SEC Documents, and none
of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. As of their respective dates,
the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
SEC with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
No other information provided by or on behalf of the Company to the
Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(i) of this Agreement,
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements therein, in
the light of the circumstance under which they are or were made and
not misleading.
(g) Absence of Litigation. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending against or
affecting the Company, the Common Stock or any of the Company's
subsidiaries, wherein an unfavorable decision, ruling or finding would
have a Material Adverse Effect.
(h) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly
or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Securities under the Securities Act or cause this
offering of the Securities to be integrated with prior offerings by
the Company for purposes of the Securities Act.
(i) Listing and Maintenance Requirements. The Company's Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
the Company has taken no action designed to terminate, or which to its
knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the
Company received any notification that the SEC is contemplating
terminating such registration. The Company has not, in the twelve (12)
months preceding the date hereof, received notice from any Primary
Market on which the Common Stock is or has been listed or quoted to
the effect that the Company is not in compliance with the listing or
maintenance requirements of such Primary Market. The Company is, and
has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.
(j) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Debenture
and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the
Debenture in accordance with its terms and this Agreement and its
obligation to issue the Warrant Shares upon exercise of the Warrants
in accordance with this Agreement and the Warrants, in each case, is
absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of
the Company.
(k) Purchase of ▇▇▇▇▇▇▇. On November 7, 2007, the Company completed the
purchase of ▇▇▇▇▇▇▇, and in connection with such purchase, guarantied
and assumed ▇▇▇▇▇▇▇'▇ obligations under the Loans. The Loans are also
guaranties by WiseBuys Stores, Inc.
(l) The Company represents and warrants that the Loans are enforceable
against the Company and that the Company presently has no claims or
defenses of any nature whatsoever with respect to the Loans.
(m) As of the date hereof, the total obligations of the Company under the
Loans, including principal, interest, cost, and fees, equals
$2,249,073.08, as set forth in more detail on Schedule 5(m).
(n) The Credit and Security Agreement by and among ▇▇▇▇▇▇▇, WiseBuyers
Stores, Inc. and ▇▇▇▇▇ Fargo Bank, N.A. (the "Credit Agreement") has
been fully executed and the Borrower (as defined therein) has received
or has access to receive Revolving Advances (as defined therein) under
the Credit Agreement in an amount greater than or equal to $2,200,000.
The Company is not in default under the Credit Agreement.
6. COVENANTS.
(a) Reporting Status. With a view to making available to the Buyer the
benefits of Rule 144 or any similar rule or regulation of the SEC that
may at any time permit the Buyer to sell securities of the Company to
the public without registration, and as a material inducement to the
Buyer's purchase of the Securities, the Company represents, warrants,
and covenants to the following:
(i) The Company's Common Stock is registered under Section 12(g) of
the Exchange Act.
(ii) The Company is not and for at least the last 12 months prior to
the date hereof has not been a "shell company," as defined in
paragraph (i)(1)(i) of Rule 144 or Rule 12b-2 of the Exchange
Act.
(iii) The Company is subject to the reporting requirements of section
13 or 15(d) of the Exchange Act and has filed all required
reports under section 13 or 15(d) of the Exchange Act during the
12 months prior to the date hereof (or for such shorter period
that the issuer was required to file such reports), other than
Form 8-K reports;
(iv) from the date hereof until all the Securities either have been
sold by the Buyer, or may permanently be sold by the Buyer
without any restrictions pursuant to Rule 144, (the "Registration
Period") the Company shall file with the SEC in a timely manner
all required reports under section 13 or 15(d) of the Exchange
Act and such reports shall conform to the requirement of the
Exchange Act and the SEC for filing thereunder;
(v) The Company shall furnish to the Buyer so long as the Buyer owns
Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of
Rule 144, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so
filed by the Company, and (iii) such other information as may be
reasonably requested to permit the Buyers to sell such securities
pursuant to Rule 144 without registration; and
(b) During the Registration Period the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act
even if the Exchange Act or the rules and regulations thereunder would
otherwise permit such termination.
(c) Reservation of Shares. On the date hereof, the Company shall reserve
for issuance to the Buyers 800,000,000 shares for issuance upon
conversions of the Debenture and exercise of the Warrants
(collectively, the "Share Reserve"). The Company represents that it
has sufficient authorized and unissued shares of Common Stock
available to create the Share Reserve after considering all other
commitments that may require the issuance of Common Stock. The Company
shall take all action reasonably necessary to at all times have
authorized, and reserved for the purpose of issuance, such number of
shares of Common Stock as shall be necessary to effect the full
conversion of the Convertible Debentures and the full exercise of the
Warrants. If at any time the Share Reserve is insufficient to effect
the full conversion of the Convertible Debentures or the full exercise
of the Warrants, the Company shall increase the Share Reserve
accordingly. If the Company does not have sufficient authorized and
unissued shares of Common Stock available to increase the Share
Reserve, the Company shall call and hold a special meeting of the
shareholders within thirty (30) days of such occurrence, for the sole
purpose of increasing the number of shares authorized. The Company's
management shall recommend to the shareholders to vote in favor of
increasing the number of shares of Common Stock authorized. Management
shall also vote all of its shares in favor of increasing the number of
authorized shares of Common Stock.
(d) Listings or Quotation. The Company's Common Stock shall be listed or
quoted for trading on any of (a) the American Stock Exchange, (b) New
York Stock Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq
Capital Market, or (e) the Nasdaq OTC Bulletin Board ("OTCBB") (each,
a "Primary Market"). The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration
Rights Agreement) upon each national securities exchange and automated
quotation system, if any, upon which the Common Stock is then listed
(subject to official notice of issuance) and shall maintain such
listing of all Registrable Securities from time to time issuable under
the terms of the Transaction Documents.
(e) Fees. Each of the Company and the Buyer shall pay all costs and
expenses incurred by such party in connection with the negotiation,
investigation, preparation, execution and delivery of the Transaction
Documents.
(f) Corporate Existence. So long as any obligations remain outstanding
under the Debenture, the Company shall not directly or indirectly
consummate any merger, reorganization, restructuring, reverse stock
split consolidation, sale of all or substantially all of the Company's
assets or any similar transaction or related transactions (each such
transaction, an "Organizational Change") unless, prior to the
consummation an Organizational Change, the Company obtains the written
consent of each Buyer. In any such case, the Company will make
appropriate provision with respect to such holders' rights and
interests to insure that the provisions of this Section 6(f) will
thereafter be applicable to the Debenture.
(g) Transfer Agent. The Company covenants and agrees that, in the event
that the Company's agency relationship with the transfer agent should
be terminated for any reason prior to a date which is two (2) years
after the Closing Date, the Company shall immediately appoint a new
transfer agent and shall require that the new transfer agent execute
and agree to be bound by the terms of the Irrevocable Transfer Agent
Instructions (as defined herein).
(h) Restriction on Issuance of the Capital Stock. So long as the Debenture
remains outstanding, the Company shall not, without the prior written
consent of the Buyer, (i) issue or sell shares of Common Stock or
Preferred Stock without consideration or for a consideration per share
less than the bid price of the Common Stock determined immediately
prior to its issuance, (ii) issue any preferred stock, warrant,
option, right, contract, call, or other security or instrument
granting the holder thereof the right to acquire Common Stock without
consideration or for a consideration less than such Common Stock's Bid
Price determined immediately prior to its issuance, or (iii) file any
registration statements on Form S-8 valued at more than $500,000 in
the aggregate.
(i) Neither the Buyer nor any of its affiliates have an open short
position in the Common Stock of the Company, and the Buyer agrees that
it shall not, and that it will cause its affiliates not to, engage in
any short sales of or hedging transactions with respect to the Common
Stock as long as any Convertible Debentures shall remain outstanding.
(j) Disclosure of Transaction. Within two business days following the date
of this Agreement, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the
Transaction Documents in the form required by the Exchange Act and
attaching the material Transaction Documents as exhibits to such
filing.
(k) Acknowledgement of Obligations. The Company hereby acknowledges,
confirms and agrees that the obligations of the Company to the Buyer
under the Amended Debentures, the Loans, and immediately after the
exchange of the Loans for the Debenture as contemplated hereunder,
under the Debenture, are unconditionally owing by the Company to YA
Global, without offset, defense or counterclaim of any kind, nature or
description whatsoever.
(l) Acknowledgement of Security Interests. The Company hereby
acknowledges, confirms and agrees that YA Global has and shall
continue to have valid, enforceable and perfected liens upon and
security interests in the collateral heretofore granted to YA Global
pursuant to the security agreements entered into in connection with
the Loans, the Debenture, the Amended Debentures, or otherwise granted
to or held by YA Global. Such liens shall be subject to the
Subordination Agreement between YA Global and ▇▇▇▇▇ Fargo Bank N.A.
dated on or about the date hereof.
(m) Binding Effect of Documents. The Company hereto acknowledges, confirms
and agrees that: (a) each of the documents and agreements entered into
in connection with the Loans, the Debenture, and the Amended Debenture
to which it is a party has been duly executed and delivered to YA
Global by the Company, and each is in full force and effect as of the
date hereof, (b) the agreements and obligations of the Company
contained in such documents and in this Agreement constitute the
legal, valid and binding obligations of the Company, enforceable
against each in accordance with their respective terms, and the
Company has no valid defense to the enforcement of such obligations,
and (c) YA Global is and shall be entitled to the rights, remedies and
benefits provided for in such documents and applicable law, without
setoff, defense or counterclaim of any kind, nature or descriptions
whatsoever.
(n) The Company and ▇▇▇▇▇▇▇ authorizes the Buyer to file mortgage
assignments and UCC assignments in all jurisdictions as may be
necessary to perfect the assignment to the Buyer of any mortgage and
UCC-1 financing statements filed in the name of ▇▇▇▇▇▇▇ as debtor,
which are in favor of the Bank as secured party, in relation to the
security assigned in accordance with the Assignment Agreement.
(o) The Company represents that it has formed an entity named Seaway Real
Estate Holdco, which is a wholly owned subsidiary of the Company. The
Company agrees that it shall not transfer any assets (whether personal
property, real property, or otherwise) into Seaway Real Estate Holdco
without the written consent of YA Global.
(p) Within 30 days of the date hereof, the Company shall change its
transfer agent to one acceptable to YA Global.
7. TRANSFER AGENT INSTRUCTIONS.
(a) The Company shall issue the Irrevocable Transfer Agent Instructions to
its transfer agent, and any subsequent transfer agent, irrevocably
appointing ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq. as the Company's agent for purpose
instructing its transfer agent to issue certificates or credit shares
to the applicable balance accounts at The Depository Trust Company
("DTC"), registered in the name of each Buyer or its respective
nominee(s), for the Conversion Shares and the Warrant Shares issued
upon conversion of the Debenture or exercise of the Warrants as
specified from time to time by each Buyer to the Company upon
conversion of the Debenture or exercise of the Warrants. The Company
shall not change its transfer agent without the express written
consent of the Buyers, which may be withheld by the Buyers in their
sole discretion. The Company warrants that no instruction other than
the Irrevocable Transfer Agent Instructions referred to in this
Section 7 will be given by the Company to its transfer agent, and that
the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement
and the other Transaction Documents. If a Buyer effects a sale,
assignment or transfer of the Securities in accordance with Section
4(f), the Company shall promptly instruct its transfer agent to issue
one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as specified by
such Buyer to effect such sale, transfer or assignment and, with
respect to any transfer, shall permit the transfer. In the event that
such sale, assignment or transfer involves Conversion Shares or
Warrant Shares sold, assigned or transferred pursuant to an effective
registration statement or pursuant to Rule 144, the Company shall
instruct the transfer agent to issue such Securities to the Buyer,
assignee or transferee, as the case may be, without any restrictive
legend. Nothing in this Section 7 shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities
laws upon resale of Conversion Shares. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm
to the Buyer by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 7
will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 7, that the
Buyer shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
8. CLOSING DATE; DELIVERIES. The transactions contemplated hereby shall occur
at the offices of Yorkville Advisors, LLC, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ (or such other place as is mutually agreed to
by the Company and the Buyer(s)) simultaneously with the execution of this
Agreement by the Parties (or such other date as is mutually agreed to by
the Company and the Buyer, the "Closing Date"). On the Closing Date, prior
to or contemporaneously with the execution and delivery of this Agreement:
(a) the Buyer shall deliver the Loans to the Company;
(b) the Company shall issue the Debenture and the Warrants to the Buyer;
(c) the Company shall deliver executed Amendment to the Buyer, thereby
amending the Amended Debentures;
(d) the Company, the Buyer and the Investment Manager shall execute and
deliver the Escrow Agreement;
(e) the Company shall deposit the Monitoring Fee into the Escrow Account;
(f) the Company shall wire the Structuring and Due Diligence Fee to the
Investment Manger in readily available funds and in accordance with
the wire instructions provided by the Investment Manager; and
(g) the Company shall issue the Irrevocable Transfer Agent Instructions to
its transfer agent.
9. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New Jersey without regard to
the principles of conflict of laws. The parties further agree that any
action between them shall be heard in ▇▇▇▇▇▇ County, New Jersey, and
expressly consent to the jurisdiction and venue of the Superior Court
of New Jersey, sitting in ▇▇▇▇▇▇ County and the United States District
Court for the District of New Jersey sitting in Newark, New Jersey for
the adjudication of any civil action asserted pursuant to this
Paragraph.
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. In the event
any signature page is delivered by facsimile transmission, the party
using such means of delivery shall cause four (4) additional original
executed signature pages to be physically delivered to the other party
within five (5) days of the execution and delivery hereof.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of,
this Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of
this Agreement in that jurisdiction or the validity or enforceability
of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyer(s), the Company,
their affiliates and persons acting on their behalf with respect to
the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any
Buyer makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived
or amended other than by an instrument in writing signed by the party
to be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement
must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon confirmation of receipt,
when sent by facsimile; (iii) three (3) days after being sent by U.S.
certified mail, return receipt requested, or (iv) one (1) day after
deposit with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company, to: Seaway Valley Capital Corporation
▇▇-▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Law Office of ▇▇▇▇▇▇▇ ▇. ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Buyer, to: YA Global Investments, L.P.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Buyer, to its address and facsimile number on Schedule I, with
copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement
or any rights or obligations hereunder without the prior written
consent of the other party hereto.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any
(i) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request
in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Restructure Agreement to be duly executed as
of the date first written above.
COMPANY:
SEAWAY VALLEY CAPITAL CORPORATION
By:
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Restructure Agreement to be duly executed as
of the date first written above.
BUYERS:
YA GLOBAL INVESTMENTS, L.P.
By: Yorkville Advisors, LLC
Its: Investment Manager
By: ____________________________
Name: ▇▇▇▇ ▇▇▇▇▇▇
Its: Portfolio Manager
Agreed and Acknowledged:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Hardware Company
By: _____________________________
Name:
Title
Seaway Valley Capital Corporation
By: _____________________________
Name:
Title
-------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇.
-------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
Date: February ___, 2008
LIST OF EXHIBITS:
Disclosure Schedule
Exhibit A - Form Debenture
Exhibit B - Form Warrant
Exhibit C - Form of Amendment for Amended Debentures
Schedule 5(m) - Obligations under the Loans
DISCLOSURE SCHEDULE
Schedule 5(n)
Loan No. 0283686-9001
Principal Balance $ 105,610.83
Interest through 3/4/08 $ 593.41
Total for Payoff $ 106,204.24
Loan No. 0283686-9003
Principal Balance $ 350,006.54
Interest through 3/4/08 $ 1,224.29
Total for Payoff $ 351,230.83
Loan No. 0283696-0101
Principal Balance $ 925,000.00
Interest through 3/4/08 $ 4,541.49
Total for Payoff $ 929,541.49
Loan No. 0283686-9004
Principal Balance $ 104,166.76
Interest through 3/4/08 $ 547.75
Total for Payoff $ 104,714.51
Loan No. 0283686-9005
Principal Balance $ 749,995.00
Interest through 3/4/08 $ 3,887.01
Total for Payoff $ 753,882.01
Subtotal $ 2,245,573.08
Atty and Document Fee $ 2,750.00
Document Fee $ 750.00
TOTAL from YA Global Investments, L.P. $ 2,249,073.08
Execution Version
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. THESE SECURITIES HAVE BEEN SOLD 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.
SEAWAY VALLEY CAPITAL CORPORATION
SECURED CONVERTIBLE DEBENTURE
Issuance Date: March 4, 2008 Original Principal Amount: $2,249,073
No. SWVC-6-1
FOR VALUE RECEIVED, SEAWAY VALLEY CAPITAL CORPORATION, a Delaware
corporation (the "Company"), hereby promises to pay to the order of YA GLOBAL
INVESTMENTS, L.P. or registered assigns (the "Holder") the amount set out above
as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the "Principal") when due,
whether upon the Maturity Date (as defined below), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
("Interest") on any outstanding Principal at the applicable Interest Rate from
the date set out above as the Issuance Date (the "Issuance Date") until the same
becomes due and payable, whether upon an Interest Date (as defined below), or
the Maturity Date or acceleration, conversion, redemption or otherwise (in each
case in accordance with the terms hereof). This Secured Convertible Debenture
(including all Secured Convertible Debentures issued in exchange, transfer or
replacement hereof, this "Debenture") is issued pursuant to the Exchange
Agreement (collectively, the "Debentures"). Certain capitalized terms used
herein are defined in Section 17.
(1) GENERAL TERMS
(a) Payment of Principal. On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing all outstanding Principal, accrued
and unpaid Interest. The "Maturity Date" shall be February 28, 2010, as may
be extended at the option of the Holder (i) in the event that, and for so
long as, an Event of Default (as defined below) shall have occurred and be
continuing on the Maturity Date (as may be extended pursuant to this
Section 1) or any event shall have occurred and be continuing on the
Maturity Date (as may be extended pursuant to this Section 1) that with the
passage of time and the failure to cure would result in an Event of
Default. Other than as specifically permitted by this Debenture, the
Company may not prepay or redeem any portion of the outstanding Principal
without the prior written consent of the Holder.
(b) Interest. Interest shall accrue on the outstanding principal balance hereof
at an annual rate equal to twelve percent (12%) ("Interest Rate"). Interest
shall be calculated on the basis of a 365-day year and the actual number of
days elapsed, to the extent permitted by applicable law. Accrued Interest
hereunder shall be paid on the Maturity Date (or sooner as provided herein)
to the Holder or its assignee in whose name this Debenture is registered on
the records of the Company regarding registration and transfers of
Debentures in cash or converted into Common Stock at the Conversion Price
provided the Equity Conditions are satisfied.
(c) Security. This Debenture shall be secured by all of the collateral pledged
to the Holder in connection with all prior grants of security to the
Holder, including without limitation, (i) a security interest in all of the
assets of the Company and of each of the Company's subsidiaries as
evidenced by the security agreement dated November 30, 2007; (ii) the
Commercial Security Agreement, dated April 5, 2006, between ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Hardware Company ("Hacket") and Community Bank, N.A. (the "Bank"); (iii)
the Commercial Loan Guaranty, dated April 5, 2006, between ▇▇▇▇▇▇▇, the
Bank and ▇▇▇▇▇▇▇ ▇▇▇▇▇; (iv) the Commercial Loan Guaranty, dated April 5,
2006, between ▇▇▇▇▇▇▇, the Bank and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇.; (v) the Commercial
Security Agreement, dated April 5, 2006, between ▇▇▇▇▇▇▇ and the Bank; (vi)
the Commercial Loan Guaranty, dated April 5, 2006, between ▇▇▇▇▇▇▇, the
Bank and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇.; and (vii) the Commercial Loan Guaranty, dated
April 5, 2006, between ▇▇▇▇▇▇▇, the Bank and ▇▇▇▇▇▇▇ ▇▇▇▇▇ (the documents
referenced in clauses (i) through (vii) shall collectively be referred to
as the "Security Documents"). The liens granted to the Holder shall be
subject to the Subordination Agreement between the Holder and ▇▇▇▇▇ Fargo
dated on or about the date hereof.
(2) EVENTS OF DEFAULT.
(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) the Company's failure to pay to the Holder any amount of Principal,
Interest, or other amounts when and as due under this Debenture
(including, without limitation, the Company's failure to pay any
redemption payments or amounts hereunder) or any other Transaction
Document;
(ii) The Company or any subsidiary of the Company shall commence, or there
shall be commenced against the Company or any subsidiary of the
Company under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company or any
subsidiary of the Company commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary of the Company or there is commenced against
the Company or any subsidiary of the Company any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period
of 61 days; or the Company or any subsidiary of the Company 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 of the Company 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 Company or any
subsidiary of the Company makes a general assignment for the benefit
of creditors; or the Company or any subsidiary of 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 of the Company 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 of the Company 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 of the Company for
the purpose of effecting any of the foregoing;
(iii) The Company or any subsidiary of the Company 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
Company or any subsidiary of the Company in an amount exceeding
$100,000, whether such indebtedness now exists or shall hereafter be
created;
(iv) the Common Stock is quoted or listed for trading on any of the
following and it ceases to be so quoted or listed for trading and
shall not again be quoted or listed for trading on any Primary Market
within five (5) Trading Days of such delisting: (a) the American Stock
Exchange, (b) New York Stock Exchange, (c) the Nasdaq Global Market,
(d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board
("OTCBB") (each, a "Primary Market");
(v) The Company or any subsidiary of the Company shall be a party to any
Change of Control Transaction (as defined in Section 6) unless in
connection with such Change of Control Transaction this Debenture is
retired;
(vi) the Company's (A) failure to cure a Conversion Failure by delivery of
the required number of shares of Common Stock within five (5) Business
Days after the applicable Conversion Failure or (B) notice, written or
oral, to any holder of the Debentures, including by way of public
announcement, at any time, of its intention not to comply with a
request for conversion of any Debentures into shares of Common Stock
that is tendered in accordance with the provisions of the Debentures,
other than pursuant to Section 4(c);
(vii) The Company shall fail for any reason to deliver the payment in cash
pursuant to a Buy-In (as defined herein) within three (3) Business
Days after such payment is due;
(viii) The Company 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) through 2(a)(vii) hereof) or any Transaction
Document (as defined in Section 17) which is not cured within the time
prescribed.
(ix) any Event of Default (as defined in the Other Debentures) occurs with
respect to any Other Debentures.
(b) During the time that any portion of this Debenture is outstanding, if any
Event of Default has occurred, the full unpaid Principal amount of this
Debenture, together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become at the Holder's election,
immediately due and payable in cash; provided however, the Holder may
request (but shall have no obligation to request) payment of such amounts
in Common Stock of the Company. Furthermore, 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 lower of the applicable Conversion Price or the
Default Conversion Price. The Holder need not provide and the Company
hereby waives any presentment, demand, protest or other notice of any kind,
(other than required notice of conversion) 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 Holder 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.
(3) COMPANY REDEMPTION.
(a) Company's Cash Redemption Right. The Company at its option shall have the
right to redeem ("Optional Redemption") a portion or all amounts
outstanding under this Debenture prior to the Maturity Date provided that
as of the date of the Holder's receipt of a Redemption Notice (as defined
herein) (i) the Closing Bid Price is less than the Fixed Conversion Price,
(ii) the Underlying Shares Registration Statement is effective, and (iii)
no Event of Default has occurred. The Company shall pay an amount equal to
the sum of the Principal amount being redeemed, plus a redemption premium
("Redemption Premium") equal to twenty percent (20%) of the Principal
amount being redeemed, plus accrued and unpaid Interest, (collectively
referred to as the "Company Additional Redemption Amount"). In order to
make a redemption pursuant to this Section, the Company shall first provide
written notice to the Holder of its intention to make a redemption (the
"Redemption Notice") setting forth the amount of Principal it desires to
redeem. After receipt of the Redemption Notice the Holder shall have three
(3) Business Days to elect to convert all or any portion of this Debenture,
subject to the limitations set forth in Section 4(b). On the fourth (4th)
Business Day after the Redemption Notice, the Company shall deliver to the
Holder the Company Additional Redemption Amount with respect to the
Principal amount redeemed after giving effect to conversions effected
during the three (3) Business Day period.
(4) CONVERSION OF DEBENTURE. This Debenture shall be convertible into shares of
the Company's Common Stock, on the terms and conditions set forth in this
Section 4.
(a) Conversion Right. Subject to the provisions of Section 4(c), at any time or
times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as
defined below) into fully paid and nonassessable shares of Common Stock in
accordance with Section 4(b), at the Conversion Rate (as defined below).
The number of shares of Common Stock issuable upon conversion of any
Conversion Amount pursuant to this Section 4(a) shall be determined by
dividing (x) such Conversion Amount by (y) the Conversion Price (the
"Conversion Rate"). The Company shall not issue any fraction of a share of
Common Stock upon any conversion. If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round
such fraction of a share of Common Stock up to the nearest whole share. The
Company shall pay any and all transfer, stamp and similar taxes that may be
payable with respect to the issuance and delivery of Common Stock upon
conversion of any Conversion Amount.
(i) "Conversion Amount" means the portion of the Principal and accrued
Interest to be converted, redeemed or otherwise with respect to which
this determination is being made.
(ii) "Conversion Price" means, as of any Conversion Date (as defined below)
or other date of determination the lesser of (a) $.01 (the "Fixed
Conversion Price"), subject to adjustment as provided herein, or (b)
seventy five percent (75%) of the lowest Volume Weighted Average Price
during the five (5) Trading Days immediately preceding the Conversion
Date (the "Market Conversion Price").
(b) Mechanics of Conversion.
(i) Optional Conversion. To convert any Conversion Amount into shares of
Common Stock on any date (a "Conversion Date"), the Holder shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior
to 11:59 p.m., New York Time, on such date, a copy of an executed
notice of conversion in the form attached hereto as Exhibit I (the
"Conversion Notice") to the Company and (B) if required by Section
4(b)(iv), surrender this Debenture to a nationally recognized
overnight delivery service for delivery to the Company (or an
indemnification undertaking reasonably satisfactory to the Company
with respect to this Debenture in the case of its loss, theft or
destruction). On or before the third Business Day following the date
of receipt of a Conversion Notice (the "Share Delivery Date"), the
Company shall (X) if legends are not required to be placed on
certificates of Common Stock pursuant to the Exchange Agreement and
provided that the Transfer Agent is participating in the Depository
Trust Company's ("DTC") Fast Automated Securities Transfer Program,
credit such aggregate number of shares of Common Stock to which the
Holder shall be entitled to the Holder's or its designee's balance
account with DTC through its Deposit Withdrawal Agent Commission
system or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and deliver to the
address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number
of shares of Common Stock to which the Holder shall be entitled which
certificates shall not bear any restrictive legends unless required
pursuant the Exchange Agreement. If this Debenture is physically
surrendered for conversion and the outstanding Principal of this
Debenture is greater than the Principal portion of the Conversion
Amount being converted, then the Company shall as soon as practicable
and in no event later than three (3) Business Days after receipt of
this Debenture and at its own expense, issue and deliver to the holder
a new Debenture representing the outstanding Principal not converted.
The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Debenture shall be treated for all
purposes as the record holder or holders of such shares of Common
Stock upon the transmission of a Conversion Notice.
(ii) Company's Failure to Timely Convert. If within three (3) Trading Days
after the Company's receipt of the facsimile copy of a Conversion
Notice the Company shall fail to issue and deliver a certificate to
the Holder or credit the Holder's balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon
such holder's conversion of any Conversion Amount (a "Conversion
Failure"), and if on or after such Trading Day the Holder purchases
(in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by the Holder of Common Stock issuable upon
such conversion that the Holder anticipated receiving from the Company
(a "Buy-In"), then the Company shall, within three (3) Business Days
after the Holder's request and in the Holder's discretion, either (i)
pay cash to the Holder in an amount equal to the Holder's total
purchase price (including brokerage commissions and other out of
pocket expenses, if any) for the shares of Common Stock so purchased
(the "Buy-In Price"), at which point the Company's obligation to
deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock
and pay cash to the Holder in an amount equal to the excess (if any)
of the Buy-In Price over the product of (A) such number of shares of
Common Stock, times (B) the Closing Bid Price on the Conversion Date.
(iii) Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon conversion of any portion of this Debenture in accordance
with the terms hereof, the Holder shall not be required to physically
surrender this Debenture to the Company unless (A) the full Conversion
Amount represented by this Debenture is being converted or (B) the
Holder has provided the Company with prior written notice (which
notice may be included in a Conversion Notice) requesting reissuance
of this Debenture upon physical surrender of this Debenture. The
Holder and the Company shall maintain records showing the Principal
and Interest converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Debenture
upon conversion.
(c) Limitations on Conversions or Trading.
(i) Beneficial Ownership. The Company shall not effect any conversions of
this Debenture and the Holder shall not have the right to convert any
portion of this Debenture or receive shares of Common Stock as payment
of interest hereunder to the extent that after giving effect to such
conversion or receipt of such interest payment, the Holder, together
with any affiliate thereof, would beneficially own (as determined in
accordance with Section 13(d) of the Exchange Act and the rules
promulgated thereunder) in excess of 4.99% of the number of shares of
Common Stock outstanding immediately after giving effect to such
conversion or receipt of shares as payment of interest. Since the
Holder will not be obligated to report to the Company 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 4.99% 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 Company
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 Section 4(a) and, any principal
amount tendered for conversion in excess of the permitted amount
hereunder shall remain outstanding under this Debenture. 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 Company. Other Holders shall be unaffected by any such
waiver.
(ii) Trading Limitation. Solely with respect to Underlying Shares (and not
in connection with Common Stock the Holder may obtain through any
other source, including through conversion of any Other Debentures),
the Holder agrees that it shall not sell more than the Monthly Trading
Limitation during any Calendar month. The term "Monthly Trading
Limitation" shall mean the greater of (i) the number of shares equal
to $275,000 divided by the average VWAP during the prior Calendar
month or (ii) 25% of the total volume of the Common Stock traded
during the previous Calendar month (as determined by Bloomberg, LP).
Notwithstanding the forgoing, the trading limitation set forth in this
Section 3(c)(ii) shall not apply after the occurrence of any Event of
Default or if waived in writing by the Company.
(d) Other Provisions.
(i) The Company 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 Company of a Holder's notice that such minimum number of
Underlying Shares is not so reserved, the Company shall promptly
reserve a sufficient number of shares of Common Stock to comply with
such requirement.
(ii) All calculations under this Section 4 shall be rounded to the nearest
$0.0001 or whole share.
(iii) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of this Debenture
and payment of interest on this Debenture, each as herein provided,
free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder, 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 this Debenture or in the Transaction Documents) be issuable (taking
into account the adjustments and restrictions set forth herein) upon
the conversion of the outstanding principal amount of this Debenture
and payment of interest hereunder. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be
duly and validly authorized, issued and fully paid, nonassessable and,
if the Underlying Shares Registration Statement has been declared
effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(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
Company '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.
(5) Adjustments to Conversion Price
(a) Adjustment of Conversion Price upon Issuance of Common Stock. If the
Company, at any time while this Debenture is outstanding, issues or sells,
or in accordance with this Section 5(a) is deemed to have issued or sold,
any shares of Common Stock, excluding shares of Common Stock deemed to have
been issued or sold by the Company in connection with any Excluded
Securities, for a consideration per share (the "New Issuance Price") less
than a price equal to the Conversion Price in effect immediately prior to
such issue or sale (such price the "Applicable Price") (the foregoing a
"Dilutive Issuance"), then immediately after such Dilutive Issuance the
Conversion Price then in effect shall be reduced to an amount equal to the
New Issuance Price. For purposes of determining the adjusted Conversion
Price under this Section 5(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon
conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option is less than the Applicable
Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share.
For purposes of this Section, the "lowest price per share for which
one share of Common Stock is issuable upon the exercise of any such
Option or upon conversion or exchange or exercise of any Convertible
Securities issuable upon exercise of such Option" shall be equal to
the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon granting or sale of the Option, upon exercise of the Option
and upon conversion or exchange or exercise of any Convertible
Security issuable upon exercise of such Option. No further adjustment
of the Conversion Price shall be made upon the actual issuance of such
share of Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common
Stock upon conversion or exchange or exercise of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise thereof is less than the Applicable
Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the
time of the issuance or sale of such Convertible Securities for such
price per share. For the purposes of this Section, the "lowest price
per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise" shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the
issuance or sale of the Convertible Security and upon the conversion
or exchange or exercise of such Convertible Security. No further
adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock upon conversion or exchange or
exercise of such Convertible Securities, and if any such issue or sale
of such Convertible Securities is made upon exercise of any Options
for which adjustment of the Conversion Price had been or are to be
made pursuant to other provisions of this Section, no further
adjustment of the Conversion Price shall be made by reason of such
issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion, exchange or exercise of any
Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable or exercisable for
Common Stock changes at any time, the Conversion Price in effect at
the time of such change shall be adjusted to the Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may
be, at the time initially granted, issued or sold. For purposes of
this Section, if the terms of any Option or Convertible Security that
was outstanding as of the Issuance Date are changed in the manner
described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been
issued as of the date of such change. No adjustment shall be made if
such adjustment would result in an increase of the Conversion Price
then in effect.
(iv) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for the difference of (x)
the aggregate fair market value of such Options and other securities
issued or sold in such integrated transaction, less (y) the fair
market value of the securities other than such Option, issued or sold
in such transaction and the other securities issued or sold in such
integrated transaction will be deemed to have been issued or sold for
the balance of the consideration received by the Company. If any
Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the gross amount raised by the
Company; provided, however, that such gross amount is not greater than
110% of the net amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will
be the Closing Bid Price of such securities on the date of receipt. If
any Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in
which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is attributable
to such Common Stock, Options or Convertible Securities, as the case
may be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the Holder.
If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "Valuation
Event"), the fair value of such consideration will be determined
within five (5) Business Days after the tenth (10th) day following the
Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Holder. The determination of such
appraiser shall be deemed binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall be borne by
the Company.
(v) Record Date. If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(b) Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. If the Company, 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 Company, then the Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding 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.
(c) Purchase Rights. If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held
the number of shares of Common Stock acquirable upon complete conversion of
this Debenture (without taking into account any limitations or restrictions
on the convertibility of this Debenture) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(d) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 4 but not expressly provided for by such
provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the
Holder under this Debenture; provided that no such adjustment will increase
the Conversion Price as otherwise determined pursuant to this Section 5.
(e) Other Corporate Events. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in
exchange for shares of Common Stock (a "Corporate Event"), the Company
shall make appropriate provision to insure that the Holder will thereafter
have the right to receive upon a conversion of this Debenture, at the
Holder's option, (i) in addition to the shares of Common Stock receivable
upon such conversion, such securities or other assets to which the Holder
would have been entitled with respect to such shares of Common Stock had
such shares of Common Stock been held by the Holder upon the consummation
of such Corporate Event (without taking into account any limitations or
restrictions on the convertibility of this Debenture) or (ii) in lieu of
the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common
Stock in connection with the consummation of such Corporate Event in such
amounts as the Holder would have been entitled to receive had this
Debenture initially been issued with conversion rights for the form of such
consideration (as opposed to shares of Common Stock) at a conversion rate
for such consideration commensurate with the Conversion Rate. Provision
made pursuant to the preceding sentence shall be in a form and substance
satisfactory to the Required Holders. The provisions of this Section shall
apply similarly and equally to successive Corporate Events and shall be
applied without regard to any limitations on the conversion or redemption
of this Debenture.
(f) Whenever the Conversion Price is adjusted pursuant to Section 5 hereof, the
Company 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.
(g) In case of any (1) merger or consolidation of the Company or any subsidiary
of the Company with or into another Person, or (2) sale by the Company or
any subsidiary of the Company of more than one-half of the assets of the
Company 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 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.
(6) REISSUANCE OF THIS DEBENTURE.
(a) Transfer. If this Debenture is to be transferred, the Holder shall
surrender this Debenture to the Company, whereupon the Company will,
subject to the satisfaction of the transfer provisions of the Exchange
Agreement, forthwith issue and deliver upon the order of the Holder a new
Debenture (in accordance with Section 6(d)), registered in the name of the
registered transferee or assignee, representing the outstanding Principal
being transferred by the Holder and, if less then the entire outstanding
Principal is being transferred, a new Debenture (in accordance with Section
6(d)) to the Holder representing the outstanding Principal not being
transferred. The Holder and any assignee, by acceptance of this Debenture,
acknowledge and agree that, by reason of the provisions of Section
4(b)(iii) following conversion or redemption of any portion of this
Debenture, the outstanding Principal represented by this Debenture may be
less than the Principal stated on the face of this Debenture.
(b) Lost, Stolen or Mutilated Debenture. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Debenture, and, in the case of loss,
theft or destruction, of any indemnification undertaking by the Holder to
the Company in customary form and, in the case of mutilation, upon
surrender and cancellation of this Debenture, the Company shall execute and
deliver to the Holder a new Debenture (in accordance with Section 6(d))
representing the outstanding Principal.
(c) Debenture Exchangeable for Different Denominations. This Debenture is
exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new Debenture or Debentures (in accordance
with Section 6(d)) representing in the aggregate the outstanding Principal
of this Debenture, and each such new Debenture will represent such portion
of such outstanding Principal as is designated by the Holder at the time of
such surrender.
(d) Issuance of New Debentures. Whenever the Company is required to issue a new
Debenture pursuant to the terms of this Debenture, such new Debenture (i)
shall be of like tenor with this Debenture, (ii) shall represent, as
indicated on the face of such new Debenture, the Principal remaining
outstanding (or in the case of a new Debenture being issued pursuant to
Section 6(a) or Section 6(c), the Principal designated by the Holder which,
when added to the principal represented by the other new Debentures issued
in connection with such issuance, does not exceed the Principal remaining
outstanding under this Debenture immediately prior to such issuance of new
Debentures), (iii) shall have an issuance date, as indicated on the face of
such new Debenture, which is the same as the Issuance Date of this
Debenture, (iv) shall have the same rights and conditions as this
Debenture, and (v) shall represent accrued and unpaid Interest from the
Issuance Date.
(7) 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:
If to the Company, to: Seaway Valley Capital Corporation
▇▇-▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Law Office of ▇▇▇▇▇▇▇ ▇. ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Holder: YA Global Investments, LP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇ ▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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.
(8) Except as expressly provided herein, no provision of this Debenture shall
alter or impair the obligations of the Company, 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 Company. As long as
this Debenture is outstanding, the Company 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.
(9) This Debenture shall not entitle the Holder to any of the rights of a
stockholder of the Company, 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 Company, unless
and to the extent converted into shares of Common Stock in accordance with the
terms hereof.
(10) No indebtedness of the Company is senior to this Debenture in right of
payment, whether with respect to interest, damages or upon liquidation or
dissolution or otherwise. Without the Holder's consent, the Company 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 Company under this Debenture.
(11) 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 ▇▇▇▇▇▇ 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.
(12) If the Company fails to strictly comply with the terms of this Debenture,
then the Company 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.
(13) 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.
(14) 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
Company covenants (to the extent that it may lawfully do so) that it shall not
at any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
(15) 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.
(16) 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.
(17) CERTAIN DEFINITIONS For purposes of this Debenture, the following terms
shall have the following meanings:
(a) "Approved Stock Plan" means a stock option plan that has been approved by
the Board of Directors of the Company, pursuant to which the Company's
securities may be issued only to any employee, officer, or director for
services provided to the Company.
(b) "Bloomberg" means Bloomberg Financial Markets.
(c) "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.
(d) "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 Company, by contract or otherwise) of in excess of fifty
percent (50%) of the voting securities of the Company (except that the
acquisition of voting securities by the Holder or any other current holder
of convertible securities of the Company 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 Company 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), (c) the merger, consolidation or sale of fifty percent (50%) or
more of the assets of the Company or any subsidiary of the Company in one
or a series of related transactions with or into another entity, or (d) 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
(a), (b) or (c).
(e) "Closing Bid Price" means the price per share in the last reported trade of
the Common Stock on a Primary Market or on the exchange which the Common
Stock is then listed as quoted by Bloomberg.
(f) "Convertible Securities" means any stock or securities (other than Options)
directly or indirectly convertible into or exercisable or exchangeable for
Common Stock.
(g) "Commission" means the Securities and Exchange Commission.
(h) "Common Stock" means the common stock, par value $.0001, of the Company and
stock of any other class into which such shares may hereafter be changed or
reclassified.
(i) "Default Conversion Price" means $0.001.
(j) "Equity Conditions" means that each of the following conditions is
satisfied: (i) on each day during the period beginning two (2) weeks prior
to the applicable date of determination and ending on and including the
applicable date of determination (the "Equity Conditions Measuring
Period"), either (x) an Underlying Shares Registration Statement shall be
effective and available for the resale of all applicable shares of Common
Stock to be issued in connection with the event requiring determination or
(y) all applicable shares of Common Stock to be issued in connection with
the event requiring determination shall be eligible for sale without
restriction and without the need for registration under any applicable
federal or state securities laws; (ii) on each day during the Equity
Conditions Measuring Period, the Common Stock is designated for quotation
on the Principal Market and shall not have been suspended from trading on
such exchange or market nor shall delisting or suspension by such exchange
or market been threatened or pending either (A) in writing by such exchange
or market or (B) by falling below the then effective minimum listing
maintenance requirements of such exchange or market; (iii) during the
Equity Conditions Measuring Period, the Company shall have delivered
Conversion Shares upon conversion of the Debentures to the Holder on a
timely basis as set forth in Section 4(b)(ii) hereof; (iv) any applicable
shares of Common Stock to be issued in connection with the event requiring
determination may be issued in full without violating Section 4(c) hereof
and the rules or regulations of the Primary Market; (v) during the Equity
Conditions Measuring Period, there shall not have occurred either (A) an
Event of Default or (B) an event that with the passage of time or giving of
notice would constitute an Event of Default; and (vii) the Company shall
have no knowledge of any fact that would cause (x) the Registration
Statements required pursuant to the Registration Rights Agreement not to be
effective and available for the resale of all applicable shares of Common
Stock to be issued in connection with the event requiring determination or
(y) any applicable shares of Common Stock to be issued in connection with
the event requiring determination not to be eligible for sale without
restriction and without the need for registration under any applicable
federal or state securities laws.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Exchange Agreement" means the Exchange Agreement dated the date hereof by
and among the Company and the Holder.
(m) "Excluded Securities" means, (a) shares issued or deemed to have been
issued by the Company pursuant to an Approved Stock Plan (b) shares of
Common Stock issued or deemed to be issued by the Company upon the
conversion, exchange or exercise of any right, option, obligation or
security outstanding on the date prior to date of the Exchange Agreement,
provided that the terms of such right, option, obligation or security are
not amended or otherwise modified on or after the date of the Exchange
Agreement, and provided that the conversion price, exchange price, exercise
price or other purchase price is not reduced, adjusted or otherwise
modified and the number of shares of Common Stock issued or issuable is not
increased (whether by operation of, or in accordance with, the relevant
governing documents or otherwise) on or after the date of the Exchange
Agreement, (c) shares issued in connection with any acquisition by the
Company, whether through an acquisition of stock or a merger of any
business, assets or technologies, leasing arrangement or any other
transaction the primary purpose of which is not to raise equity capital,
and (d) the shares of Common Stock issued or deemed to be issued by the
Company upon conversion of this Debenture.
(n) "Options" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(o) "Original Issue Date" means 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.
(p) "Other Debentures" means any debenture, note, or other instrument
documenting any indebtedness owed by the Company to the Holder, whether
previously incurred, or hereinafter incurred.
(q) "Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or
a governmental agency.
(r) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
(s) "Trading Day" means a day on which the shares of Common Stock are quoted on
the OTCBB or quoted or traded on such Primary 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.
(t) "Transaction Documents" means the Exchange Agreement or any other agreement
delivered in connection with the Exchange Agreement, including, without
limitation, the Security Documents, the Irrevocable Transfer Agent
Instructions, and the Registration Rights Agreement.
(u) "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.
(v) "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.
(w) "Volume Weighted Average Price" means, for any security as of any date, the
daily dollar volume-weighted average price for such security on the Primary
Market as reported by Bloomberg through its "Historical Prices - Px Table
with Average Daily Volume" functions, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg, the average of
the highest closing bid price and the lowest closing ask price of any of
the market makers for such security as reported in the "pink sheets" by
Pink Sheets LLC.
(x) "Warrants" has the meaning ascribed to such term in the Exchange Agreement,
and shall include all warrants issued in exchange therefor or replacement
thereof.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
COMPANY:
SEAWAY VALLEY CAPITAL CORPORATION
By:
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
EXHIBIT I
CONVERSION NOTICE
(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 Debenture No. SWVC 6-1 into Shares of Common Stock of SEAWAY VALLEY
CAPITAL CORPORATION, according to the conditions stated therein, as of the
Conversion Date written below.
Conversion Date:
Conversion Amount to be converted: $
Conversion Price: $
Number of shares of Common Stock to be
issued:
Amount of Debenture Unconverted: $
Please issue the shares of Common Stock in the following name and to the
following address: Issue to:
Authorized Signature:
Name:
Title:
Broker DTC Participant Code:
Account Number:
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
SEAWAY VALLEY CAPITAL CORPORATION
Warrant To Purchase Common Stock
Warrant No.: SWVC-6-1 Number of Shares: 134,600,000
Warrant Exercise Price: $.01
Expiration Date: February 28, 2013
Date of Issuance: March 4, 2008
Seaway Valley Capital Corporation, a Delaware corporation (the "Company"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, YA Global Investments, L.P. (the
"Holder"), the registered holder hereof or its permitted assigns, is entitled,
subject to the terms set forth below, to purchase from the Company upon
surrender of this Warrant, at any time or times on or after the date hereof, but
not after 11:59 P.M. Eastern Time on the Expiration Date (as defined herein) up
to 134,600,000 fully paid and nonassessable shares of Common Stock (as defined
herein) of the Company (the "Warrant Shares") at the exercise price per share
provided in Section 1(b) below or as subsequently adjusted; provided, however,
that in no event shall the holder be entitled to exercise this Warrant for a
number of Warrant Shares in excess of that number of Warrant Shares which, upon
giving effect to such exercise, would cause the aggregate number of shares of
Common Stock beneficially owned by the holder and its affiliates to exceed 4.99%
of the outstanding shares of the Common Stock following such exercise, except
within sixty (60) days of the Expiration Date (however, such restriction may be
waived by Holder (but only as to itself and not to any other holder) upon not
less than 65 days prior notice to the Company). For purposes of the foregoing
proviso, the aggregate 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 exercise of this Warrant with respect to which the determination
of such proviso is being made, but shall exclude shares of Common Stock which
would be issuable upon (i) exercise of the remaining, unexercised Warrants
beneficially owned by the holder and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company beneficially owned by the holder and its affiliates (including,
without limitation, any convertible notes or preferred stock) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this
Warrant, in determining the number of outstanding shares of Common Stock a
holder may rely on the number of outstanding shares of Common Stock as reflected
in (1) the Company's most recent Form 10-QSB or Form 10-KSB, as the case may be,
(2) a more recent public announcement by the Company or (3) any other notice by
the Company or its transfer agent setting forth the number of shares of Common
Stock outstanding. Upon the written request of any holder, the Company shall
promptly, but in no event later than one (1) Business Day following the receipt
of such notice, confirm in writing to any such 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 exercise of Warrants
(as defined below) by such holder and its affiliates since the date as of which
such number of outstanding shares of Common Stock was reported.
Section 1.
(a) This Warrant is issued pursuant to the Exchange Agreement ("Exchange
Agreement") dated the date hereof between the Company and the Holder
thereto or issued in exchange or substitution thereafter or replacement
thereof. Each Capitalized term used, and not otherwise defined herein,
shall have the meaning ascribed thereto in the Exchange Agreement.
(b) Definitions. The following words and terms as used in this Warrant shall
have the following meanings:
(i) "Approved Stock Plan" means a stock option plan that has been approved
by the Board of Directors of the Company prior to the date of the
Exchange Agreement, pursuant to which the Company's securities may be
issued only to any employee, officer or director for services provided
to the Company.
(ii) "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in the City of New York are authorized or
required by law to remain closed.
(iii) "Closing Bid Price" means the closing bid price of Common Stock as
quoted on the Principal Market (as reported by Bloomberg Financial
Markets ("Bloomberg") through its "Volume at Price" function).
(iv) "Common Stock" means (i) the Company's common stock, par value $0.0001
per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
(v) "Excluded Securities" means, (a) shares issued or deemed to have been
issued by the Company pursuant to an Approved Stock Plan, (b) shares
of Common Stock issued or deemed to be issued by the Company upon the
conversion, exchange or exercise of any right, option, obligation or
security outstanding on the date prior to date of the Exchange
Agreement, provided that the terms of such right, option, obligation
or security are not amended or otherwise modified on or after the date
of the Exchange Agreement, and provided that the conversion price,
exchange price, exercise price or other purchase price is not reduced,
adjusted or otherwise modified and the number of shares of Common
Stock issued or issuable is not increased (whether by operation of, or
in accordance with, the relevant governing documents or otherwise) on
or after the date of the Exchange Agreement, and (c) the shares of
Common Stock issued or deemed to be issued by the Company upon
conversion of the Convertible Debenture issued pursuant to the
Exchange Agreement or exercise of the Warrant.
(vi) "Expiration Date" means February 28, 2013.
(vii) "Issuance Date" means the date hereof.
(viii) "Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
(ix) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or
agency thereof.
(x) "Primary Market" means on any of (a) the American Stock Exchange, (b)
New York Stock Exchange, (c) the Nasdaq Global Select Market, (d) the
Nasdaq Global Market, (e) the Nasdaq Capital Market, or (e) the
Over-the-Counter Bulletin Board ("OTCBB")
(xi) "Securities Act" means the Securities Act of 1933, as amended.
(xii) "Warrant" means this Warrant and all Warrants issued in exchange,
transfer or replacement thereof.
(xiii) "Warrant Exercise Price" shall be $0.01 or as subsequently adjusted
as provided in Section 8 hereof.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein (A) to the
Company shall be deemed to include the Company's successors and (B) to
any applicable law defined or referred to herein shall be deemed
references to such applicable law as the same may have been or may be
amended or supplemented from time to time.
(ii) When used in this Warrant, the words "herein", "hereof", and
"hereunder" and words of similar import, shall refer to this Warrant
as a whole and not to any provision of this Warrant, and the words
"Section", "Schedule", and "Exhibit" shall refer to Sections of, and
Schedules and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender includes the
masculine or feminine, and the singular number includes the plural,
and vice versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be exercised
by the holder hereof then registered on the books of the Company, pro rata
as hereinafter provided, at any time on any Business Day on or after the
opening of business on such Business Day, commencing with the first day
after the date hereof, and prior to 11:59 P.M. Eastern Time on the
Expiration Date solely on a cashless basis (i) by delivery of a written
notice, in the form of the subscription notice attached as Exhibit A hereto
(the "Exercise Notice"), of such holder's election to exercise this
Warrant, which notice shall specify the number of Warrant Shares to be
purchased, payment (on a cashless basis as detailed below) to the Company
of an amount equal to the Warrant Exercise Price(s) applicable to the
Warrant Shares being purchased, multiplied by the number of Warrant Shares
(at the applicable Warrant Exercise Price) as to which this Warrant is
being exercised (plus any applicable issue or transfer taxes) (the
"Aggregate Exercise Price") and the surrender of this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction) to a common carrier for overnight delivery to
the Company as soon as practicable following such date. In lieu of making
payment of the Aggregate Exercise Price in cash or wire transfer, this
Warrant shall be exercised on a cashless basis and the Holder shall
\receive upon such exercise the "Net Number" of shares of Common Stock
determined according to the following formula (the "Cashless Exercise"):
Net Number = (A x B) - (A x C)
B
For purposes of the foregoing formula:
A = the total number of Warrant Shares with respect to which
this Warrant is then being exercised.
B = the Closing Bid Price of the Common Stock on the date of
exercise of the Warrant.
C = the Warrant Exercise Price then in effect for the
applicable Warrant Shares at the time of such exercise.
In the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2, the Company shall on or before the fifth
(5th) Business Day following the date of receipt of the Exercise Notice,
the Aggregate Exercise Price and this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) and the receipt of the representations of the holder specified
in Section 6 hereof, if requested by the Company (the "Exercise Delivery
Documents"), and if the Common Stock is DTC eligible, credit such aggregate
number of shares of Common Stock to which the holder shall be entitled to
the holder's or its designee's balance account with The Depository Trust
Company; provided, however, if the holder who submitted the Exercise Notice
requested physical delivery of any or all of the Warrant Shares, or, if the
Common Stock is not DTC eligible then the Company shall, on or before the
fifth (5th) Business Day following receipt of the Exercise Delivery
Documents, issue and surrender to a common carrier for overnight delivery
to the address specified in the Exercise Notice, a certificate, registered
in the name of the holder, for the number of shares of Common Stock to
which the holder shall be entitled pursuant to such request. Upon delivery
of the Exercise Notice and Aggregate Exercise Price referred to in clause
(i) or (ii) above the holder of this Warrant shall be deemed for all
corporate purposes to have become the holder of record of the Warrant
Shares with respect to which this Warrant has been exercised. In the case
of a dispute as to the determination of the Warrant Exercise Price, the
Closing Bid Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the holder the number of Warrant Shares
that is not disputed and shall submit the disputed determinations or
arithmetic calculations to the holder via facsimile within one (1) Business
Day of receipt of the holder's Exercise Notice.
(b) If the holder and the Company are unable to agree upon the determination of
the Warrant Exercise Price or arithmetic calculation of the Warrant Shares
within one (1) day of such disputed determination or arithmetic calculation
being submitted to the holder, then the Company shall immediately submit
via facsimile (i) the disputed determination of the Warrant Exercise Price
or the Closing Bid Price to an independent, reputable investment banking
firm or (ii) the disputed arithmetic calculation of the Warrant Shares to
its independent, outside accountant. The Company shall cause the investment
banking firm or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment banking firm's or
accountant's determination or calculation, as the case may be, shall be
deemed conclusive absent manifest error.
(c) Unless the rights represented by this Warrant shall have expired or shall
have been fully exercised, the Company shall, as soon as practicable and in
no event later than five (5) Business Days after any exercise and at its
own expense, issue a new Warrant identical in all respects to this Warrant
exercised except it shall represent rights to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant exercised, less the number of Warrant Shares with respect to which
such Warrant is exercised.
(d) No fractional Warrant Shares are to be issued upon any pro rata exercise of
this Warrant, but rather the number of Warrant Shares issued upon such
exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(e) If the Company or its Transfer Agent shall fail for any reason or for no
reason to issue to the holder within ten (10) days of receipt of the
Exercise Delivery Documents, a certificate for the number of Warrant Shares
to which the holder is entitled or to credit the holder's balance account
with The Depository Trust Company for such number of Warrant Shares to
which the holder is entitled upon the holder's exercise of this Warrant,
the Company shall, in addition to any other remedies under this Warrant or
otherwise available to such holder, pay as additional damages in cash to
such holder on each day the issuance of such certificate for Warrant Shares
is not timely effected an amount equal to 0.025% of the product of (A) the
sum of the number of Warrant Shares not issued to the holder on a timely
basis and to which the holder is entitled, and (B) the Closing Bid Price of
the Common Stock for the trading day immediately preceding the last
possible date which the Company could have issued such Common Stock to the
holder without violating this Section 2.
(f) If within ten (10) days after the Company's receipt of the Exercise
Delivery Documents, the Company fails to deliver a new Warrant to the
holder for the number of Warrant Shares to which such holder is entitled
pursuant to Section 2 hereof, then, in addition to any other available
remedies under this Warrant, or otherwise available to such holder, the
Company shall pay as additional damages in cash to such holder on each day
after such tenth (10th) day that such delivery of such new Warrant is not
timely effected in an amount equal to 0.25% of the product of (A) the
number of Warrant Shares represented by the portion of this Warrant which
is not being exercised and (B) the Closing Bid Price of the Common Stock
for the trading day immediately preceding the last possible date which the
Company could have issued such Warrant to the holder without violating this
Section 2.
Section 3. Covenants as to Common Stock. The Company hereby covenants and
agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or replacement
of this Warrant will upon issuance be, duly authorized and validly issued.
(b) All Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
(c) During the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved at
least one hundred percent (100%) of the number of shares of Common Stock
needed to provide for the exercise of the rights then represented by this
Warrant and the par value of said shares will at all times be less than or
equal to the applicable Warrant Exercise Price. If at any time the Company
does not have a sufficient number of shares of Common Stock authorized and
available, then the Company shall call and hold a special meeting of its
stockholders within sixty (60) days of that time for the sole purpose of
increasing the number of authorized shares of Common Stock.
(d) If at any time after the date hereof the Company shall file a registration
statement, the Company shall include the Warrant Shares issuable to the
holder, pursuant to the terms of this Warrant and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Warrant Shares from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national securities exchange
or automated quotation system, as the case may be, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon
the exercise of this Warrant if and so long as any shares of the same class
shall be listed on such national securities exchange or automated quotation
system.
(e) The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to
be observed or performed by it hereunder, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the
holder of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment, consistent
with the tenor and purpose of this Warrant. The Company will not increase
the par value of any shares of Common Stock receivable upon the exercise of
this Warrant above the Warrant Exercise Price then in effect, and (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares
of Common Stock upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to the Company by
merger, consolidation or acquisition of all or substantially all of the
Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes, except any applicable
withholding, which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of
capital stock of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on such holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 5, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "Accredited Investor"). Upon exercise of this
Warrant the holder shall, if requested by the Company, confirm in writing, in a
form satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the holder's own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or resale and
that such holder is an Accredited Investor. If such holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder's exercise of this Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
assure the Company that the issuance of its securities upon exercise of this
Warrant shall not violate any United States or state securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The
Company may treat the person in whose name any Warrant is registered on the
register as the owner and holder thereof for all purposes, notwithstanding
any notice to the contrary, but in all events recognizing any transfers
made in accordance with the terms of this Warrant.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever on or after the Issuance Date of this
Warrant, the Company issues or sells, or is deemed to have issued or sold,
any shares of Common Stock (other than Excluded Securities) for a
consideration per share less than a price (the "Applicable Price") equal to
the Warrant Exercise Price in effect immediately prior to such issuance or
sale, then immediately after such issue or sale the Warrant Exercise Price
then in effect shall be reduced to an amount equal to such consideration
per share. Upon each such adjustment of the Warrant Exercise Price
hereunder, the number of Warrant Shares issuable upon exercise of this
Warrant shall be adjusted to the number of shares determined by multiplying
the Warrant Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares issuable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by
the Warrant Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For purposes of
determining the adjusted Warrant Exercise Price under Section 8(a) above,
the following shall be applicable:
(i) Issuance of Options. If after the date hereof, the Company in any
manner grants any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option
or upon conversion or exchange of any convertible securities issuable
upon exercise of any such Option is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding and
to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes
of this Section 8(b)(i), the lowest price per share for which one
share of Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities shall be
equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of
the Option or upon conversion or exchange of any convertible security
issuable upon exercise of such Option. No further adjustment of the
Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock or of such convertible securities upon the exercise of
such Options or upon the actual issuance of such Common Stock upon
conversion or exchange of such convertible securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any convertible securities and the lowest price per
share for which one share of Common Stock is issuable upon the
conversion or exchange thereof is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the issuance
or sale of such convertible securities for such price per share. For
the purposes of this Section 8(b)(ii), the lowest price per share for
which one share of Common Stock is issuable upon such conversion or
exchange shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of the
convertible security and upon conversion or exchange of such
convertible security. No further adjustment of the Warrant Exercise
Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such convertible securities, and if any such
issue or sale of such convertible securities is made upon exercise of
any Options for which adjustment of the Warrant Exercise Price had
been or are to be made pursuant to other provisions of this Section
8(b), no further adjustment of the Warrant Exercise Price shall be
made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion or exchange of any convertible
securities, or the rate at which any convertible securities are
convertible into or exchangeable for Common Stock changes at any time,
the Warrant Exercise Price in effect at the time of such change shall
be adjusted to the Warrant Exercise Price which would have been in
effect at such time had such Options or convertible securities
provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially
granted, issued or sold and the number of Warrant Shares issuable upon
exercise of this Warrant shall be correspondingly readjusted. For
purposes of this Section 8(b)(iii), if the terms of any Option or
convertible security that was outstanding as of the Issuance Date of
this Warrant are changed in the manner described in the immediately
preceding sentence, then such Option or convertible security and the
Common Stock deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such
change. No adjustment pursuant to this Section 8(b) shall be made if
such adjustment would result in an increase of the Warrant Exercise
Price then in effect.
(iv) Calculation of Consideration Received. If any Common Stock, Options or
convertible securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefore will be
deemed to be the net amount received by the Company therefore. If any
Common Stock, Options or convertible securities are issued or sold for
a consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such consideration,
except where such consideration consists of marketable securities, in
which case the amount of consideration received by the Company will be
the market price of such securities on the date of receipt of such
securities. If any Common Stock, Options or convertible securities are
issued to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity, the amount of
consideration therefore will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as
is attributable to such Common Stock, Options or convertible
securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the
Company and the holders of Warrants representing at least two-thirds
(b) of the Warrant Shares issuable upon exercise of the Warrants then
outstanding. If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the holders of Warrants
representing at least two-thirds (b) of the Warrant Shares issuable
upon exercise of the Warrants then outstanding. The determination of
such appraiser shall be final and binding upon all parties and the
fees and expenses of such appraiser shall be borne jointly by the
Company and the holders of Warrants.
(v) Integrated Transactions. In case any Option is issued in connection
with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of
$.01.
(vi) Treasury Shares. The number of shares of Common Stock outstanding at
any given time does not include shares owned or held by or for the
account of the Company, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock.
(vii) Record Date. If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in convertible
securities or (2) to subscribe for or purchase Common Stock, Options
or convertible securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(c) Adjustment of Warrant Exercise Price upon Subdivision or Combination of
Common Stock. If the Company at any time after the date of issuance of this
Warrant subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, any Warrant Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this
Warrant will be proportionately increased. If the Company at any time after
the date of issuance of this Warrant combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, any Warrant Exercise Price in
effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares issuable upon exercise of this
Warrant will be proportionately decreased. Any adjustment under this
Section 8(c) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(d) Distribution of Assets. If the Company shall declare or make any dividend
or other distribution of its assets (or rights to acquire its assets) to
holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in
each such case:
(i) any Warrant Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of
Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price
determined by multiplying such Warrant Exercise Price by a fraction of
which (A) the numerator shall be the Closing Sale Price of the Common
Stock on the trading day immediately preceding such record date minus
the value of the Distribution (as determined in good faith by the
Company's Board of Directors) applicable to one share of Common Stock,
and (B) the denominator shall be the Closing Sale Price of the Common
Stock on the trading day immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon exercise of
this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the
close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution
multiplied by the reciprocal of the fraction set forth in the
immediately preceding clause (i), or (B) in the event that the
Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated
quotation system, then the holder of this Warrant shall receive an
additional warrant to purchase Common Stock, the terms of which shall
be identical to those of this Warrant, except that such warrant shall
be exercisable into the amount of the assets that would have been
payable to the holder of this Warrant pursuant to the Distribution had
the holder exercised this Warrant immediately prior to such record
date and with an exercise price equal to the amount by which the
exercise price of this Warrant was decreased with respect to the
Distribution pursuant to the terms of the immediately preceding clause
(i).
(e) Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Warrant Exercise Price and the number of shares of Common
Stock obtainable upon exercise of this Warrant so as to protect the rights
of the holders of the Warrants; provided, except as set forth in section
8(c),that no such adjustment pursuant to this Section 8(e) will increase
the Warrant Exercise Price or decrease the number of shares of Common Stock
obtainable as otherwise determined pursuant to this Section 8.
(f) Voluntary Adjustments By Company. The Company may at any time during the
term of this Warrant reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the Board of Directors of
the Company.
(g) Notices.
(i) Immediately upon any adjustment of the Warrant Exercise Price, the
Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the
calculation of such adjustment.
(ii) The Company will give written notice to the holder of this Warrant at
least ten (10) days prior to the date on which the Company closes its
books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining
rights to vote with respect to any Organic Change (as defined below),
dissolution or liquidation, provided that such information shall be
made known to the public prior to or in conjunction with such notice
being provided to such holder.
(iii) The Company will also give written notice to the holder of this
Warrant at least ten (10) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8 above, if at any time
the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata
to the record holders of any class of Common Stock (the "Purchase Rights"),
then the holder of this Warrant will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person or other transaction in each case which is effected in such a way
that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is referred to herein as an "Organic Change."
Prior to the consummation of any (i) sale of all or substantially all of
the Company's assets to an acquiring Person or (ii) other Organic Change
following which the Company is not a surviving entity, the Company will
secure from the Person purchasing such assets or the successor resulting
from such Organic Change (in each case, the "Acquiring Entity") a written
agreement (in form and substance satisfactory to the holders of Warrants
representing at least two-thirds (iii) of the Warrant Shares issuable upon
exercise of the Warrants then outstanding) to deliver to each holder of
Warrants in exchange for such Warrants, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and
substance to this Warrant and satisfactory to the holders of the Warrants
(including an adjusted warrant exercise price equal to the value for the
Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock
acquirable and receivable upon exercise of the Warrants without regard to
any limitations on exercise, if the value so reflected is less than any
Applicable Warrant Exercise Price immediately prior to such consolidation,
merger or sale). Prior to the consummation of any other Organic Change, the
Company shall make appropriate provision (in form and substance
satisfactory to the holders of Warrants representing a majority of the
Warrant Shares issuable upon exercise of the Warrants then outstanding) to
insure that each of the holders of the Warrants will thereafter have the
right to acquire and receive in lieu of or in addition to (as the case may
be) the Warrant Shares immediately theretofore issuable and receivable upon
the exercise of such holder's Warrants (without regard to any limitations
on exercise), such shares of stock, securities or assets that would have
been issued or payable in such Organic Change with respect to or in
exchange for the number of Warrant Shares which would have been issuable
and receivable upon the exercise of such holder's Warrant as of the date of
such Organic Change (without taking into account any limitations or
restrictions on the exercisability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of
an indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant 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 receipt is received by the sending party transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to Holder: YA Global Investments, L.P.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With Copy to: ▇▇▇▇ ▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company, to: Seaway Valley Capital Corporation
▇▇-▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Law Office of ▇▇▇▇▇▇▇ ▇. ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to a holder of this Warrant, to it at the address and facsimile number set
forth in this Section 11, or at such other address and facsimile as shall be
delivered to the Company upon the issuance or transfer of this Warrant. Each
party shall provide five days' prior written notice to the other party of any
change in address or facsimile number. Written confirmation of receipt (A) given
by the recipient of such notice, consent, facsimile, waiver or other
communication, (or (B) 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 12. Date. The date of this Warrant is set forth on page 1 hereof. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 8(b) shall continue in full force
and effect after such date as to any Warrant Shares or other securities issued
upon the exercise of this Warrant.
Section 13. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holders of
Warrants representing at least two-thirds of the Warrant Shares issuable upon
exercise of the Warrants then outstanding; provided that, except for Section
8(d), no such action may increase the Warrant Exercise Price or decrease the
number of shares or class of stock obtainable upon exercise of any Warrant
without the written consent of the holder of such Warrant.
Section 14. Descriptive Headings; Governing Law. The descriptive headings of the
several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. The corporate laws of the
State of Delaware shall govern all issues concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New Jersey, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of New
Jersey or any other jurisdictions) that would cause the application of the laws
of any jurisdictions other than the State of New Jersey. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in ▇▇▇▇▇▇ County and the United States District Court for the
District of New Jersey, for the adjudication of any dispute hereunder or in
connection herewith or therewith, or with any transaction contemplated hereby or
discussed herein, 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, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. 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 to such party at the address for such notices to it under
this Agreement 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.
Section 15. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO
TO ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY
AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as
of the date first set forth above.
SEAWAY VALLEY CAPITAL CORPORATION
By:
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
EXHIBIT A TO WARRANT
EXERCISE NOTICE
TO BE EXECUTED
BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
SEAWAY VALLEY CAPITAL CORPORATION
The undersigned holder hereby exercises the right to purchase
______________ of the shares of Common Stock ("Warrant Shares") of Seaway Valley
Capital Corporation (the "Company"), evidenced by the attached Warrant (the
"Warrant"). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.
___ Cashless Exercise
(a) Payment of Warrant Exercise Price. In lieu of making payment of the
Aggregate Exercise Price, the holder elects to receive upon such
exercise the Net Number of shares of Common Stock determined in
accordance with the terms of the Warrant.
(b) Delivery of Warrant Shares. The Company shall deliver to the holder
_________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
Name of Registered Holder
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Seaway Valley Capital Corporation
represented by warrant certificate no. _____, standing in the name of the
undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated:
-------------------
By:
Name:
Title: