Exhibit 10.2
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DEBENTURE AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
FACE AMOUNT $221,000
PRICE $221,000
DEBENTURE NUMBER February - ▇▇▇▇-▇▇▇
▇▇▇▇▇▇▇▇ DATE February 20, 2006
MATURITY DATE February 20, 2011
FOR VALUE RECEIVED, ▇▇▇▇▇▇ Financial Corp. a Delaware corporation (the
"Company"), hereby promises to pay DUTCHESS PRIVATE EQUITIES FUND, II, LP (the
"Holder") by February 20, 2011 (the "Maturity Date"), the principal amount of
Two Hundred and Twenty-One Thousand Dollars ($221,000) U.S., and to pay interest
and redemption on the principal amount hereof, and any accrued penalties, in
such amounts, at such times and on such terms and conditions as are specified
herein.
The Debenture set forth in this Agreement is subject to automatic
conversion at the end of five (5) years from the date of issuance at which time
the Debenture outstanding will be automatically converted based upon the formula
set forth in Section 3.2(c).
Article 1 Interest
The Company shall pay ten percent (10%) annual coupon on the unpaid Face
Amount of this Debenture (this "Debenture") at such times and in such amounts as
outlined in this section. The Company will make mandatory prepaid payments on
the interest ("Interest Payment"), with the minimum Interest Payments outlined
in Exhibit B for the first three (3) months, and herein incorporate by reference
in the amount of two thousand one hundred and ninety dollars and fifteen cents
($2,190.15) per month for the first three (3) months following the Issuance
Date. The first Interest Payment is due within three days of funds being
disbursed to the Company (a "Closing").
Any monies paid to the Holder in excess of the interest due when paid shall
be credited toward the Redemption of the Face Amount of the Debenture.
Article 2 Method of Payment
Section 2.1 Prior to Registration with the SEC
Prior to the U.S. Securities and Exchange Commission ("SEC") declaring
the registration statement for the shares underlying the Debenture
("Registration Statement") effective ("Effective Date"), the Company will make
amortizing payments to the Holder (a "Payment," or collectively, the "Payments")
on a monthly basis on the first day of each business day of each month while
there is an outstanding balance on the Debenture, in the following amounts
("Payment Amount" or collectively, the "Payment Amounts"):
Payment for Month 1 (due within three (3) days of
the Issuance Date) through Month 3 $ 2,190.15
Payment for Month 4 and each month thereafter $ 47,327.66
Notwithstanding any provision to the contrary in this Debenture, the Company may
pay in full to the Holder the Face Amount, or any balance remaining thereon, in
readily available funds, at any time and from time to time without penalty.
The minimum Payments are outlined on Exhibit B, attached hereto and incorporated
herein by reference.
Section 2.2 Subsequent to the Effective Date
The Holder, at its sole option, shall be entitled to either i) request a
Payment from the Company in the amounts set forth in the table in Section 2.1,
above; or ii) the Holder may elect to convert a portion of the Debenture
pursuant to Article 3, below, in an amount equal to or greater than the Payment
Amount. In the event the Holder is unable to convert that portion of the
debenture equal to the Payment Amount during a calendar month, the Company shall
make a payment in cash in an amount equal to the difference between the amount
converted by the Holder and the Payment Amount due for that month.
Nothing contained in this Article 2 shall limit the amount the Holder can
elect to convert during a calendar month except as defined in Section 3.2 (i),
below.
All Payments made under Article 2, shall be applied toward the Redemption
Amount as outlined in Article 14, herein.
Section 2.3 No Penalty for Prepayment.
The Company may make additional payments toward Redemption ("Prepayment")
without any penalties.
Section 2.4 Accelerated Repayment in the Event of a Subsequent Financing
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by a Third Party.
If, at any time after Closing, the Company receives financing from a third party
(excluding the Holder), the Company is required to pay to the Holder 100% of the
proceeds raised from the third party in excess of an aggregate amount of one
dollar ($1.00) (the "Threshold Amount"). The Threshold Amount shall also
pertain to any assets sold, transferred or disposed of by the Company. The
Company agrees to pay one hundred percent (100%) of any proceeds raised by the
Company over the Threshold Amount toward the Accelerated Repayment of the
Debenture with Interest until such time as the Face Amount of the Debenture,
including accrued interest and penalties, has been paid in full. The
accelerated Repayment shall be made to the Holder upon the Company's receipt of
the financing. Failure to do so will result in an Event of Default as set forth
herein.
Article 3 Conversion
Section 3.1 Conversion Privilege
(a) The Holder of this Debenture shall have the right to convert any and all
amounts owing under this Debenture into shares of Common Stock at any time
following the Closing Date and which is before the close of business on the
Maturity Date, except as set forth in Section 3.2(c) below. The number of
shares of Common Stock issuable upon the conversion of this Debenture is
determined pursuant to Section 3.2 and rounding the result up to the nearest
whole share.
(b) This Debenture may not be converted, whether in whole or in part, except
in accordance with this Article 3.
(c) In the event all or any portion of this Debenture remains outstanding on
the Maturity Date, the unconverted portion of such Debenture will
automatically be converted into shares of Common Stock on such date in the
manner set forth in Section 3.2.
Section 3.2 Conversion Procedure
(a) Conversion Procedures. The Holder may elect to convert the unpaid Face
Amount of and accrued interest on this Debenture, in whole or in part, at any
time following the Closing Date. Such conversion shall be effectuated by the
Holder sending to the Company a facsimile or electronic mail version of the
signed Notice of Conversion which evidences the Holder's intention to convert
the Debenture as indicated. The date on which the Notice of Conversion is
delivered ("Conversion Date") shall be deemed to be the date on which the Holder
has delivered to the Company a facsimile or electronic mail of the signed
Notice of Conversion. Notwithstanding the above, any Notice of Conversion
received by 5:00 P.M. EST, shall be deemed to have been received the previous
business day, with receipt being via a confirmation of time of facsimile of the
Holder.
(b) Common Stock to be Issued. Upon the Holder's conversion of any
Debenture, the Company shall issue the number of shares of Common Stock equal to
the Conversion. If, at the time of conversion, the Registration Statement
has been declared effective, the Company shall instruct its transfer agent to
issue stock certificates without restrictive legend (other than a legend
referring to the registration statement and prospectus delivery requirements) or
stop transfer instructions. If, at the time of the Holder's conversion, the
Registration Statement has not been declared effective, the Company shall
instruct the transfer agent to issue the certificates with an appropriate
legend. The Company shall act as Registrar and shall maintain an appropriate
ledger containing the necessary information with respect to each Debenture. The
Company warrants that no instructions, other than these instructions, have been
given or will be given to the transfer agent and that the Common Stock shall
otherwise be freely resold, except as may be otherwise set forth herein.
(c) Conversion Price. Holder is entitled to convert the unpaid Face Amount
of this Debenture, plus accrued interest, any time following a Closing Date, at
the lesser of the following prices which shall be the "Conversion Price": (i)
the lowest closing bid price of the Common Stock between the Issuance Date and
the date of filing the registration statement covering resale of the shares
underlying this Debenture; or (ii) at a "Fixed Conversion Price" of ten cents
($.10). No fractional shares or scrip representing fractions of shares will be
issued on conversion, but the number of shares issuable shall be rounded up, in
the event of a partial share, to the nearest whole share. The Holder shall
retain all rights of conversions during any partial trading days.
(d) Maximum Interest. Nothing contained in this Debenture shall be deemed
to establish or require the Company to pay interest to the Holder at a rate in
excess of the maximum rate permitted by governing law. In the event that the
rate of interest required to be paid exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law and
such excess, if so ordered, shall be credited on any remaining balances due to
the Holder with reasonable promptness by the Holder to the Company. In the
event this Section 3.2 (d) applies, the Parties agree that the terms of this
Debenture remain in full force and effect except as is necessary to make the
interest rate comply with applicable law.
(e) Opinion Letter. It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Common Stock as
provided herein, including the responsibility and cost for delivery of an
opinion letter to the transfer agent, if so required. The person or entity in
whose name the certificate of Common Stock is to be registered shall be treated
as a shareholder of record on and after the conversion date. Upon surrender of
any Debentures that are to be converted in part, the Company shall issue to the
Holder a new Debenture equal to the unconverted amount, if so requested in
writing by Holder.
(f) Delivery of Shares. Within four (4) business days after receipt of the
documentation referred to above in Section 3.2(a), the Company shall deliver a
certificate, in accordance with Section 3.2(c) for the number of shares of
Common Stock issuable upon the conversion. In the event the Company does not
make delivery of the Common Stock, as instructed by Holder, within four (4)
business days after the Conversion Date, the Company shall pay to Holder in
cash, as liquidated damages, an additional three percent (3%) per day of the
dollar value of the Debentures being converted.
If the failure of the Company to issue the Common Stock pursuant to
this Section 3.2 (f) is due to the unavailability of authorized shares of Common
Stock, the provisions of this Section 3.2 (f) shall not apply, but instead the
provisions of Section 3.2 (k) shall apply.
The Company shall make any payments required under this Section
3.2(f) in immediately available funds within four (4) business days from the
date the Common Stock is fully delivered. Nothing herein shall limit the
Holder's right to pursue actual damages or cancel the conversion for the
Company's failure to issue and deliver Common Stock to the Holder within four
(4) business days after the Conversion Date.
The Company shall at all times reserve (or make alternative written
arrangements for reservation or contribution of shares) and have available all
Common Stock necessary to meet conversion of the Debentures by Holder of the
entire amount of Debentures then outstanding. If, at any time, the Holder
submits a Notice of Conversion and the Company does not have sufficient
authorized but unissued shares of Common Stock (or alternative shares of Common
Stock as may be contributed by Stockholders) available to effect, in full, a
conversion of the Debentures (a "Conversion Default", the date of such default
being referred to herein as the "Conversion Default Date"), the Company shall
issue to the Holder all of the shares of Common Stock which are available. Any
Convertible Debentures or any portion thereof, which cannot be converted due to
the Company's lack of sufficient authorized common stock (the "Unconverted
Debentures"), may be deemed null and void upon written notice sent by the Holder
to the Company. The Company shall provide notice of such Conversion Default
("Notice of Conversion Default") to the Holder, by facsimile, within three (3)
business days of such default.
In the event of Conversion Default, the Company will pay to the Holder the
amount of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Holder where N = the number
of days from the Conversion Default Date to the date that the Company authorizes
a sufficient number of shares of Common Stock to effect conversion of all
remaining Debentures (the "Authorization Date"). The Company shall send notice
to Holder of outstanding Debenture that additional shares of Common Stock have
been authorized; stating the Authorization Date and the amount of Holder's
accrued Conversion Default Payments ("Authorization Notice"). The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, upon written notice sent by the Holder to the
Company, as follows: (i) in the event the Holder elects to take such payment
in cash, cash payment shall be made to the Holder within five (5) business
days, or (ii) in the event Holder elects to take such payment in stock, the
Holder may convert at the conversion rate set forth in the first sentence of
this paragraph within five (5) business days until the expiration of the
conversion period
The Company acknowledges that its failure to maintain a sufficient number
of authorized but unissued shares of Common Stock to effect in full a conversion
of the Debenture will cause the Holder to suffer irreparable harm, and that
damages will be difficult to ascertain. Accordingly, the parties agree that it
is appropriate to include in this Agreement a provision for liquidated damages.
The parties acknowledge and agree that the liquidated damages provision set
forth in this section represents the parties' good faith effort to quantify such
damages and, as such, agree that the form and amount of such liquidated damages
are reasonable and will not constitute a penalty. The payment of liquidated
damages shall not relieve the Company from its obligations to deliver the Common
Stock pursuant to the terms of this Debenture. Nothing herein shall limit the
Holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock.
If, by the fourth (4th) business day after the Conversion Date, any portion
of the shares of the Convertible Debentures have not been delivered to the
Holder and the Holder purchases, in an open market transaction or otherwise,
shares of Common Stock necessary to make delivery of shares which would have
been delivered if the full amount of the shares to be converted and delivered to
the Holder by the Company (the "Covering Shares") , then the Company shall pay
to the Holder, in addition to any other amounts due to Holder pursuant to this
Convertible Debenture, and not in lieu thereof, the Buy-In Adjustment Amount (as
defined below). The "Buy In Adjustment Amount" is the amount equal to the
excess, if any, of (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by the Holder from the sale of the Sold
Shares. The Company shall pay the Buy-In Adjustment Amount to the Holder in
immediately available funds within five (5) business days of written demand by
the Holder. By way of illustration and not in limitation of the foregoing, if
the Holder purchases shares of Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
shares of Common Stock it sold for net proceeds of $10,000, the Buy-In
Adjustment Amount which the Company will be required to pay to the Holder will
be $1,000.
(g) Prospectus and Other Documents. The Company shall furnish to Holder one
(1) prospectus and any other documents incidental to the registration of the
shares of Common Stock underlying the Debentures, including any amendment of or
supplements thereto. Any filings submitted via ▇▇▇▇▇ will constitute
fulfillment of the Company's obligation under this Section.
(h) Limitation on Issuance of Shares. If the Company's Common Stock becomes
listed on the Nasdaq SmallCap Market after the issuance of the Debenture, the
Company may be limited in the number of shares of Common Stock it may issue by
virtue of (A) the number of authorized shares or (B) the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, including, but not necessarily limited to, NASDAQ Rule
4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable (collectively, the
"Cap Regulations"). Without limiting the other provisions thereof: (i) the
Company will take all steps reasonably necessary to be in a position to issue
shares of Common Stock on conversion of the Debentures without violating the Cap
Regulations, and (ii) if, despite taking such steps, the Company cannot
issue such shares of Common Stock without violating the Cap Regulations, the
Holder cannot convert as a result of the Cap Regulations (each such Debenture,
an "Unconverted Debenture") the Holder shall have the right to elect either of
the following remedies:
(x) if permitted by the Cap Regulations, require the Company to issue
shares of Common Stock in accordance with the Holder's Notice of Conversion at a
conversion purchase price equal to the average of the closing bid price per
share of Common Stock for any five (5) consecutive Trading Days (subject to
certain equitable adjustments for certain events occurring during such period)
during the sixty (60) Trading Days immediately preceding the Conversion Date; or
(y) require the Company to redeem each Unconverted Debenture for an amount
(the "Redemption Amount"), payable in cash, equal to the sum of (i) one hundred
thirty-three percent (133%) of the principal of an Unconverted Debenture, plus
(ii) any accrued but unpaid interest thereon through and including the date on
which the Redemption Amount is paid to the holder (the "Redemption Date").
The Holder of an Unconverted Debenture may elect one of the above remedies
with respect to a portion of such Unconverted Debenture and the other remedy
with respect to other portions of the Unconverted Debenture. The Debenture
shall contain provisions substantially consistent with the above terms, with
such additional provisions as may be consented to by the Holder. The provisions
of this section are not intended to limit the scope of the provisions otherwise
included in the Debenture.
(i) Limitation on Amount of Conversion and Ownership. Notwithstanding
anything to the contrary in this Debenture, in no event shall the Holder be
entitled to convert that amount of Debenture, and in no event shall the Company
permit that amount of conversion, into that number of shares, which when added
to the sum of the number of shares of Common Stock beneficially owned, (as such
term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange
Act of 1934, as may be amended, (the "1934 Act")), by the Holder, would exceed
4.99% of the number of shares of Common Stock outstanding on the Conversion
Date, as determined in accordance with Rule 13d-1(j) of the 1934 Act. In the
event that the number of shares of Common Stock outstanding as determined in
accordance with Section 13(d) of the 1934 Act is different on any Conversion
Date than it was on the Closing Date, then the number of shares of Common Stock
outstanding on such Conversion Date shall govern for purposes of determining
whether the Holder would be acquiring beneficial ownership of more than 4.99% of
the number of shares of Common Stock outstanding on such Conversion Date.
(j) Legend. The Holder acknowledges that each certificate representing the
Debentures, and the Common Stock unless registered pursuant to the Registration
Rights Agreement, shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR
ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR
(iii) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
(k) Prior to conversion of the Debenture, if at any time the conversion of
all the Debentures and exercise of all the Warrants outstanding would result in
an insufficient number of authorized shares of Common Stock being available to
cover all the conversions, then in such event, the Company will move to call and
hold a shareholder's meeting or have shareholder action with written consent of
the proper number of shareholders within forty-five (45) days of such event, or
such greater period of time if statutorily required or reasonably necessary as
regards standard brokerage house and/or SEC requirements and/or procedures, for
the purpose of authorizing additional shares of Common Stock such as necessary
to facilitate the Holder's conversions. In such an event management of the
Company shall recommend to all shareholders to vote their shares in favor of
increasing the authorized number of shares of Common Stock. Management of the
Company shall vote all of its shares of Common Stock in favor of increasing the
number of shares of authorized Common Stock to an amount equal to three hundred
percent (300%) of the balance on the DebentureThe Company represents and
warrants that under no circumstances will it deny or prevent the Holder's right
to convert the Debentures as permitted under the terms of this Subscription
Agreement or the Registration Rights Agreement. Nothing in this Section shall
limit the obligation of the Company to make the payments set forth in this
Section 3. The Holder, at his option, may request the company to authorize and
issue additional shares if the Holder feels it is necessary for conversions in
the future. In the event the Company's shareholder's meeting does not result in
the necessary authorization, the Company shall redeem the outstanding Debentures
for an amount equal to the sum of the principal of the outstanding Debentures
plus accrued interest thereon multiplied by 133%.
Section 3.3 Fractional Shares. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon the
conversion of this Debenture. Instead, the Company shall round up, to the
nearest whole share.
Section 3.4 Taxes on Conversion. The Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon the conversion of this Debenture. However, the Holder shall pay any
such tax which is due because the shares are issued in a name other than its
name.
Section 3.5 Company to Reserve Stock. The Company shall reserve and
maintain the number of shares of Common Stock required pursuant to and upon the
terms set forth in the Subscription Agreement to permit the conversion of this
Debenture. All shares of Common Stock which may be issued upon the conversion
hereof shall upon issuance by the Company be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
Section 3.6 Restrictions on Sale. This Debenture has not been registered
under the Securities Act of 1933, as amended (the "Act") and is being issued
under Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the
Act. This Debenture and the Common Stock issuable upon the conversion
thereof may only be sold pursuant to registration under or an exemption from the
Act.
Section 3.7 Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in the
case of a subdivision of shares or stock dividend, or proportionately increased
in the case of combination of shares, in each such case, by the ratio that the
total number of shares of Common Stock outstanding immediately after such event
bears to the total number of shares of Common Stock outstanding immediately
prior to such event.
Article 4 Mergers
The Company shall not consolidate or merge into, or transfer any or all of
its assets to, any person, unless such person assumes in writing the obligations
of the Company under this Debenture and immediately after such transaction no
Event of Default exists. Any reference herein to the Company shall refer to
such surviving or transferee corporation and the obligations of the Company
shall terminate only upon such written assumption of the Company's obligation.
The Company send make notice to the Holder simultaneously with the announcement
of a Merger to the public markets.
Article 5 Security
This Debenture is secured by a Security Agreement (the "Security
Agreement") of this date between the Company and the Holder.
Article 6 Defaults and Remedies
Section 6.1 Events of Default. An "Event of Default" occurs if any one of
the following occur:
(a) the Company does not make timely Payment or Conversion, in whole or in
part, necessary to cover the principal, interest or other sum due on the
Maturity Date, Conversion Date, upon redemption, or otherwise described herein;
or,
(b) the Company does not make a Payment in cash for a period of three (3)
business days when due as described in this Agreement; or,
(c) any of the Company's representations or warranties contained in the
Transaction Documents or this Debenture were false when made or the Company
fails to comply with any of its other agreements in the Transaction Documents
(as defined in Article 16 below) and such failure continues for a period of five
(5) business days; or,
(d) the Company pursuant to or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case; (ii) consents to the entry of an order for
relief against it in an involuntary case; (iii) consents to the appointment of a
Custodian (as hereinafter defined) of it or for all or substantially all of its
property or (iv) makes a general assignment for the benefit of its creditors or
(v) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (A) is for relief against the Company in an involuntary
case; (B) appoints a Custodian of the Company or for all or substantially all of
its property or (C) orders the liquidation of the Company, and the order or
decree remains unstayed and in effect for sixty (60) calendar days; or,
(e) the Company's Common Stock is suspended or no longer listed on any
recognized exchange including electronic over-the-counter bulletin board
("Principal Market") for in excess of three (3) consecutive Trading Days.
Failure to comply with the requirements for continued listing on a Principal
Market for a period of five (5) trading days; or notification from a Principal
Market that the Company is not in compliance with the conditions for such
continued listing on such Principal Market; or,
(f) the Company breaches any covenant or condition of the Transaction
Documents, and such breach, if subject to cure, continues for a period of five
(5) business days; or,
(g) the Registration Statement underlying the Debenture is not declared
effective by the SEC within twelve (12) months of the Issuance Date.
Section 6.2 Remedies. In the Event of Default, the Holder may elect to
secure a portion of the Company's assets in Pledged Collateral (as defined in
the Security Agreement). The Holder may also elect to garnish revenue from the
Company in an amount that will repay the Holder on the schedules outlined in
this Agreement.
In the Event of Default, as outlined in this Agreement, the Holder can
exercise its right to increase the Face Amount of the Debenture by ten percent
(10%) as an initial penalty, and by ten percent (10%) for each subsequent Event
of Default. In addition, the Holder may elect to increase the Face Amount by
two and one-half percent (2.5%) per month (pro-rata for partial periods) paid as
liquated damages ("Liquidated Damages"), compounded daily. It is the intention
and acknowledgement of both parties that the Liquidated Damages not be deemed as
interest or a penalty under the terms of this Agreement.
Section 6.3 Acceleration. If an Event of Default occurs, the Holder by
notice to the Company may declare the remaining principal amount of this
Debenture, together with all accrued interest and any liquidated damages, to be
due and payable.
Section 6.4 Seniority. No indebtedness of the Company is senior to this
Debenture in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. And, the Company warrants that it
has taken all necessary steps to subordinate its other obligations to the rights
of the Holder hereunder.
Section 6.5 Cost of Collections. If an Event of Default occurs, the
Company shall pay the Holder hereof reasonable costs of collection, including
reasonable attorney's fees.
Article 7 Registered Debentures
Section 7.1 Record Ownership. The Company, or its attorney, shall maintain
a register of the Holder of the Debentures (the "Register") showing their names
and addresses and the serial numbers and principal amounts of Debentures issued
to them. The Register may be maintained in electronic, magnetic or other
computerized form. The Company may treat the person named as the Holder of this
Debenture in the Register as the sole owner of this Debenture. The Holder
of this Debenture is the person exclusively entitled to receive payments of
interest on this Debenture, receive notifications with respect to this
Debenture, convert it into Common Stock and otherwise exercise all of the rights
and powers as the absolute owner hereof.
Worn or Lost Debentures. If this Debenture becomes worn, defaced or
mutilated but is still substantially intact and recognizable, the Company or its
agent may issue a new Debenture in lieu hereof upon its surrender. Where the
Holder of this Debenture claims that the Debenture has been lost, destroyed or
wrongfully taken, the Company shall issue a new Debenture in place of the
Debenture if the Holder so requests by written notice to the Company.
Article 8 Notice.
Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Debenture must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided a confirmation
of transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ Financial Corp
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Dutchess Capital Management
▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
Article 9 Time
Where this Note authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a holiday on
which the United States Stock Markets ("US Markets") are closed ("Holiday"),
such payment shall be made or condition or obligation performed on the last
business day preceding such Saturday, Sunday or Holiday. A "business day" shall
mean a day on which the US Markets are open for a full day or half day of
trading.
Article 10 No Assignment
This Debenture and the obligation hereunder shall not be assignable by the
Company or the Holder.
Article 11 Rules of Construction.
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
Article 12 Governing Law
The validity, terms, performance and enforcement of this Debenture shall be
governed and construed by the provisions hereof and in accordance with the laws
of the Commonwealth of Massachusetts applicable to agreements that are
negotiated, executed, delivered and performed solely in the Commonwealth of
Massachusetts.
Article 13 Disputes Under Agreement
All disputes arising under this agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this agreement
will submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA"). The arbitrator shall be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an attorney admitted to practice law in the Commonwealth of Massachusetts. No
party to this agreement will challenge the jurisdiction or venue provisions as
provided in this section.
Article 14 Redemption
The Holder shall have the right to be redeemed from the Debenture, in
whole or in part, at a price equal to one hundred and twenty-five percent (125%)
of the outstanding principal amount of the Debenture, including accrued interest
(and penalties if applicable). Any Payments, as defined in Article 2 above,
shall apply to the Redemption Amount.
Article 15 Holder Warrants
As an additional inducement to the Holder, the Company shall issue to the
Holder a warrant to purchase forty-one thousand, two hundred and fifty dollars
($41,250) worth of its common stock exercisable at the strike prices outlined in
the Warrant Agreement, attached hereto and incorporated by reference.
Article 16 Transaction Documents
The Company agrees that contemporaneously with the execution and delivery of
this Debenture, the parties hereto are executing and delivering a Debenture
Registration Rights Agreement, Subscription Agreement, Warrant Agreement,
Security Agreement between the Company and Dutchess Capital Management, LLC
(collectively, the "Transaction Documents") pursuant to which the Company has
agreed to provide certain rights and obligations as defined in the Transaction
Documents.
Article 17 Waiver
The Holder's delay or failure at any time or times hereafter to require strict
performance by the Company of any undertakings, agreements or covenants shall
not waive, affect, or diminish any right of the Holder under this Agreement to
demand strict compliance and performance herewith. Any waiver by the Holder of
any Event of Default shall not waive or affect any other Event of Default,
whether such Event of Default is prior or subsequent thereto and whether of the
same or a different type. None of the undertakings, agreements and covenants of
the Company contained in this Agreement, and no Event of Default, shall be
deemed to have been waived by the Holder, nor may this Agreement be amended,
changed or modified, unless such waiver, amendment, change or modification is
evidenced by an instrument in writing specifying such waiver, amendment, change
or modification and signed by the Holder.
Article 18 Integration
This Note is the FINAL AGREEMENT between the Company and the Holder with respect
to the terms and conditions set forth herein, and, the terms of this Debenture
may not be contradicted by evidence of prior, contemporaneous, or subsequent
oral agreements of the Parties. The execution and delivery of this Debenture is
done in conjunction with the execution of the Transaction Documents, as defined
in Article 16.
Article 19 Failure to Timely Meet Obligations
The Company acknowledges that its failure to timely meet any of its
obligations hereunder, including, but without limitation, its obligations to
make Payments, deliver shares and, as necessary, to register and maintain
sufficient number of Shares, will cause the Holder to suffer irreparable harm
and that the actual damage to the Holder will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in this
Debenture a provision for liquidated damages. The parties acknowledge and agree
that the liquidated damages provision set forth in this section represents the
parties' good faith effort to quantify such damages and, as such, agree that the
form and amount of such liquidated damages are reasonable and do not constitute
a penalty. The payment of liquidated damages shall not relieve the Company from
its obligations to deliver the Common Stock pursuant to the terms of this
Debenture.
*.*.*
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of the
date first written above and duly authorized to sign on behalf of:
▇▇▇▇▇▇ FINANCIAL CORP.
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By: /s/▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
DUTCHESS PRIVATE EQUITIES FUND, II, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
By: /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: A Managing Member
Exhibit A
NOTICE OF CONVERSION
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(To be Executed by the Registered Owner in order to Convert Debenture)
TO ▇▇▇▇▇▇ FINANCIAL CORP.
The undersigned hereby irrevocably elects, as of ________________, to
convert $________________ of its convertible debenture (the "Debenture") into
Common Stock of ▇▇▇▇▇▇ Financial Corp.(the "Company") according to the
------------------------
conditions set forth in the Debenture issued by the Company.
Date of Conversion________________________________________________
Applicable Conversion Price________________________________________
Number of Debentures Issuable upon this Conversion_______________________
Name(Print)___________Dutchess Private Equities Fund, II, LP _________________
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▇▇▇▇▇▇▇______________▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇ 02116_____________
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Phone_____▇▇▇-▇▇▇-▇▇▇▇_____________ Fax________▇▇▇-▇▇▇-▇▇▇▇___________
------------------------- ------------
By:_______________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
EXHIBIT B
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|Convertible Amount Interest Rate Redemption |
|$ 165,000.00 12% 125% |
---------------------------------------------------------------
Applied to Applied to Applied to
Amount Balance Due Payment Principle Interest Redemption
--------- ----------- ----------- ---------- ---------- --------- ----------
2/22/2005 $221,000.00 $223,190.15 $ 2,190.15 $ 0.00 $2,190.15 $ 0.00
3/1/2005 $221,000.00 $223,190.15 $ 2,190.15 $ 0.00 $2,190.15 $ 0.00
4/1/2005 $221,000.00 $223,190.15 $ 2,190.15 $ 0.00 $2,190.15 $ 0.00
5/1/2005 $221,000.00 $223,190.15 $47,327.66 $36,110.01 $2,190.15 $45,137.51
6/1/2005 $184,889.99 $186,722.28 $47,327.66 $36,396.29 $1,832.29 $45,495.37
7/1/2005 $148,493.70 $149,965.29 $47,327.66 $36,684.85 $1,471.60 $45,856.06
8/1/2005 $111,808.85 $112,916.89 $47,327.66 $36,975.69 $1,108.05 $46,219.62
9/1/2005 $ 74,833.15 $ 75,574.76 $47,327.66 $37,268.84 $ 741.61 $46,586.05
9/1/2005 $ 37,564.31 $ 37,936.58 $47,327.66 $37,564.31 $ 372.27 $46,955.39