VARIABLE RATE SELF-LIQUIDATING SENIOR SECURED CONVERTIBLE DEBENTURE DUE APRIL 17, 2009
EXHIBIT
A
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
Original
Issue Date: August
__, 2007
Original
Conversion Price (subject to adjustment herein): $0.35
$_______________
VARIABLE
RATE SELF-LIQUIDATING
SENIOR
SECURED CONVERTIBLE DEBENTURE
DUE
APRIL 17, 2009
THIS
VARIABLE RATE SELF-LIQUIDATING SENIOR SECURED CONVERTIBLE DEBENTURE is one
of a
series of duly authorized and validly issued Variable Rate Self-Liquidating
Senior Secured Convertible Debentures of Solomon Technologies, Inc., a Delaware
corporation (the “Company”),
having its principal place of business at ▇▇▇▇ ▇&▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, designated as its Variable Rate Self-Liquidating Senior
Secured Convertible Debenture due April 17, 2009 (this debenture, the
“Debenture”
and,
collectively with the other such series of debentures, the “Debentures”).
FOR
VALUE
RECEIVED, the Company promises to pay to ________ or its registered assigns
(the
“Holder”),
or
shall have paid pursuant to the terms hereunder, the principal sum of $_____
on
April 17, 2009 (the “Maturity
Date”)
or
such earlier date as this Debenture is required or permitted to be repaid as
provided hereunder, and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the
following additional provisions:
Section
1. Definitions.
For the
purposes hereof, in addition to the terms defined elsewhere in this Debenture,
(a) capitalized terms not otherwise defined herein shall have
the
1
meanings
set forth in the Purchase Agreement and (b) the following terms shall have
the
following meanings:
“Alternate
Consideration”
shall
have the meaning set forth in Section 5(e).
“Bankruptcy
Event”
means
any of the following events: (a) the Company or any significant Subsidiary
(as
such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Company or any significant
Subsidiary thereof; (b) there is commenced against the Company or any
significant Subsidiary thereof any such case or proceeding that is not dismissed
within 60 days after commencement; (c) the Company or any significant Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company or
any
significant Subsidiary thereof suffers any appointment of any custodian or
the
like for it or any substantial part of its property that is not discharged
or
stayed within 60 calendar days after such appointment; (e) the Company or any
significant Subsidiary thereof makes a general assignment for the benefit of
creditors; (f) the Company or any significant Subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any significant Subsidiary
thereof, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate
or
other action for the purpose of effecting any of the foregoing.
“Base
Conversion Price”
shall
have the meaning set forth in Section 5(b).
“Business
Day”
means
any day except Saturday, Sunday, any day which shall be a federal legal holiday
in the United States or any day on which banking institutions in the State
of
New York are authorized or required by law or other governmental action to
close.
“Buy-In”
shall
have the meaning set forth in Section 4(d)(v).
“Change
of Control Transaction”
means
the occurrence after the date hereof of any of (i) an acquisition after the
date
hereof by an individual or legal entity or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Company, by
contract or otherwise) of in excess of 33% of the voting securities of the
Company (other than by means of conversion or exercise of the Debentures and
the
Securities issued together with the Debentures), or (ii) the Company merges
into
or consolidates with any other Person, or any Person merges into or consolidates
with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 66% of the
aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers all or substantially all
of
its assets to another Person and the stockholders of the
2
Company
immediately prior to such transaction own less than 66% of the aggregate voting
power of the acquiring entity immediately after the transaction, or (iv) a
replacement at one time or within a three year period of more than one-half
of
the members of the Company’s board of directors which is not approved by a
majority of those individuals who are members of the board of directors on
the
date hereof (or by those individuals who are serving as members of the board
of
directors on any date whose nomination to the board of directors was approved
by
a majority of the members of the board of directors who are members on the
date
hereof), or (v) 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 in clauses (i) through (iv) above.
“Closing
Price”
means,
on any particular date, (a) the last reported closing bid price per share of
Common Stock on such date on the Trading Market (as reported by Bloomberg L.P.
at 4:15 p.m. (New York City time)), or (b) if there is no such price on such
date, the closing bid price on the Trading Market on the date nearest preceding
such date (as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)),
or
(c) if the Common Stock is not then listed or quoted for the Trading Market
and
if prices for the Common Stock are then reported in the “pink sheets” published
by Pink Sheets LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported, or (d) if the shares of Common Stock are not publicly
traded, the fair market value of a share of Common Stock as determined by an
appraiser selected in good faith by the Purchasers holding at least 50.1% in
principal amount of the outstanding Debentures.
“Common
Stock”
means
the common stock, par value $0.001 per share, of the Company and stock of any
other class of securities into which such securities may hereafter be
reclassified or changed into.
“Conversion
Date”
shall
have the meaning set forth in Section 4(a).
“Conversion
Price”
shall
have the meaning set forth in Section 4(b).
“Conversion
Shares”
means,
collectively, the shares of Common Stock issuable upon conversion of this
Debenture in accordance with the terms hereof.
“Debenture
Register”
shall
have the meaning set forth in Section 2(c).
“Dilutive
Issuance”
shall
have the meaning set forth in Section 5(b).
“Dilutive
Issuance Notice”
shall
have the meaning set forth in Section 5(b).
“Effectiveness
Period”
shall
have the meaning set forth in the Registration Rights Agreement.
3
“Equity
Conditions”
means,
during the period in question, (i)
the
Company shall have duly honored all conversions and redemptions scheduled to
occur or occurring by virtue of one or more Notices of Conversion of the Holder,
if any, (ii) the Company shall have paid all liquidated damages and other
amounts owing to the Holder in respect of this Debenture, (iii)
there is an effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the shares
issuable pursuant to the Transaction Documents (and the Company believes, in
good faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iv) the Common Stock is trading on a Trading Market and
all of the shares of Common Stock issuable pursuant to the Transaction Documents
are listed or quoted for trading on such Trading Market (and the Company
believes, in good faith, that trading of the Common Stock on a Trading Market
will continue uninterrupted for the foreseeable future), (v) there is a
sufficient number of authorized but unissued and otherwise unreserved shares
of
Common Stock for the issuance of all of the shares issuable pursuant to the
Transaction Documents, (vi) there is no existing Event of Default or no existing
event which, with the passage of time or the giving of notice, would constitute
an Event of Default, (vii) the issuance of the shares in question (or, in the
case of a Monthly Redemption, the shares issuable upon conversion in full of
the
Monthly Redemption Amount) to
the
Holder would not violate the limitations set forth in Section 4(c) herein,
(viii)
there has been no public announcement of a pending or proposed Fundamental
Transaction or Change of Control Transaction that has not been consummated,
(ix)
the Holder is not in possession of any information provided by the Company
that
constitutes, or may constitute, material non-public information and (x) the
aggregate trading volume for the Common Stock on the principal Trading Market
exceeds $900,000 during the 12 consecutive Trading Days (except that, with
respect to any 5 Trading Day Interest Payment Period, the such aggregate trading
volume shall exceed $375,000) prior to the applicable date in
question.
“Event
of Default”
shall
have the meaning set forth in Section 8.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Fundamental
Transaction”
shall
have the meaning set forth in Section 5(e).
“Interest
Conversion Rate”
means
95% of the lesser of (a) the average of the VWAPs for the 5 consecutive Trading
Days ending on the Trading Day that is immediately prior to the applicable
Interest Payment Date or (b) the average of the VWAPs for the 5 consecutive
Trading Days ending on the Trading Day that is immediately prior to the date
the
applicable Interest Conversion Shares are issued and delivered if after the
Interest Payment Date.
“Interest
Conversion Shares”
shall
have the meaning set forth in Section 2(a).
“Interest
Notice Period”
shall
have the meaning set forth in Section 2(a).
4
“Interest
Payment Date”
shall
have the meaning set forth in Section 2(a).
“Interest
Period”
means,
initially, the period beginning on and including the Original Issue Date and
ending on and including September 30, 2007 and each successive period as
follows: the
period beginning on and including April 1 and ending on and including June
30;
the period beginning on and including July 1 and ending on and including
September 30; the period beginning on and including October 1 and ending on
and
including December 31; and
the
period beginning on and including January 1 and ending on and including March
31.
“Interest
Share Amount”
shall
have the meaning set forth in Section 2(a).
“Late
Fees”
shall
have the meaning set forth in Section 2(d).
“LIBOR”
means,
for each Interest Period (i) the six-month London Interbank Offered Rate for
deposits in U.S. dollars, as shown on the Trading Day immediately prior to
the
beginning of such Interest Period in The Wall Street Journal (Eastern Edition)
under the caption "Money Rates - London Interbank Offered Rates (LIBOR)"; or
(ii) if The Wall Street Journal does not publish such rate, the offered
one-month rate for deposits in U.S. dollars which appears on the Reuters Screen
LIBO Page as of 10:00 a.m., New York time, on the Trading Day immediately prior
to the beginning of such Interest Period, provided that if at least two rates
appear on the Reuters Screen LIBO Page on any such Trading Day, the "LIBOR"
for
such day shall be the arithmetic mean of such rates.
“Mandatory
Default Amount”
means
the sum of (i) the greater of (A) 130% of the outstanding principal amount
of
this Debenture, plus all accrued and unpaid interest hereon, or (B) the
outstanding principal amount of this Debenture, plus all accrued and unpaid
interest hereon, divided by the Conversion Price on the date the Mandatory
Default Amount is either (a) demanded (if demand or notice is required to create
an Event of Default) or otherwise due or (b) paid in full, whichever has a
lower
Conversion Price, multiplied by the VWAP on the date the Mandatory Default
Amount is either (x) demanded or otherwise due or (y) paid in full, whichever
has a higher VWAP, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of this Debenture. Notwithstanding anything herein to
the
contrary, if at the applicable time the Holder is able to and there are no
impediments to convert and immediately resell the Conversion Shares to the
public pursuant to a Registration Statement or Rule 144(k), the Mandatory
Default Amount shall mean (y) the sum of 130% of the outstanding principal
amount of this Debenture, plus all accrued and unpaid interest hereon, and
(z)
all other amounts, costs, expenses and liquidated damages due in respect of
this
Debenture.
“Monthly
Redemption”
means
the redemption of this Debenture pursuant to Section 6(a) hereof.
5
“Monthly
Redemption Amount”
means
an amount equal to the then outstanding principal amount of this Debenture
on
the first Monthly Redemption Date following August ___, 2007 multiplied by
a
fraction, the numerator of which is 1 and the denominator of which is the number
of months between such first Monthly Redemption Date and April 17,
2009.
“Monthly
Redemption Date” means
the
1st of each month, commencing on the first such day following the earlier of
(i)
the date the initial Registration Statement (as defined in the Registration
Rights Agreement) is declared effective by the Commission and (ii) December
1,
2007, and ending upon the full redemption of this Debenture.
“Monthly
Redemption Notice”
shall
have the meaning set forth in Section 6(a) hereof.
“Monthly
Redemption Period”
shall
have the meaning set forth in Section 6(a) hereof.
“Monthly
Redemption Price”
shall
have the meaning set forth in Section 6(a) hereof.
“Monthly
Redemption Share Amount”
shall
have the meaning set forth in Section 6(a) hereof.
“Notice
of Conversion”
shall
have the meaning set forth in Section 4(a).
“Optional
Redemption”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Amount”
means
the sum of (i) 120% of the principal amount of the Debenture then outstanding
and subject to redemption, (ii) accrued but unpaid interest on the redeemed
principal and (iii) all liquidated damages and other amounts due in respect
of
the principal amount being redeemed.
“Optional
Redemption Date”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Notice”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Notice Date”
shall
have the meaning set forth in Section 6(b).
“Original
Issue Date”
means
the date of the first issuance of this Debenture, regardless of any transfers
of
any portion of this Debenture and regardless of the number of instruments which
may be issued to evidence this Debenture.
“Permitted
Indebtedness”
means (a) the
Indebtedness existing on the Original Issue Date and set forth on Schedule
3.1(aa)
attached
to the Purchase Agreement, (b)
6
lease
obligations and purchase money indebtedness of up to $100,000, in the aggregate,
incurred in connection with the acquisition of capital assets and lease
obligations with respect to newly acquired or leased assets, (c) indebtedness
that (i) is expressly subordinate to the Debentures pursuant to a written
subordination agreement with the Purchasers that is acceptable to each Purchaser
in its sole and absolute discretion and (ii) matures at a date later than the
Maturity Date and (d) indebtedness incurred in connection with an issuance
or
issuances of additional Debentures contemplated by clause (g) under the
definition of Exempt Issuance (as defined in the Purchase
Agreement).
“Permitted
Lien”
means
the individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being contested
in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Company) have been established
in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Company’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of the
Company and its consolidated Subsidiaries or (y) are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the property
or
asset subject to such Lien; (c) Liens incurred in connection with Permitted
Indebtedness under clause (a) or (d) of the definition thereof; and (d) Liens
incurred in connection with Permitted Indebtedness under clause (b) thereunder,
provided that such Liens are not secured by assets of the Company or its
Subsidiaries other than the assets so acquired or leased.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Pre-Redemption
Conversion Shares”
shall
have the meaning set forth in Section 6(a) hereof.
“Purchase
Agreement”
means
the Securities Purchase Agreement, dated as of August ____, 2007, among the
Company and the original Holders, as amended, modified or supplemented from
time
to time in accordance with its terms.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated as of the date of the Purchase
Agreement, among the Company and the original Holders, as amended, modified
or
supplemented from time to time in accordance with its terms.
“Registration
Statement”
means
a
registration statement that registers the resale of all Conversion Shares and
Interest Conversion Shares of the Holder, names such Holder
7
as
a
“selling stockholder” therein, and meets the requirements of the Registration
Rights Agreement.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Share
Delivery Date”
shall
have the meaning set forth in Section 4(d).
“Subsidiary”
shall
have the meaning set forth in the Purchase Agreement.
“Trading
Day”
means
a
day on which the principal Trading Market is open for business.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the
New York Stock Exchange or the OTC Bulletin Board.
“Transaction
Documents”
shall
have the meaning set forth in the Purchase Agreement.
“VWAP”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted for trading as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)); (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or
(d) in all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the Holder
and
reasonably acceptable to the Company.
Section
2. Interest.
a) Payment
of Interest in Cash or Kind.
The
Company shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at a rate of interest per annum
equal to the higher of (a) 8.0% or (b) LIBOR during the applicable Interest
Period plus 2%, payable quarterly on January 1, April 1, July 1 and October
1,
beginning on the first such date after the Original Issue Date, on each Monthly
Redemption Date (as to that principal amount then being redeemed),
on
8
each
Conversion Date (as to that principal amount then being converted) and on the
Maturity Date (each such date, an “Interest
Payment Date”)
(if
any Interest Payment Date is not a Business Day, then the applicable payment
shall be due on the next succeeding Business Day), in cash or duly authorized,
validly issued, fully paid and non-assessable shares of Common Stock at the
Interest Conversion Rate (the amount in U.S. dollars to be paid in shares,
the
“Interest
Share Amount”)
or a
combination thereof; provided,
however,
that
payment in shares of Common Stock may only occur if (i) all of the Equity
Conditions have been met (unless waived by the Holder in writing) during the
5
Trading Days immediately prior to the applicable Interest Payment Date (the
“Interest
Notice Period”)
and
through and including the date such shares of Common Stock are issued to the
Holder, (ii) the Company shall have given the Holder notice in accordance with
the notice requirements set forth below and (iii) as to such Interest Payment
Date, prior to such Interest Notice Period (but not more than 5 Trading Days
prior to the commencement of such Interest Notice Period), the Company shall
have delivered to the Holder’s account with The Depository Trust Company a
number of shares of Common Stock to be applied against such Interest Share
Amount equal to the quotient of (x) the applicable Interest Share Amount divided
by (y) the then Conversion Price (the “Interest
Conversion Shares”).
b) Company’s
Election to Pay Interest in Kind.
Subject
to the terms and conditions herein, the decision whether to pay interest
hereunder in cash, shares of Common Stock or a combination thereof shall be
at
the discretion of the Company. Prior to the commencement of any Interest Notice
Period, the Company shall deliver to the Holder a written notice of its election
to pay interest hereunder on the applicable Interest Payment Date either in
cash, shares of Common Stock or a combination thereof and the Interest Share
Amount as to the applicable Interest Payment Date, provided that the Company
may
indicate in such notice that the election contained in such notice shall apply
to future Interest Payment Dates until revised by a subsequent notice. During
any Interest Notice Period, the Company’s election (whether specific to an
Interest Payment Date or continuous) shall be irrevocable as to such Interest
Payment Date. Subject to the aforementioned conditions, failure to timely
deliver such written notice to the Holder shall be deemed an election by the
Company to pay the interest on such Interest Payment Date in cash. At any time
the Company delivers a notice to the Holder of its election to pay the interest
in shares of Common Stock, the Company shall timely file a prospectus supplement
pursuant to Rule 424 disclosing such election. The aggregate number of shares
of
Common Stock otherwise issuable to the Holder on an Interest Payment Date shall
be reduced by the number of Interest Conversion Shares previously issued to
the
Holder in connection with such Interest Payment Date.
c) Interest
Calculations.
Interest shall be calculated on the basis of a 360-day year, consisting of
twelve 30 calendar day periods, and shall accrue daily commencing on the
Original Issue Date until payment in full of the principal sum, together with
all accrued and unpaid interest, liquidated damages and other amounts which
may
become due hereunder, has been made. Payment of interest in shares of Common
Stock (other than the Interest Conversion Shares issued prior to an Interest
Notice Period) shall
9
otherwise
occur pursuant to Section 4(d)(ii) herein and, solely for purposes of the
payment of interest in shares, the Interest Payment Date shall be deemed the
Conversion Date. Interest shall cease to accrue with respect to any principal
amount converted, provided that the Company actually delivers the Conversion
Shares within the time period required by Section 4(d)(ii) herein. Interest
hereunder will be paid to the Person in whose name this Debenture is registered
on the records of the Company regarding registration and transfers of this
Debenture (the “Debenture
Register”).
Except as otherwise provided herein, if at any time the Company pays interest
partially in cash and partially in shares of Common Stock to the holders of
the
Debentures, then such payment of cash shall be distributed ratably among the
holders of the then-outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase
Agreement.
d) Late
Fee.
All
overdue accrued and unpaid interest to be paid hereunder shall entail a late
fee
at an interest rate equal to the lesser of 15% per annum or the maximum rate
permitted by applicable law (“Late
Fees”)
which
shall accrue daily from the date such interest is due hereunder through and
including the date of payment in full. Notwithstanding anything to the contrary
contained herein, if on any Interest Payment Date the Company has elected to
pay
accrued interest in the form of Common Stock but the Company is not permitted
to
pay accrued interest in Common Stock because it fails to satisfy the conditions
for payment in Common Stock set forth in Section 2(a) herein, then, at
the
option of the Holder, the
Company shall pay the regularly scheduled interest payment in cash. If any
Interest Conversion Shares are issued to the Holder in connection with an
Interest Payment Date and are not applied against an Interest Share Amount,
then
the Holder shall promptly return such excess shares to the Company.
e) Prepayment.
Except
as otherwise set forth in this Debenture, the Company may not prepay any portion
of the principal amount of this Debenture without the prior written consent
of
the Holder.
Section
3. Registration
of Transfers and Exchanges.
a) Different
Denominations.
This
Debenture is exchangeable for an equal aggregate principal amount of Debentures
of different authorized denominations, as requested by the Holder surrendering
the same. No service charge will be payable for such registration of transfer
or
exchange.
b) Investment
Representations.
This
Debenture has been issued subject to certain investment representations of
the
original Holder set forth in the Purchase Agreement and may be transferred
or
exchanged only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
c) Reliance
on Debenture Register.
Prior
to due presentment for transfer to the Company of this Debenture, the Company
and any agent of the Company may treat the Person in whose name this Debenture
is duly registered on the Debenture Register as
10
the
owner
hereof for the purpose of receiving payment as herein provided and for all
other
purposes, whether or not this Debenture is overdue, and neither the Company
nor
any such agent shall be affected by notice to the contrary.
Section
4. Conversion.
a) Voluntary
Conversion.
At any
time after the Original Issue Date until this Debenture is no longer
outstanding, this Debenture shall be convertible, in whole or in part, into
shares of Common Stock at the option of the Holder, at any time and from time
to
time (subject to the conversion limitations set forth in Section 4(c)
hereof). The Holder shall effect conversions by delivering to the Company a
Notice of Conversion, the form of which is attached hereto as Annex
A
(a
“Notice
of Conversion”),
specifying therein the principal amount of this Debenture to be converted and
the date on which such conversion shall be effected (such date, the
“Conversion
Date”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion is deemed delivered hereunder.
To effect conversions hereunder, the Holder shall not be required to physically
surrender this Debenture to the Company unless the entire principal amount
of
this Debenture, plus all accrued and unpaid interest thereon, has been so
converted. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture in an amount equal to the
applicable conversion. The Holder and the Company shall maintain records showing
the principal amount(s) converted and the date of such conversion(s). The
Company shall deliver an objection to any Notice of Conversion within 1 Business
Day of delivery of such Notice of Conversion. In the event of any dispute or
discrepancy, the records of the Company shall be controlling and determinative
in the absence of manifest error; provided,
however,
in the
event of a dispute the Company shall deliver Conversion Shares to the extent
that no dispute exists and in the event that the Company is later proved to
be
in error the Holder shall have the right to seek all remedies hereunder
retroactive to the Conversion Date. The
Holder, and any assignee by acceptance of this Debenture, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of
a
portion of this Debenture, the unpaid and unconverted principal amount of this
Debenture may be less than the amount stated on the face
hereof.
b) Conversion
Price.
The
conversion price in effect on any Conversion Date shall be equal to $0.35
subject
to adjustment herein (the “Conversion
Price”).
c) ▇▇▇▇▇▇’s
Restriction on Conversion.
The
Company shall not effect any conversion of this Debenture, and a Holder shall
not have the right to convert any portion of this Debenture, to the extent
that
after giving effect to the conversion set forth on the applicable Notice of
Conversion, such Holder (together with such Holder’s Affiliates, and any other
person or entity acting as a group together with such Holder or any of such
Holder’s Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by such Holder
and its Affiliates shall
11
include
the number of shares of Common Stock issuable upon conversion of this Debenture
with respect to which such determination is being made, but shall exclude the
number of shares of Common Stock which are issuable upon (A) conversion of
the
remaining, unconverted principal amount of this Debenture beneficially owned
by
such Holder or any of its Affiliates and (B) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
subject to a limitation on conversion or exercise analogous to the limitation
contained herein (including, without limitation, any other Debentures or the
Warrants) beneficially owned by such Holder or any of its Affiliates.
Except as set forth in the preceding sentence, for purposes of this Section
4(c), beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder. To
the
extent that the limitation contained in this Section 4(c) applies, the
determination of whether this Debenture is convertible (in relation to other
securities owned by such Holder together with any Affiliates) and of which
principal amount of this Debenture is convertible shall be in the sole
discretion of such Holder, and the submission of a Notice of Conversion shall
be
deemed to be such Holder’s determination of whether this Debenture may be
converted (in relation to other securities owned by such Holder together with
any Affiliates) and which principal amount of this Debenture is convertible,
in
each case subject to such aggregate percentage limitations. To ensure compliance
with this restriction, each Holder will be deemed to represent to the Company
each time it delivers a Notice of Conversion that such Notice of Conversion
has
not violated the restrictions set forth in this paragraph and the Company shall
have no obligation to verify or confirm the accuracy of such determination.
In
addition, a determination as to any group status as contemplated above shall
be
determined in accordance with Section 13(d) of the Exchange Act and
the
rules and regulations promulgated thereunder. For
purposes of this Section 4(c), in determining the number of outstanding shares
of Common Stock, a Holder may rely on the number of outstanding shares of Common
Stock as stated in the most recent of the following: (A) the Company’s most
recent Form 10-QSB or Form 10-KSB, as the case may be; (B) a more recent public
announcement by the Company; or (C) a more recent notice by the Company or
the
Company’s transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company
shall within two Trading Days confirm orally and in writing to 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 conversion or exercise of securities of the Company, including this
Debenture, by such Holder or its Affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation”
shall
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon
conversion of this Debenture held by the Holder. The Beneficial Ownership
Limitation provisions of this Section 4(c) may be waived by such Holder, at
the
election of such Holder, upon not less than 61 days’ prior notice to the
Company, to change the Beneficial Ownership Limitation to 9.99% of the number
of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon conversion of this Debenture held by
the
Holder and the provisions of this Section 4(c)
12
shall
continue to apply. Upon such a change by a Holder of the Beneficial Ownership
Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial
Ownership Limitation may not be further waived by such Holder. The provisions
of
this paragraph shall be construed and implemented in a manner otherwise than
in
strict conformity with the terms of this Section 4(c) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such
limitation.
The
limitations contained in this paragraph shall apply to a successor holder of
this
Debenture.
d) Mechanics
of Conversion.
i. Conversion
Shares Issuable Upon Conversion of Principal Amount.
The
number of shares of Common Stock issuable upon a conversion hereunder shall
be
determined by the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the Conversion
Price.
ii. Delivery
of Certificate Upon Conversion.
Not
later than three Trading Days after each Conversion Date (the “Share
Delivery Date”),
the
Company shall deliver, or cause to be delivered, to the Holder (A) a certificate
or certificates representing the Conversion Shares which, on or after the
Effective Date, shall be free of restrictive legends and trading restrictions
(other than those which may then be required by the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of this Debenture (including, if the Company has given continuous
notice pursuant to Section 2(b) for payment of interest in shares of Common
Stock at least 5 Trading Days prior to the date on which the Conversion Notice
is delivered to the Company, shares of Common Stock representing the payment
of
accrued interest otherwise determined pursuant to Section 2(a) but assuming
that
the Interest Payment Period is the 5 Trading Days period immediately prior
to
the date on which the Conversion Notice is delivered to the Company and
excluding for such issuance the condition that the Company deliver Interest
Conversion Shares as to such interest payment) and (B) a Company check or wire
transfer of immediately available funds in the amount of accrued and unpaid
interest (if the Company has elected or is required to pay accrued interest
in
cash). On or after the Effective Date, the Company shall use its best efforts
to
deliver any certificate or certificates required to be delivered by the Company
under this Section 4 electronically through the Depository Trust Company or
another established clearing corporation performing similar functions.
iii. Failure
to Deliver Certificates.
If in
the case of any Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the 2nd
Trading
Day immediately following the Shares
13
Delivery
Date, the Holder shall be entitled to elect by written notice to the Company
at
any time on or before its receipt of such certificate or certificates, to
rescind such Conversion, in which event the Company shall promptly return to
the
Holder any original Debenture delivered to the Company and the Holder shall
promptly return the Common Stock certificates representing the principal amount
of this Debenture tendered for conversion to the Company.
iv. Obligation
Absolute; Partial Liquidated Damages.
The
Company’s obligations to issue and deliver the Conversion Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation
to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares; provided,
however,
that
such delivery shall not operate as a waiver by the Company of any such action
the Company may have against the Holder. In the event the Holder of this
Debenture shall elect to convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on any claim that the Holder
or anyone associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless an injunction from
a
court, on notice to Holder, restraining and or enjoining conversion of all
or
part of this Debenture shall have been sought and obtained, and the Company
posts a surety bond for the benefit of the Holder in the amount of 150% of
the
outstanding principal amount of this Debenture, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which
shall
be payable to such Holder to the extent it obtains judgment. In the absence
of
such injunction, the Company shall issue Conversion Shares or, if applicable,
cash, upon a properly noticed conversion. If the Company fails for any reason
to
deliver to the Holder such certificate or certificates pursuant to Section
4(d)(ii) by the fifth Trading Day after the Conversion Date, the Company shall
pay to such Holder, in cash, as liquidated damages and not as a penalty, for
each $1000 of principal amount being converted, $10 per Trading Day (increasing
to $20 per Trading Day on the fifth Trading Day after such liquidated damages
begin to accrue) for each Trading Day after the 2nd
Trading
Day immediately following the Shares Delivery Date until such certificates
are
delivered. Nothing herein shall limit a ▇▇▇▇▇▇’s right to pursue actual damages
or declare an Event of Default pursuant to Section 8 hereof for the Company’s
failure to deliver Conversion Shares within the period specified herein and
such
Holder shall have the right to pursue all remedies available to it hereunder,
at
law or in equity
14
including,
without limitation, a decree of specific performance and/or injunctive relief.
The exercise of any such rights shall not prohibit the Holder from seeking
to
enforce damages pursuant to any other Section hereof or under applicable
law.
v. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion.
In
addition to any other rights available to the Holder, if the Company fails
for
any reason to deliver to the Holder such certificate or certificates by the
2nd
Trading
Day immediately following the Share Delivery Date pursuant to Section 4(d)(ii),
and if after such Share Delivery Date the Holder is required by its brokerage
firm to purchase (in an open market transaction or otherwise), or the Holder’s
brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Conversion Shares which the Holder
was entitled to receive upon the conversion relating to such Share Delivery
Date
(a “Buy-In”),
then
the Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number
of
shares of Common Stock that such Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue
(if
surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely complied
with
its delivery requirements under Section 4(d)(ii). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this Debenture with respect
to
which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In
and, upon request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock
upon
conversion of this Debenture as required pursuant to the terms
hereof.
vi. Reservation
of Shares Issuable Upon Conversion.
The
Company covenants that it will at all times reserve and keep available out
of
its authorized and unissued shares of Common Stock for the sole purpose of
issuance upon
15
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 (and the other holders of the
Debentures), not less than such aggregate number of shares of the Common Stock
as shall (subject to the terms and conditions set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and restrictions
of
Section 5) 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
authorized, validly issued, fully paid and nonassessable and, if the
Registration Statement is then effective under the Securities Act, shall be
registered for public sale in accordance with such Registration
Statement.
vii. Fractional
Shares.
Upon a
conversion hereunder the Company shall not be required to issue stock
certificates representing fractions of shares of Common Stock, but shall instead
round the fraction to the nearest whole share.
viii. Transfer
Taxes.
The
issuance of certificates for shares of the Common Stock on conversion of this
Debenture shall be made without charge to the Holder hereof for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificates, provided that the Company shall not be required to pay
any
tax that may be payable in respect of any transfer involved in the issuance
and
delivery of any such certificate upon conversion in a name other than that
of
the Holder of this Debenture so converted and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that
such
tax has been paid.
Section
5. Certain
Adjustments.
a) Stock
Dividends and Stock Splits.
If the
Company, at any time while this Debenture is outstanding: (A) pays a stock
dividend or otherwise makes a distribution or distributions payable in shares
of
Common Stock on shares of Common Stock or any Common Stock Equivalents (which,
for avoidance of doubt, shall not include any shares of Common Stock issued
by
the Company upon conversion of, or payment of interest on, the Debentures);
(B)
subdivides outstanding shares of Common Stock into a larger number of shares;
(C) combines (including by way of a reverse stock split) outstanding shares
of
Common Stock into a smaller number of shares; or (D) issues, in the event of
a
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
any
treasury shares of the Company) outstanding immediately before such event and
of
which the denominator shall be the number of shares of Common Stock outstanding
immediately
16
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.
b) Subsequent
Equity Sales.
If, at
any time while this Debenture is outstanding, the Company or any Subsidiary,
as
applicable, sells or grants any option to purchase or sells or grants any right
to reprice, or otherwise disposes of or issues (or announces any sale, grant
or
any option to purchase or other disposition), any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock at an
effective price per share that is lower than the then Conversion Price (such
lower price, the “Base
Conversion Price”
and
such issuances, collectively, a “Dilutive
Issuance”)
(if
the holder of the Common Stock or Common Stock Equivalents so issued shall
at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price. Such adjustment shall be made whenever such Common Stock
or
Common Stock Equivalents are issued. Notwithstanding
the foregoing, no adjustment will be made under this Section 5(b) in respect
of
an Exempt Issuance.
Notwithstanding anything herein or in any other Transaction Document to the
contrary, it is expressly agreed that any amendments, adjustments or resets
that
result in future issuances of Common Stock or Common Stock Equivalents pursuant
to that certain Securities Purchase Agreement, dated August 17, 2006, by and
among the Company, Integrated Power Systems LLC, Power Designs Inc., The Vantage
Partners LLC, Technipower LLC and the other parties listed on the signature
pages thereto, or pursuant to any other agreements or documents entered into
or
issued in connection therewith, shall not be an Exempt Issuance and shall result
in an adjustment hereunder. The
Company shall notify the Holder in writing, no later than 2 Business Days
following the issuance of any Common Stock or Common Stock Equivalents subject
to this Section 5(b), indicating therein the applicable issuance price, or
applicable reset price, exchange price, conversion price and other pricing
terms
(such notice, the “Dilutive
Issuance Notice”).
For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
Dilutive Issuance, the Holder shall be entitled to receive upon conversion
of
this Debenture a number of Conversion Shares based upon the Base Conversion
Price on or after the date of such Dilutive Issuance, regardless of whether
the
Holder accurately refers to the Base Conversion Price in the Notice of
Conversion. For purposes of any adjustment in the Conversion Price made pursuant
to this Section 5(b), the following shall apply: (i) in the case of the issuance
of Common Stock for cash, the consideration shall be deemed to be the amount
of
cash paid; (ii) in the case of the issuance of Common Stock for a consideration
in whole or in part other than cash, the consideration other than cash
shall
17
be
deemed
to be the fair value thereof as determined in good faith by the Board; (iii)
the
number of shares of Common Stock deliverable upon exercise of Common Stock
Equivalents shall be deemed to have been issued at the time such Common Stock
Equivalents were issued and for a consideration equal to the consideration
(determined in the manner provided in (i) and (ii) above), if any, received
by
the Company upon the issuance of such Common Stock Equivalents plus the purchase
price, if any, provided in such Common Stock Equivalents for the additional
Common Stock covered thereby; (iv) the number of shares of Common Stock
deliverable upon conversion of or in exchange for any Common Stock Equivalents
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such Common Stock Equivalents were issued and for a
consideration equal to the consideration, if any, received by the Company for
any such Common Stock Equivalents, plus the additional consideration, if any,
to
be received by the Company upon the conversion or exchange of such securities
or
the exercise of any related Common Stock Equivalents (the consideration in
each
case to be determined in the manner provided in (i) and (ii) above); (v) in
the
event of any change in the number of shares of Common Stock deliverable or
any
increase or decrease in the consideration payable to the Company upon exercise
of Common Stock Equivalents or upon conversion of or in exchange for such Common
Stock Equivalents (including, but not limited to, a change resulting from the
anti-dilution provisions thereof), the Conversion Price in effect at the time
obtained with respect to the adjustment which was made upon the issuance of
such
Common Stock Equivalents, and any subsequent adjustments based thereon, shall
be
recomputed to reflect such change (assuming no exercise or conversion occurred
of such Common Stock Equivalents), but no further adjustment shall be made
for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of or the conversion or exchange of such Common Stock Equivalents,
provided that the Company shall have provided the Holder at least 5 days’ prior
written notice of any such adjustment during which the Holder may convert at
the
prevailing conversion rate; and (vi) upon the expiration or termination of
any
such Common Stock Equivalents, assuming no exercise or conversion thereof,
in
whole or in part, the Conversion Price in effect at the time obtained with
respect to the adjustment which was made upon the issuance of such Common Stock
Equivalents shall be adjusted to the price that would have been in effect had
the adjustment not occurred, subject to other adjustments in the interim,
provided that the Company shall have provided the Holder at least 5 days’ prior
written notice of any such adjustment during which the Holder may convert at
the
prevailing conversion rate.
c) [INTENTIONALLY
DELETED].
d) [INTENTIONALLY
DELETED]
e) Fundamental
Transaction.
If, at
any time while this Debenture is outstanding, (A) the Company effects any merger
or consolidation of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one transaction
or
a series of related transactions, (C) any tender offer or
18
exchange
offer (whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “Fundamental
Transaction”),
then,
upon any subsequent conversion of this Debenture, the Holder shall have the
right to receive, for each Conversion Share that would have been issuable upon
such conversion immediately prior to the occurrence of such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of 1 share of Common Stock (the “Alternate
Consideration”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based on
the
amount of Alternate Consideration issuable in respect of 1 share of Common
Stock
in such Fundamental Transaction, and the Company shall apportion the Conversion
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration.
If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall
be
given the same choice as to the Alternate Consideration it receives upon any
conversion of this Debenture following such Fundamental Transaction. To the
extent necessary to effectuate the foregoing provisions, any successor to the
Company or surviving entity in such Fundamental Transaction shall issue to
the
Holder a new debenture consistent with the foregoing provisions and evidencing
the Holder’s right to convert such debenture into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply
with the provisions of this Section 5(e) and insuring that this Debenture (or
any such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
f) Calculations.
All
calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section
5,
the number of shares of Common Stock deemed to be issued and outstanding as
of a
given date shall be the sum of the number of shares of Common Stock (excluding
any treasury shares of the Company) issued and outstanding.
g) Notice
to the Holder.
i. Adjustment
to Conversion Price.
Whenever the Conversion Price is adjusted pursuant to any provision of this
Section 5, the Company shall promptly mail to each Holder a notice setting
forth
the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment and basic terms of the dilutive security.
If the Company enters into a
19
Variable
Rate Transaction, despite the prohibition thereon in the Purchase Agreement,
the
Company shall be deemed to have issued Common Stock or Common Stock Equivalents
at the lowest possible conversion price at which such securities may be
converted or exercised.
ii. Notice
to Allow Conversion by ▇▇▇▇▇▇.
If (A)
the Company shall declare a dividend (or any other distribution in whatever
form) on the Common Stock, (B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock of rights or warrants
to subscribe for or purchase any shares of capital stock of any class or of
any
rights, (D) the approval of any stockholders of the Company shall be required
in
connection with any reclassification of the Common Stock, any consolidation
or
merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory share exchange
whereby the Common Stock is converted into other securities, cash or property
or
(E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation
or
winding up of the affairs of the Company, then, in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of this Debenture, and shall cause to be delivered
to the Holder at its last address as it shall appear upon the Debenture
Register, at least 10 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
10-day period commencing on the date of such notice through the effective date
of the event triggering such notice.
Section
6. Monthly
Redemption.
a) Monthly
Redemption.
On each
Monthly Redemption Date, the Company shall redeem the Monthly Redemption Amount
(such redemption, the “Monthly
Redemption”).
The
Monthly Redemption Amount payable on each Monthly Redemption Date shall be
paid
in cash; provided,
however,
as to
any Monthly Redemption and upon 12 Trading Days’ prior written irrevocable
notice (the “Monthly
Redemption Notice”),
in
20
lieu
of a
cash redemption payment the Company may elect to pay all or part of a Monthly
Redemption Amount in Conversion Shares (such amount in U.S. dollars to be paid
on a Monthly Redemption Date in Conversion Shares, the “Monthly
Redemption Share Amount”)
based
on a conversion price equal to 82.5% of the average of the VWAPs for the 10
consecutive Trading Days ending on the Trading Day that is immediately prior
to
the applicable Monthly Redemption Date (the price calculated during the 10
Trading Day period immediately prior to the Monthly Redemption Date, the
“Monthly
Redemption Price”
and
such 10 Trading Day period, the “Monthly
Redemption Period”);
provided,
further,
that
the Company may not pay the Monthly Redemption Amount in Conversion Shares
unless (y) from the date the Holder receives the duly delivered Monthly
Redemption Notice through and until the date such Monthly Redemption is paid
in
full, the Equity Conditions have been satisfied, unless waived in writing by
the
Holder, and (z) as to such Monthly Redemption, prior to such Monthly Redemption
Period (but not more than 5 Trading Days prior to the commencement of the
Monthly Redemption Period), the Company shall have delivered to the Holder’s
account with The Depository Trust Company (the date of such delivery, the
“Pre-Redemption
Conversion Shares Delivery Date”)
a
number of shares of Common Stock to be applied against such Monthly Redemption
Share Amount equal to the applicable Monthly Redemption Share Amount divided
by
82.5% of the average of the VWAPs for the 10 consecutive Trading Days
immediately preceding the Pre-Redemption Conversion Shares Delivery Date (the
“Pre-Redemption
Conversion Shares”).
The
Holder may convert, pursuant to Section 4(a), any principal amount of this
Debenture subject to a Monthly Redemption at any time prior to the date that
the
Monthly Redemption Amount is due and paid in full. Unless otherwise indicated
by
the Holder in the applicable Notice of Conversion, any principal amount of
this
Debenture converted during the applicable Monthly Redemption Period until the
date the Monthly Redemption Amount is paid in full shall be first applied to
the
principal amount subject to the Monthly Redemption Amount payable in cash and
then to the Monthly Redemption Share Amount. Any principal amount of this
Debenture converted during the applicable Monthly Redemption Period in excess
of
the Monthly Redemption Amount shall be applied against the last principal amount
of this Debenture scheduled to be redeemed hereunder, in reverse time order
from
the Maturity Date; provided,
however,
if any
such conversion is applied against such Monthly Redemption Amount, the
Pre-Redemption Conversion Shares, if any were issued in connection with such
Monthly Redemption or were not already applied to such conversions, shall be
first applied against such conversion. The Company covenants and agrees that
it
will honor all Notices of Conversion tendered up until such amounts are paid
in
full. The Company’s determination to pay a Monthly Redemption in cash, shares of
Common Stock or a combination thereof shall be applied ratably to all of the
holders of the then outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase
Agreement. At any time the Company delivers a notice to the Holder of its
election to pay the Monthly Redemption Amount in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 disclosing
such
election.
21
b) Optional
Redemption at Election of Company.
Subject
to the provisions of this Section 6, at any time after the Effective Date,
the
Company may deliver a notice to the Holder (an “Optional
Redemption Notice”
and
the
date such notice is deemed delivered hereunder, the “Optional
Redemption Notice Date”)
of its
irrevocable election to redeem some or all of the then outstanding principal
amount of this Debenture for cash in an amount equal to the Optional Redemption
Amount on the 12th
Trading
Day following the Optional Redemption Notice Date (such date, the “Optional
Redemption Date”
and
such redemption, the “Optional
Redemption”).
The
Optional Redemption Amount is payable in full on the Optional Redemption Date.
The Company may only effect an Optional Redemption if each of the Equity
Conditions shall have been met on each Trading Day during the period commencing
on the Optional Redemption Notice Date through to the Optional Redemption Date
and
through and including the date payment of the Optional Redemption Amount is
actually made.
If any
of the Equity Conditions shall cease to be satisfied at any time during the
12
Trading Day period, then the Holder may elect to nullify the Optional Redemption
Notice by notice to the Company within 3 Trading Days after the first day on
which any such Equity Condition has not been met (provided that if, by a
provision of the Transaction Documents, the Company is obligated to notify
the
Holder of the non-existence of an Equity Condition, such notice period shall
be
extended to the third Trading Day after proper notice from the Company) in
which
case the Optional Redemption Notice shall be null and void, ab initio.
The
Company covenants and agrees that it will honor all Notices of Conversion
tendered from the time of delivery of the Optional Redemption Notice through
the
date all amounts owing thereon are paid in full.
c) Redemption
Procedure.
The
payment of cash or, in the case of a Monthly Redemption, the issuance of Common
Stock if applicable, shall be payable on the Monthly Redemption Date or Optional
Redemption Date, as the case may be. In the case of a Monthly Redemption, in
the
event that the number of Pre-Redemption Conversion Shares exceeds the number
of
Conversion Shares required to be issued on the Monthly Redemption Date as set
forth in Section 6(a), within 3 Trading Days the Holder shall either (i) return
such excess Pre-Redemption Conversion Shares to the Company for cancellation
or
(ii) convert an additional principal amount of this Debenture at the Conversion
Price to be applied against such excess Pre-Redemption Conversion Shares. If
any
portion of the payment pursuant to a Monthly Redemption or Optional Redemption
shall not be paid by the Company by the applicable due date, interest shall
accrue thereon at an interest rate equal to the lesser of 15% per annum or
the
maximum rate permitted by applicable law until such amount is paid in full.
Notwithstanding anything herein contained to the contrary, if any portion of
the
Optional Redemption Amount or Monthly Redemption Amount, as applicable, remains
unpaid after such date, the Holder may elect, by written notice to the Company
given at any time thereafter accompanied by any payments of cash or Common
Stock
therefore paid by the Company in respect of such redemption, to invalidate
such Optional Redemption or Monthly Redemption, ab initio.
Notwithstanding anything to the contrary in this Section 6, the Company’s
determination to redeem in cash or its elections under Section 6(a) shall be
applied ratably among the Holders of Debentures.
The
Holder may elect to convert the outstanding principal amount
22
of
the
Debenture subject to redemptions under Sections 6(a) or 6(b) pursuant to Section
4 at any time prior to actual payment in cash for any redemption under this
Section 6 by the delivery of a Notice of Conversion to the Company. For purposes
of clarification, the Warrants held by the Holder shall not be required to
be
surrendered in any redemption under this Debenture.
Section
7. Negative
Covenants.
As long
as any portion of this Debenture remains outstanding, the Company shall not,
and
shall not permit any of its Subsidiaries to, directly or indirectly, except
with
the prior written consent of the Agent (as defined in the Security
Agreement):
a) other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
suffer to exist any indebtedness for borrowed money of any kind, including
but
not limited to, a guarantee;
b) other
than Permitted Liens, enter into, create, incur, assume or suffer to exist
any
Liens 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
therefrom;
c) amend
its
charter documents, including, without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;
d) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis
number
of shares of its Common Stock or Common Stock Equivalents other than as to
(a)
the Conversion Shares or Warrant Shares as permitted or required under the
Transaction Documents, (b) shares of Common Stock or Common Stock Equivalents
as
permitted or required under the transaction documents pertaining to the
Company’s Variable Rate Self-Liquidating Senior Secured Convertible Debentures
Due March 17, 2008, and the related Common Stock Purchase Warrants, and (b)
repurchases of Common Stock or Common Stock Equivalents of departing officers
and directors of the Company, provided that such repurchases shall not exceed
an
aggregate of $100,000 for all officers and directors during the term of this
Debenture;
e) pay
cash
dividends or distributions on any equity securities of the Company;
f) enter
into any transaction with any Affiliate of the Company which would be required
to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or
g) enter
into any agreement with respect to any of the foregoing.
23
Section
8. Events
of Default.
a) “Event
of Default”
means,
wherever used herein, any of the following events (whatever the reason for
such
event and whether such event shall be voluntary or involuntary or effected
by
operation of law or pursuant to any judgment, decree or order of any court,
or
any order, rule or regulation of any administrative or governmental
body):
i. any
default in the payment of (A) the principal amount of any Debenture or (B)
interest, liquidated damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default under clause
(B) above, is not cured within 3 Trading Days;
ii. the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (xi) below) which failure is not cured,
if
possible to cure, within the earlier to occur
of
(A)
5
Trading
Days after notice of such failure sent by the Holder or by any other
Holder
and (B)
10 Trading Days after the Company has become or should have become aware of
such
failure;
iii. a
default
or event of default (subject to any grace or cure period provided in the
applicable agreement, document or instrument) shall occur under (A) any of
the
Transaction Documents or (B) any other material agreement, lease, document
or
instrument to which the Company or any Subsidiary is obligated (and not covered
by clause (vi) below);
iv. any
representation
or warranty made in this Debenture, any other Transaction Documents, any written
statement pursuant hereto or thereto or any other report, financial statement
or
certificate made or delivered to the Holder or any other Holder shall
be
untrue or incorrect in any material respect as of the date when made or deemed
made;
v. the
Company or any significant Subsidiary shall be subject to a Bankruptcy
Event;
vi. the
Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which
there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring
24
arrangement
that (a) involves an obligation greater than $150,000, whether such indebtedness
now exists or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable;
vii. the
Common Stock shall not be eligible for listing or quotation for trading on
a
Trading Market and shall not be eligible to resume listing or quotation for
trading thereon within five Trading Days;
viii. the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or in excess of 40% of
its
assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);
ix. a
Registration Statement shall not have been declared effective by the Commission
on or prior to the 210th calendar
day after the Closing Date;
x. if,
during the Effectiveness Period (as defined in the Registration Rights
Agreement), either (a) the effectiveness of the Registration Statement lapses
for any reason or (b) the Holder shall not be permitted to resell Registrable
Securities (as defined in the Registration Rights Agreement) under the
Registration Statement for a period of more than 30 consecutive Trading Days
or
40 non-consecutive Trading Days during any 12 month period; provided,
however,
that if
the Company
is negotiating a merger, consolidation, acquisition or sale of all or
substantially all of its assets or a similar transaction and, in the written
opinion of counsel to the Company, the Registration Statement would be required
to be amended to include information concerning such pending transaction(s)
or
the parties thereto which information is not available or may not be publicly
disclosed at the time, the Company shall be permitted an additional 10
consecutive Trading Days during any 12 month period pursuant to this Section
8(a)(x);
xi. the
Company shall fail for any reason to deliver certificates to a Holder prior
to
the seventh Trading Day after a Conversion Date pursuant to Section 4(d) or
the
Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof;
xii. any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any Subsidiary or any of their respective property or
other
assets for more than $50,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar days;
or
25
xiii. if
a
proper Disclosure Request has been made pursuant to Section 4.6(b) of the
Purchase Agreement and the Company fails to either (i) make public disclosure
of
the information that is the subject of such Disclosure Request in a manner
consistent with Rule 101(e) of Regulation FD or (ii) provide such Purchaser
with
a written statement that the Company does not believe that such information
is
material nonpublic information or that it was delivered pursuant to the prior
request or consent of such Purchaser, in either case within 5 business days
of
its receipt of such Disclosure Request.
b) Remedies
Upon Event of Default.
If any
Event of Default occurs, the outstanding principal amount of this Debenture,
plus accrued but unpaid interest, liquidated damages and other amounts owing
in
respect thereof through the date of acceleration, shall become, at the Holder’s
election, immediately due and payable in cash at the Mandatory Default Amount.
Commencing 5 days after the occurrence of any Event of Default that results
in
the eventual acceleration of this Debenture, the interest rate on this Debenture
shall accrue at an interest rate equal to the lesser of 15% per annum or the
maximum rate permitted under applicable law. Upon the payment in full of the
Mandatory Default Amount, the Holder shall promptly surrender this Debenture
to
or as directed by the Company. In connection with such acceleration described
herein, the Holder need not provide, and the Company hereby waives, any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all
of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such acceleration may be rescinded and annulled by ▇▇▇▇▇▇ at
any
time prior to payment hereunder and the Holder shall have all rights as a holder
of the Debenture until such time, if any, as the Holder receives full payment
pursuant to this Section 8(b). No such rescission or annulment shall affect
any
subsequent Event of Default or impair any right consequent thereon.
Section
9. Miscellaneous.
a) Notices.
Any and
all notices or other communications or deliveries to be provided by the Holder
hereunder, including, without limitation, any Notice of Conversion, shall be
in
writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, facsimile number (▇▇▇)
▇▇▇-▇▇▇▇,
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. or
such
other facsimile number or address as the Company may specify for such purpose
by
notice to the Holder delivered in accordance with this Section 9. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, or sent
by
a nationally recognized overnight courier service addressed to each Holder
at
the facsimile number or address of such ▇▇▇▇▇▇ appearing on the books of the
Company, or if no such facsimile number or address appears, at the principal
place of business of the Holder. Any notice or other
26
communication
or deliveries hereunder shall be deemed given and effective on the earliest
of
(i) the date of transmission, if such notice or communication is delivered
via
facsimile at the facsimile number specified in this Section 9 prior to 5:30
p.m.
(New York City time), (ii) the date immediately following the date of
transmission, if such notice or communication is delivered via facsimile at
the
facsimile number specified in this Section 9 between 5:30 p.m. (New York City
time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice
is
required to be given.
b) Absolute
Obligation.
Except
as expressly provided herein, no provision of this Debenture shall alter or
impair the obligation of the Company, which is absolute and unconditional,
to
pay the principal of, liquidated damages and accrued interest, as applicable,
on
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct debt obligation of the Company. This
Debenture ranks pari passu
with all
other Debentures now or hereafter issued under the terms set forth
herein.
c) Lost
or Mutilated Debenture.
If this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and substitution for and upon cancellation
of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the principal amount of this Debenture
so mutilated, lost, stolen or destroyed, but only upon receipt of evidence
of
such loss, theft or destruction of such Debenture, and of the ownership hereof,
reasonably satisfactory to the Company.
d) Governing
Law; Arbitration.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York. Any controversy or claim arising out of or
related to this Debenture or the breach thereof, shall be settled by binding
arbitration in New York, New York in accordance with the Expedited Procedures
(Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration
Association (“AAA”).
A
proceeding shall be commenced upon written demand by the Company or Holder
to
the other. The arbitrator(s) shall enter a judgment by default against any
party, which fails or refuses to appear in any properly noticed arbitration
proceeding. The proceeding shall be conducted by one (1) arbitrator, unless
the
amount alleged to be in dispute exceeds two hundred fifty thousand dollars
($250,000), in which case three (3) arbitrators shall preside. The arbitrator(s)
will be chosen by the parties from a list provided by the AAA, and if the
parties are unable to agree within ten (10) days, the AAA shall select the
arbitrator(s). The arbitrators must be experts in securities law and financial
transactions. The arbitrators shall assess costs and expenses of the
arbitration, including all attorneys’ and experts’ fees, as the arbitrators
believe is appropriate in light of the merits of the parties’ respective
positions in the issues in dispute. Each party submits irrevocably to the
jurisdiction of any state court sitting in New York, New York or to the United
States District Court sitting in New
27
York,
New
York for purposes of enforcement of any discovery order, judgment or award
in
connection with such arbitration. The award of the arbitrator(s) shall be final
and binding upon the parties and may be enforced in any court having
jurisdiction. The arbitration shall be held in such place as set by the
arbitrator(s) in accordance with Rule 55. With respect to any arbitration
proceeding in accordance with this section, the prevailing party’s reasonable
attorney’s fees and expenses shall be borne by the non-prevailing
party.
Although
the parties, as expressed above, agree that all claims, including claims that
are equitable in nature, for example specific performance, shall initially
be
prosecuted in the binding arbitration procedure outlined above, if the
arbitration panel dismisses or otherwise fails to entertain any or all of the
equitable claims asserted by reason of the fact that it lacks jurisdiction,
power and/or authority to consider such claims and/or direct the remedy
requested, then, in only that event, will the parties have the right to initiate
litigation respecting such equitable claims or remedies. The forum for such
equitable relief shall be in either a state or federal court sitting in New
York, New York. Each party waives any right to a trial by jury, assuming such
right exists in an equitable proceeding, and irrevocably submits to the
jurisdiction of said New York court. New York law shall govern both the
proceeding as well as the interpretation and construction of this Agreement
and
the transaction as a whole.
e) Waiver.
Any
waiver by the Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not
be
considered a waiver or deprive that party of the right thereafter to insist
upon
strict adherence to that term or any other term of this Debenture. Any waiver
by
the Company or the Holder must be in writing.
f) Severability.
If any
provision of this Debenture is invalid, illegal or unenforceable, the balance
of
this Debenture shall remain in effect, and if any provision is inapplicable
to
any Person or circumstance, it shall nevertheless remain applicable to all
other
Persons and circumstances. If it shall be found that any interest or other
amount deemed interest due hereunder violates the applicable law governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under applicable law.
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
28
herein
granted to the Holder, but will suffer and permit the execution of every such
as
though no such law has been enacted.
g) Next
Business Day.
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.
h) Headings.
The
headings contained herein are for convenience only, do not constitute a part
of
this Debenture and shall not be deemed to limit or affect any of the provisions
hereof.
i) Assumption.
Any successor to the Company or any surviving entity in a Fundamental
Transaction shall (i) assume, prior to such Fundamental Transaction, all of
the
obligations of the Company under this Debenture and the other Transaction
Documents pursuant to written agreements in form and substance satisfactory
to
the Holder (such approval not to be unreasonably withheld or delayed) and (ii)
issue to the Holder a new debenture of such successor entity evidenced by a
written instrument substantially similar in form and substance to this
Debenture, including, without limitation, having a principal amount and interest
rate equal to the principal amount and the interest rate of this Debenture
and
having similar ranking to this Debenture, which shall be satisfactory to the
Holder (any such approval not to be unreasonably withheld or delayed). The
provisions of this Section 9(i) shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
of this Debenture.
j) Secured
Obligation.
The
obligations of the Company under this Debenture are secured by all assets of
the
Company and certain of the Subsidiaries pursuant to the Security Agreement,
dated as of August ___, 2007, between the Company, certain of the Subsidiaries
of the Company and the Secured Parties (as defined therein).
*********************
29
IN
WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
by a
duly authorized officer as of the date first above indicated.
|
SOLOMON
TECHNOLOGIES, INC.
|
|
By:
_______________________________________
Name:
Title:
|
30
ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the Variable Rate
Self-Liquidating Senior Secured Convertible Debenture due April 17, 2009 of
Solomon Technologies, Inc., a Delaware corporation (the “Company”),
into
shares of common stock, par value $0.001 per share (the “Common
Stock”),
of
the Company according to the conditions hereof, as of the date written below.
If
shares of Common Stock are to be issued in the name of a person other than
the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to
the
holder for any conversion, except for such transfer taxes, if any.
By
the
delivery of this Notice of Conversion the undersigned represents and warrants
to
the Company that its ownership of the Common Stock does not exceed the amounts
specified under Section 4 of this Debenture, as determined in accordance with
Section 13(d) of the Exchange Act.
The
undersigned agrees to comply with the prospectus delivery requirements under
the
applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion
calculations:
Date
to
Effect Conversion:
Principal
Amount of Debenture to be Converted:
Payment
of Interest in Common Stock __ yes __ no
If
yes,
$_____ of Interest Accrued on Account of Conversion at Issue.
Number
of
shares of Common Stock to be issued:
Signature:
Name:
Address:
31
Schedule
1
CONVERSION
SCHEDULE
The
Variable Rate Self-Liquidating Senior Secured Convertible Debentures due on
April 17, 2009 in the aggregate principal amount of $______ are issued by
Solomon Technologies, Inc. This Conversion Schedule reflects conversions made
under Section 4 of the above referenced Debenture.
Dated:
|
Date
of Conversion
(or
for first entry, Original Issue Date)
|
Amount
of Conversion
|
Aggregate
Principal Amount Remaining Subsequent to Conversion
(or
original Principal Amount)
|
Company
Attest
|
|
|
|||
32