VARIABLE RATE SECURED CONVERTIBLE DEBENTURE DUE DECEMBER 31, 2010
EXHIBIT
4.4
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: March 7, 2006
Original
Conversion Price (subject to adjustment herein): $1.41
$7,500,000
VARIABLE
RATE SECURED CONVERTIBLE DEBENTURE
DUE
DECEMBER 31, 2010
THIS
VARIABLE RATE SECURED DEBENTURE is one of a series of duly authorized and
validly issued Secured Convertible Debentures of MCF Corporation, a Delaware
corporation, having its principal place of business at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇
▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the “Company”),
designated as its Variable Rate Secured Convertible Debenture, due December
31,
2010 (this debenture, the “Debenture”
and
collectively with the other such series of debentures, the “Debentures”).
FOR
VALUE
RECEIVED, the Company promises to pay to Midsummer Investment, Ltd. or its
registered assigns (the “Holder”),
or
shall have paid pursuant to the terms hereunder, the principal sum of SEVEN
MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($7,500,000) by December 31,
2010, or such earlier date as this Debenture is required or permitted to be
repaid as provided hereunder (the “Maturity
Date”),
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 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; or (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 general
meeting of all 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 50% 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 50% 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 Company immediately
prior to such transaction own less than 50% 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.
-2-
“Common
Stock”
means
the common stock, par value $.0001 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(b).
“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.
“Equity
Conditions”
shall
mean, during the period in question, (i)
the Company shall have duly honored all conversions and redemptions scheduled
to
occur or occurring by virtue of one or more 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 at least
30
calendar days following the event in question), (iv) the Common Stock is trading
on a Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed 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 at least 30 calendar days following the event
in
question), (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 an Optional Redemption, the shares
issuable upon conversion in full of the Optional Redemption Amount) to
the
Holder would not violate the limitations set forth in Section 4(c)(i) 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
and
(ix) the Holder is not, in the reasonable judgment of the Company, in possession
of any information that constitutes material non-public
information.
-3-
“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.
“Forced
Conversion”
shall
have the meaning set forth in Section 6(c).
“Forced
Conversion Date”
shall
have the meaning set forth in Section 6(c).
“Forced
Conversion Notice”
shall
have the meaning set forth in Section 6(c).
“Forced
Conversion Notice Date”
shall
have the meaning set forth in Section 6(c).
“Fundamental
Transaction”
shall
have the meaning set forth in Section 5(e).
“Late
Fees”
shall
have the meaning set forth in Section 2(c).
“Mandatory
Default Amount”
means
the sum of (i) the greater of (A) (i) 120% of the outstanding principal amount
of this Debenture, plus (ii) 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 such date, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of this
Debenture.
“New
York Courts”
shall
have the meaning set forth in Section 9(d).
“Notice
of Conversion”
shall
have the meaning set forth in Section 4(a).
“Optional
Redemption”
shall
have the meaning set forth in Section 6(a).
“Optional
Redemption Amount”
shall
have the meaning set forth in Section 6(a).
“Optional
Redemption Date”
shall
have the meaning set forth in Section 6(a).
“Optional
Redemption Notice”
shall
have the meaning set forth in Section 6(a).
-4-
“Optional
Redemption Notice Date”
shall
have the meaning set forth in Section 6(a).
“Original
Issue Date”
means
the date of the first issuance of the Debentures, regardless of any transfers
of
any Debenture and regardless of the number of instruments which may be issued
to
evidence such Debentures.
“Permitted
Indebtedness”
means (i) the
Indebtedness existing on the Original Issue Date and set forth on Schedule
3.1(aa)
attached
to the Purchase Agreement, and any re-financings and replacements thereof,
including any new Indebtedness to the extent that all such Indebtedness shall
not in the aggregate exceed the total amount of Indebtedness set forth on
Schedule
3.1(aa),
(ii)
Indebtedness incurred in connection with the Transaction Documents, (iii) any
Subordinated Indebtedness (including, without limitation, Indebtedness assumed
in connection with any acquisitions), (iv) up to $10,000,000 of Indebtedness
incurred by the Company or ▇▇▇▇▇▇▇▇ Curhan Ford & Co., one of the Company’s
Subsidiaries, to
finance its underwriting activities, which Indebtedness is incurred through
commercial borrowings with no equity components with a nationally recognized
commercial lending institution whose primary business is not investing in
securities (provided, however, up to $5,000,000 of which may also be used by
the
Company or ▇▇▇▇▇▇▇▇ Curhan Ford & Co. to finance the acquisition
of
one or more entities (by merger, consolidation, the acquisition of all or
substantially of the assets of such entity or similar transaction
acquisitions)) and (v) up to $2,000,000 of Indebtedness incurred by the Company
or any Subsidiary under capital leases to finance the purchase of equipment
or
fixtures, but no such Indebtedness shall be secured by any assets of the Company
or any Subsidiary other than the equipment or fixtures so financed, provided,
that such $2,000,000 shall be subsumed within the overall limit of (A) clause
(i) above and (B) $10,000,000 set forth in clause (iv) above, and shall not
be
in addition to either of such limitations.
“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 and (c) Liens in connection with Indebtedness
described in clauses (ii), (iv) and (v) of the definition of “Permitted
Indebtedness”.
-5-
“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.
“Purchase
Agreement”
means
the Securities Purchase Agreement among the Company and the original Holders,
dated as of March 7, 2006 as amended, modified or supplemented from time to
time
in accordance with its terms.
“Registration
Rights Agreement”
means
the Registration Rights Agreement among the Company and the original Holders,
dated as of the date of the Purchase Agreement, 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 of
the
Holder, who shall be named 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)(ii).
“Shareholder
Approval”
shall
have the meaning set forth in the Purchase Agreement.
“Subordinated
Indebtedness”
means
Indebtedness of the Company or any of its Subsidiaries which is wholly unsecured
and is contractually subordinated as to payment (whether as to interest or
principal, whether scheduled or following an event of default) to the payment
of
this Debenture pursuant to a subordination agreement in form and substance
reasonably satisfactory to the Holder.
“Subsidiary”
shall
have the meaning set forth in the Purchase Agreement.
“Threshold
Period”
shall
have the meaning set forth in Section 6(c).
“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 National Market or the New York Stock
Exchange.
“Transaction
Documents”
shall
have the meaning set forth in the Purchase Agreement.
-6-
“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 Financial 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 Holders
of
2/3 of the then-outstanding Debentures and reasonably acceptable to the
Company.
Section
2. Interest.
a) Payment
of Interest in Cash.
The
Company shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture in the form of an Annual Interest
Payment (as defined below) as follows:
i) The
Annual Interest Payment will be paid in cash on each of the Interest Payment
Dates below for the Interest Period set forth opposite such Interest Payment
Date (except that, if any such date is not a Business Day, then such payment
shall be due on the next succeeding Business Day):
|
Interest
Payment Date
|
Interest
Period
|
|
The
earlier of April 1, 2007 or the fifth Business Day following completion
of
the audit for the immediately preceding year
|
Issue
Date through and including December 31, 2006
|
|
The
earlier of April 1, 2008 or the fifth Business Day following completion
of
the audit for the immediately preceding year
|
January
1, 2007 through and including December 31, 2007
|
|
The
earlier of April 1, 2009 or the fifth Business Day following completion
of
the audit for the immediately preceding year
|
January
1, 2008 through and including December 31, 2008
|
|
The
earlier of April 1, 2010 or the fifth Business Day following completion
of
the audit for the immediately preceding year
|
January
1, 2009 through and including December 31, 2009
|
|
The
earlier of April 1, 2011 or the fifth Business Day following completion
of
the audit for the immediately preceding year
|
January
1, 2010 through and including December 31,
2010
|
-7-
ii) As
used
herein, “Annual
Interest Payment”
means,
with respect to an Interest Payment Date, the product of (A) the Total Investor
Return (as defined below) for the applicable Interest Period, and (B) the
Holder’s Pro Rata Portion (as defined below).
iii)
As
used
herein, “Total
Investor Return”
means,
with respect to an Interest Period, the sum of the following amounts
attributable to such Interest Period:
|
(1)
|
75%
of all proceeds received by MCF Asset Management, LLC (the “Guarantor”)
from its investments in each of MCF Navigator Fund, L.P. and the
Voyager
Fund (each, a “Fund”)
to the extent such investments were made with the proceeds of the
Debentures (the “Investments”)
from time to time, after payment of Investment Expenses (as defined
below), in accordance with the terms of the partnership agreement
of each
such Investment, until the Guarantor has received an annual gross
return
of 28% on such Investment for such Interest Period; plus, to the
extent
Guarantor’s gross return for such period exceeds 28%,
|
|
(2)
|
62.5%
of all such excess proceeds until the Guarantor has received an annual
gross return of 35% on such Investment for such Interest Period;
plus, to
the extent Guarantor’s gross return for such period exceeds
35%,
|
|
(3)
|
50%
of all such excess proceeds.
|
|
iii)
|
As
used herein, “Pro
Rata Portion”
means, with respect to each Holder, the principal amount of its Debenture
then outstanding divided by
$7,500,000.
|
|
iv)
|
As
used herein, “Investment
Expenses”
means, with respect to a Fund, all amortized organizational expenses
and
other investment, administrative, audit and operating costs and expenses
payable with respect to such Fund by the partners or members thereof
generally, provided that “Investment Expenses” shall not include any
management or performance fees of such
Fund.
|
|
v)
|
If
any portion of this Debenture is redeemed or converted prior to an
Interest Payment Date, the amount of interest payable with respect
to the
amount so redeemed or converted shall equal the product of (A) the
Total
Investor Return of each Fund since the last day of the immediately
preceding Interest Period through and including the last day of the
calendar month in which such redemption or conversion was effected,
and
(B) a fraction, the numerator of which is the amount so redeemed
or
converted and the denominator of which is $7,500,000. All such interest
shall be paid on the fifteenth day of the month following such redemption
or conversion based upon the returns of each Investment for the applicable
months as reported by the Company pursuant to Section 2(b)
below.
|
|
vi)
|
Upon
payment of all principal outstanding on or before the Maturity Date,
no
further interest on this Debenture shall
accrue.
|
b) Interest
Calculations.
Interest shall be calculated on the basis of a 365-day year 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 and other amounts
which may become due hereunder, has been made. The Company shall disclose to
the
Holder the performance of each Investment on a monthly basis; provided, however,
that if the Company determines that such monthly information constitutes
material non-public information, the Company may decline to disclose such
information in the absence of a confidentiality agreement executed by the
Holder. The Company shall further disclose the performance of each Fund in
the
Company’s quarterly reports on Form 10-Q and annual report on Form 10-K.
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
Debentures (the “Debenture
Register”).
-8-
c) Late
Fee.
All
overdue accrued and unpaid interest to be paid hereunder shall entail a late
fee
at the rate of 18% per annum (or such lower maximum amount of interest permitted
to be charged under applicable law) (“Late
Fee”)
which
will accrue daily, from the date such interest is due hereunder through and
including the date of payment.
d) 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 denominations of not less than the lesser of $2,000,000 or the
face
amount of this Debenture, 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 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 (a “Conversion
Date”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion is 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 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 may deliver an objection to any Notice of Conversion
within 3 Business Days 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. 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.
-9-
b) Conversion
Price.
The
conversion price in effect on any Conversion Date shall be equal to $1.41 (subject
to adjustment herein) (the “Conversion
Price”).
c) Conversion
Limitations.
i. Trading
Market Limitations.
Notwithstanding anything herein to the contrary, if the Company has not obtained
Shareholder Approval (as defined below), then the Company may not issue, upon
conversion of this Debenture, a number of shares of Common Stock which, when
aggregated with any shares of Common Stock issued on or after the Original
Issue
Date and prior to such Conversion Date (A) in connection with any Debentures
issued pursuant to the Purchase Agreement, (B) in connection with any Warrants
issued pursuant to the Purchase Agreement and (C) in connection with any
warrants issued to any registered broker-dealer as a fee in connection with
the
issuance of the Securities pursuant to the Purchase Agreement, would exceed
19.999% of the number of shares of Common Stock outstanding on the Trading
Day
immediately preceding the Original Issue Date (such number of shares, the
“Issuable
Maximum”).
Each
Holder shall be allocated a portion of the Issuable Maximum equal to the
quotient obtained by dividing (x) the aggregate principal amount of the
Debenture(s) issued and sold to such Holder on the Original Issue Date by (y)
the aggregate principal amount of all Debentures issued and sold by the Company
on the Original Issue Date. If any Holder shall no longer hold the Debenture(s),
then such Holder’s remaining portion of the Issuable Maximum, if any, shall be
allocated pro-rata among the remaining Holders. If, on any Conversion Date,
(1)
the applicable Conversion Price is such that the shares issuable under this
Debenture on such Conversion Date, together with the aggregate number of shares
of Common Stock that would then be issuable upon conversion in full of all
then
outstanding Debentures, would exceed the Issuable Maximum and (2) the Company
shall not have previously obtained Shareholder Approval, then the Company shall
issue to the Holder requesting a conversion a number of shares of Common Stock
equal to such Holder’s pro-rata portion (which shall be calculated pursuant to
the terms hereof) of the Issuable Maximum and, with respect to the remainder
of
the aggregate principal amount of the Debentures (including any accrued
interest) then held by such Holder for which a conversion in accordance with
the
applicable Conversion Price would result in an issuance of shares of Common
Stock in excess of such Holder’s pro-rata portion (which shall be calculated
pursuant to the terms hereof) of the Issuable Maximum (the “Excess
Principal”),
the
Company shall be prohibited from converting such Excess Principal and shall
promptly notify the Holder of the reason therefor. This Debenture shall
thereafter be unconvertible to such extent until and unless Shareholder Approval
is subsequently obtained, but this Debenture shall otherwise remain in full
force and effect.
-10-
ii. Holder’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 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)(ii), 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)(ii) 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)(ii), 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-Q or Form 10-K, 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 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 9.99% 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)(ii) may not
be
waived by the 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)(ii) 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.
-11-
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, if required by the
Purchase Agreement, shall be free of restrictive legends and trading
restrictions representing the number of shares of Common Stock being acquired
upon the conversion of this Debenture and (B) accrued and unpaid interest shall
be paid in accordance with Section 2. As long as the Company’s
transfer agent (“Transfer
Agent”)
participates
in the Depository Trust Company (“DTC”)
Fast
Automated Securities Transfer program (“FAST”),
and
except as otherwise provided in the next following sentence, the Company shall
effect delivery of Conversion Shares by crediting the account of the Holder
or
its nominee at DTC, no later than the close of business on the applicable Share
Delivery Date. In the event that the Transfer Agent is not a participant in
FAST, or if the Conversion Shares are not otherwise eligible for delivery
through FAST, or if the Holder so specifies otherwise in writing on or before
the Conversion Date, the Company shall effect delivery of Conversion Shares
by
delivering to the Holder physical certificates representing such Conversion
Shares, no later than the close of business on such Share Delivery Date..
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 fifth Trading Day
after the Conversion Date, the Holder shall be entitled to elect by written
notice to the Company at any time prior to 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.
-12-
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 right or
remedy 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. 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
(other than because of the limitations set forth in Section 4(c) above) 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 such fifth Trading Day until such
certificates are delivered or until the applicable Conversion Notice is
rescinded as provided in Section 4(d)(iii). Nothing herein shall limit a
Holder’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 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.
-13-
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
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) 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 conversion of this Debenture 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. 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 and available
for sales of Conversion Shares by the Holder, shall be registered for public
sale by the Holder in accordance with such Registration Statement.
-14-
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 may if
otherwise permitted, make a cash payment in respect of any final fraction of
a
share based on the VWAP at such time. If the Company elects not, or is unable,
to make such a cash payment, the Holder shall be entitled to receive, in lieu
of
the final fraction of a share, 1 whole share of Common Stock.
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 this Debenture); (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 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.
-15-
b) Subsequent
Equity Sales.
If the
Company or any Subsidiary thereof, as applicable, at any time while this
Debenture is outstanding, sells or grants any option to purchase or sells or
grants any right to reprice its securities, 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.
The
Company shall notify the Holder in writing, no later than the fifth Business
Day
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 is entitled to receive 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.
c) Subsequent
Rights Offerings.
If the
Company, at any time while the Debenture is outstanding, shall issue rights,
options or warrants to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share that is lower than the VWAP on the record date referenced below,
then
the Conversion Price shall be multiplied by a fraction of which the denominator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
delivery to the Company in full of all consideration payable upon exercise
of
such rights, options or warrants) would purchase at such VWAP. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
-16-
d) Pro
Rata Distributions.
If the
Company, at any time while this Debenture is outstanding, distributes to all
holders of Common Stock (and not to the Holders) evidences of its indebtedness
or assets (including cash and cash dividends) or rights or warrants to subscribe
for or purchase any security (other than the Common Stock, which shall be
subject to Section 5(b)), then in each such case the Conversion Price shall
be
adjusted by multiplying such Conversion Price in effect immediately prior to
the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the numerator shall be
such
VWAP on such record date less the then fair market value at such record date
of
the portion of such assets or evidence of indebtedness so distributed applicable
to 1 outstanding share of the Common Stock as determined by the Board of
Directors of the Company in good faith. In either case the adjustments shall
be
described in a statement delivered to the Holder describing the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to 1 share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after
the
record date mentioned above.
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 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.
-17-
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. If the Company issues a variable rate
security, despite the prohibition thereon in the Purchase Agreement, the Company
shall be deemed to have issued Common Stock or Common Stock Equivalents at
the
lowest possible conversion or exercise price at which such securities may be
converted or exercised in the case of a Variable Rate Transaction (as defined
in
the Purchase Agreement).
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 delivered
to the Holder at its last address as it shall appear upon the Debenture
Register, at least 20 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to 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
20-day period commencing on the date of such notice through the effective date
of the event triggering such notice.
-18-
Section
6. Redemption
and Forced Conversion.
a) Optional
Redemption at Election of Company.
Subject
to the provisions of this Section 6, on the third anniversary of the Original
Issue Date and on each yearly anniversary thereafter until the Maturity 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
Debentures (but not less than $2,000,000 principal amount) for cash in an amount
equal to the sum of (i) 110% of the principal amount being redeemed
plus
(ii) all
liquidated damages and other amounts due in respect of the Debenture (the
“Optional
Redemption Amount”).
Accrued interest on the amount being redeemed shall be paid in accordance with
Section 2. The Optional Redemption
Amount shall be paid on the 20th
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 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,
each of the Equity Conditions shall have been met. If any of the Equity
Conditions shall cease to be satisfied at any time during the 20 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 due and paid in full.
b) Redemption
Procedure.
The
payment of cash or issuance of Common Stock, as applicable, pursuant to an
Optional Redemption shall be made on the Optional Redemption Date. If any
portion of the payment pursuant to an Optional Redemption shall not be paid
by
the Company by the applicable due date, interest shall accrue thereon until
such
amount is paid in full at an interest rate equal to the lesser of 18% per annum
or the maximum rate permitted by applicable law. Notwithstanding anything herein
contained to the contrary, if any portion of the Optional Redemption Amount
remains unpaid after such date, the Holder may elect, by written notice to
the
Company given at any time thereafter, to invalidate ab initio
such
redemption, and, with respect to the Company’s failure to honor the Optional
Redemption, the Company shall have no further right to exercise such Optional
Redemption. The
Holder may elect to convert the outstanding principal amount of the Debenture
pursuant to Section 4 prior to actual payment in cash for any redemption under
this Section 6 by the delivery of a Notice of Conversion to the
Company.
-19-
c) Forced
Conversion.
Notwithstanding anything herein to the contrary, if after both the date
Shareholder Approval is received and effective and the Effective Date, the
VWAPs
for each of any 20 consecutive Trading Days, which period shall have commenced
only after both the date of such Shareholder Approval and the Effective Date,
such period the “Threshold
Period”))
exceeds the then effective Conversion Price (subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the Original Issue Date)
by at
least 250% (e.g., if the Conversion Price is $1.30, then the VWAPs must equal
or
exceed $4.55), the Company may, within 1 Trading Day after the end of such
Threshold Period, deliver a written notice to the Holder (a “Forced
Conversion Notice”,
the
date such notice is delivered to the Holder, the “Forced
Conversion Notice Date”
and
such conversion, a “Forced
Conversion”)
to
cause the Holder to convert all or part of the then outstanding principal amount
of Debentures pursuant to Section 4, it being agreed that the “Conversion Date”
for purposes of Section 4 shall be deemed to occur on the third Trading Day
following the Forced Conversion Notice Date (such third Trading Day, the
“Forced
Conversion Date”).
The
Company may not deliver a Forced Conversion Notice, and any Forced Conversion
Notice delivered by the Company shall not be effective, unless all of the Equity
Conditions are met on each Trading Day occurring during the applicable Threshold
Period through and including the later of the Forced Conversion Date and the
Trading Day after the date such Conversion Shares pursuant to such conversion
are delivered to the Holder. Any Forced Conversion for less than all of the
outstanding Debentures shall be applied ratably to all Holders based on their
initial purchases of Debentures pursuant to the Purchase Agreement, provided
that any voluntary conversions by a Holder shall be applied against such
Holder’s pro-rata allocation, thereby decreasing the aggregate amount forcibly
converted hereunder if only a portion of this Debenture is forcibly converted.
For purposes of clarification, a Forced Conversion shall be subject to all
of
the provisions of Section 4, including, without limitation, the provision
requiring payment of liquidated damages and limitations on conversions. If
the
Company is precluded from completing a Forced Conversion as to any Holder or
Holders by reason of the limitations contained in Section 4(c)(ii), then the
Company shall be permitted to complete such Forced Conversion up to such
limitation on the applicable Forced Conversion Date and any uncompleted portion
of such Forced Conversion on the 90th
calendar
day following the Forced Conversion Date notwithstanding the limitation
contained in Section 4(c)(ii) and notwithstanding the failure of any of the
Equity Conditions subsequent to the Forced Conversion Date, provided that no
interest or penalties shall accrue on any amount being converted pursuant to
a
Forced Conversion Notice after the applicable Forced Conversion Notice
Date.
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Section
7. Negative
Covenants.
As long
as at least $2,000,000 principal amount of Debentures remains outstanding,
the
Company shall not, and shall not permit any of its Subsidiaries to, directly
or
indirectly:
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, 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;
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 and (b) repurchases of Common Stock or Common Stock
Equivalents, provided that such repurchases shall not exceed an aggregate of
$2,000,000 during term of this Debenture);
e) enter
into any agreement with respect to any of the foregoing;
or
f) pay
cash dividends or distributions on any equity securities of the
Company.
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 5 Trading Days of notice of such
failure;
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ii. the
Company shall fail to observe or perform any other material 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) or any of the other Transaction
Documents to the Holder and the Company or any Guarantor are a party, which
failure is not cured, if possible to cure, within 15
Trading
Days after notice of such failure sent by the Holder or by any other
Holder;
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 any other
material agreement, lease, document or instrument to which the Company or any
Subsidiary is obligated (and not covered by clause (vi) below) which would
reasonably be expected to result in a Material Adverse Effect;
iv. any
material representation
or warranty made by the Company in this Debenture, any other Transaction
Documents, any material written statement pursuant hereto or thereto or any
other material 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. a
Bankruptcy Event shall occur with respect to the Company or any Significant
Subsidiary;
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 arrangement that (a) involves an
obligation greater than $500,000, 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 15 Trading Days;
viii. the
Company shall be a party to any Change of Control Transaction or shall agree
to
sell or dispose of all or in excess of 50% of its assets in one transaction
or a
series of related transactions (whether or not such sale would constitute a
Change of Control Transaction);
-22-
ix. a
Registration Statement shall not have been declared effective by the Commission
on or prior to the one-year anniversary of 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 60 consecutive Trading Days
or
75 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, in the
reasonable judgment of such counsel, be publicly disclosed at the time, the
Company shall be permitted an additional 20 consecutive Trading Days during
any
12 month period pursuant to this Section 8(a)(x);
xi. the
Company shall fail for any reason (other than the limitation in Section 4(c))
to
deliver certificates to a Holder prior to the tenth Trading Day after a
Conversion Date or any Forced 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;
or
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 $500,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.
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 acceleration of this Debenture, the interest rate
on
this Debenture shall accrue at an interest rate equal to the lesser of 18%
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.
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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 in the Purchase Agreement, 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 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.
-24-
d) Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Debenture shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflict of laws thereof. Each party agrees that all legal
proceedings concerning the interpretation, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”).
Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action
or
proceeding, any claim that it is not personally subject to the jurisdiction
of
such New York Courts, or such New York Courts are improper or inconvenient
venue
for such proceeding. Each party hereby irrevocably waives personal service
of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in
effect for notices to it under this Debenture and agrees that such service
shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
and
all right to trial by jury in any legal proceeding arising out of or relating
to
this Debenture or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Debenture,
then the prevailing party in such action or proceeding shall be reimbursed
by
the other party for its attorneys fees and other costs and expenses incurred
in
the investigation, preparation and prosecution of such action or
proceeding.
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 herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
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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.
*********************
-26-
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.
|
MCF
CORPORATION
|
|
By:__________________________________________
Name:
Title:
|
-27-
ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the Variable Rate Secured
Convertible Debenture of MCF Corporation, a Delaware corporation (the
“Company”),
due
on December 31, 2010, into shares of common stock, par value $.0001 per share
(the “Common
Stock”),
of
the Company according to the conditions hereof, as of the date written below.
If
shares are to be issued in the name of a person other than the undersigned,
the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested
by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
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
determined in accordance with Section 13(d) of the Exchange Act, specified
under
Section 4 of this Debenture.
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:
Number
of
shares of Common Stock to be issued:
Signature:
Name:
Address:
|
|
By
checking this box, the undersigned represents to the Company that
the
Conversion Shares represented hereby have been sold pursuant to (i)
an
effective registration statement that is currently available for
resales
of such shares or (ii) Rule 144(k).
|
-28-
Schedule
1
CONVERSION
SCHEDULE
The
Variable Rate Secured Convertible Debentures due on December 31, 2010, in the
aggregate principal amount of $____________ issued by MCF Corporation. 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)
|
|
|
||
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