ORIGINAL ISSUE DISCOUNT 6% SENIOR SECURED CONVERTIBLE DEBENTURE DUE APRIL 30, 2010
Exhibit
4.2
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 27, 2008
Original
Conversion Price (subject to adjustment herein): $1.60
$________
ORIGINAL
ISSUE DISCOUNT 6% SENIOR SECURED CONVERTIBLE DEBENTURE
DUE
APRIL 30, 2010
This
ORIGINAL ISSUE DISCOUNT 6% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a
series of duly authorized and validly issued Original Issue Discount 6% Senior
Secured Convertible Debentures of Telanetix, Inc., a Delaware corporation (the
"Company"), having its principal place of business at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, designated as its Original Issue
Discount 6% Senior Secured Convertible Debenture due April 30, 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 ________ or its registered assigns (the
"Holder"), or
shall have paid pursuant to the terms hereunder, the principal sum of
$_______________ on April 30, 2010 (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
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 any Saturday, any 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 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.
"Common Stock" means
the common stock, par value $0.0001 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.
"Current Ratio" means
the current assets of the Company divided by the current liabilities of the
Company, each as determined according to GAAP.
"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).
"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) (a)
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) and after the payment by the Company of the Interest Share
Amount or the Monthly Redemption Share Amount, as applicable, there are a
sufficient number of shares of Common Stock registered on the effective
registration statement to permit the conversion of the then outstanding
Principal Amount of this Debenture and the exercise of all then outstanding
Warrants issued to the holder of this Debenture or (b) all of the Conversion
Shares issuable pursuant to the Transaction Documents may be resold pursuant to
Rule 144 without volume or manner-of-sale restrictions as determined by the
counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Transfer Agent and the Holder, (iv) the Common
Stock is trading on a Trading Market and all of the shares 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 an Optional Redemption or Monthly
Redemption, the shares issuable upon conversion in full of the
Optional Redemption Amount or 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) for a period of 20
consecutive Trading Days prior to the applicable date in question, the daily
dollar trading volume for the Common Stock on the principal Trading Market
exceeds $500,000 per Trading Day (subject to adjustment for forward and reverse
stock splits and the like) (based on the total shares traded and the VWAP on the
applicable day), provided that the requirement set forth in this clause (xi)
shall not apply in connection with Section 6(a) herein.
"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(d).
"Forced Conversion
Date" shall have the meaning set forth in Section 6(d).
"Forced Conversion
Notice" shall have the meaning set forth in Section 6(d).
"Forced Conversion Notice
Date" shall have the meaning set forth in Section 6(d).
"Fundamental
Transaction" shall have the meaning set forth in Section
5(e).
"Interest Conversion
Rate" means the lesser of (a) the Conversion Price or (b) 85% of the
lesser of (i) the average of the VWAPs for the 10 consecutive Trading Days
ending on the Trading Day that is immediately prior to the applicable Interest
Payment Date or (ii) the average of the VWAPs for the 10 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).
"Interest Payment
Date" shall have the meaning set forth in Section 2(a).
"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).
"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.
"Monthly Conversion
Period" shall have the meaning set forth in Section 6(b)
hereof.
"Monthly Conversion
Price" shall have the meaning set forth in Section 6(b)
hereof.
"Monthly Redemption"
means the redemption of this Debenture pursuant to Section 6(b)
hereof.
"Monthly Redemption
Amount" means, as to a Monthly Redemption, $___1 plus accrued but unpaid interest, liquidated
damages and any other amounts then owing to the Holder in respect of this
Debenture.
"Monthly Redemption
Date" means the 1st of each month, commencing immediately upon October 1,
2008, and terminating upon the full redemption of this Debenture.
"Monthly Redemption
Notice" shall have the meaning set forth in Section 6(b)
hereof.
"Monthly Redemption Share
Amount" shall have the meaning set forth in Section 6(b)
hereof.
"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" means the sum of (i) 120% of the then outstanding Principal
Amount of the Debenture, (ii) accrued but unpaid interest and (iii) all
liquidated damages and other amounts due in respect of the
Debenture.
"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).
"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 (a) the Indebtedness existing on the Original Issue
Date and set forth on Schedule 3.1(aa)
attached to the Purchase Agreement and Indebtedness under the existing working
capital line of credit with Bridge Bank, National Association or any successor
working capital credit facility in an amount up to $1.5 million, (b) lease
obligations and purchase money indebtedness of up to $150,000, 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 to
a national- or state-chartered bank under a credit facility, provided that such
credit facility (i) may only be collateralized by accounts receivable and
inventory and (ii) must be principally applied by the Company to acquiring or
paying for inventory in connection with a purchase order and (d) 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.
"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) thereunder; 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(b)
hereof.
"Purchase Agreement"
means the Securities Purchase Agreement dated as of the date hereof among the
Company and the original Holders, as amended, modified or supplemented from time
to time in accordance with its terms.
"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.
"Threshold Period"
shall have the meaning set forth in Section 6(d).
"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 the rate
of 6% per annum, payable quarterly on January 1, April 1, July 1 and October 1,
commencing on July 1, 2008, on each Monthly Redemption Date (as to that
Principal Amount then being redeemed), on each Conversion Date (as to that
Principal Amount then being converted), on each Optional Redemption Date (as to
that Principal ▇▇▇▇▇▇ then being redeemed) 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 dollar amount to be paid in
shares of Common Stock, 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 20 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, not less than 2 Trading Days prior to such Interest
Payment Date, 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 if a
registration statement is then effective. 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 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 18%
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, in lieu of delivering either shares of Common
Stock pursuant to this Section 2 or paying the regularly scheduled interest
payment in cash, shall deliver, within three Trading Days of each applicable
Interest Payment Date, an amount in cash equal to the product of (x) the number
of shares of Common Stock otherwise deliverable to the Holder in connection with
the payment of interest due on such Interest Payment Date multiplied by (y) the
highest VWAP during the period commencing on the Interest Payment Date and
ending on the Trading Day prior to the date such payment is made. 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 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 may 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 Holder shall be controlling and determinative in the absence of manifest
error. The Holder, and any
assignee by acceptance of this Debenture, acknowledge and agree that, by reason
of the provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted Principal Amount of this Debenture may be
less than the amount stated on the face hereof.
b) Conversion
Price. The conversion price in effect on any Conversion Date
shall be equal to $1.60, 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, the Holder (together with the Holder's
Affiliates, and any other person or entity acting as a group together with the
Holder or any of the 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 the 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 the 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 the 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 the Holder together with any Affiliates) and of which
principal amount of this Debenture is convertible shall be in the sole
discretion of the Holder, and the submission of a Notice of Conversion shall be
deemed to be the Holder's determination of whether this Debenture may be
converted (in relation to other securities owned by the 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 the Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Debenture, by the Holder
or its Affiliates since the date as of which such number of outstanding shares
of Common Stock was reported. The "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 the Holder, at the election of the 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) 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 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) 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 20 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 20 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 bank check 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 third Trading Day after the Conversion 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. 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 third Trading Day after the Conversion Date,
the Company shall pay to the 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 third
Trading Day 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 the 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.
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), or the Holder's brokerage firm otherwise purchases,
shares of Common Stock to deliver in satisfaction of a sale by the 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 the 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 ▇▇▇▇▇▇'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 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 a 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 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, 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 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. The Company shall notify the Holder in writing, no
later than 1 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.
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.
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 deliver 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.
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 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.
Section 6. Redemption and Forced
Conversion.
a) 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 10th
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 (unless waived in writing by the
Holder) 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 in full. If any of the
Equity Conditions shall cease to be satisfied at any time during the 10 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) Monthly
Redemption. On each Monthly Redemption Date, the Company shall
redeem the Monthly Redemption Amount (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 10 Trading Days' prior written irrevocable notice
(the "Monthly
Redemption Notice"), in lieu of a cash redemption payment, the Company
may elect to pay all or part of a Monthly Redemption Amount in Conversion Shares
(such dollar amount to be paid on a Monthly Redemption Date in Conversion
Shares, the "Monthly
Redemption Share Amount") based on a conversion price equal to the lesser
of (i) the then Conversion Price and (ii) 85% 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 (subject to adjustment for any
stock dividend, stock split, stock combination or other similar event affecting
the Common Stock during such 10 Trading Day Period) (the price calculated during
the 10 Trading Day period immediately prior to the Monthly Redemption Date, the
"Monthly Conversion
Price" and such 10 Trading Day period, the "Monthly Conversion
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, not less than 2 Trading Days prior to
such Monthly Redemption Date), 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 Monthly Redemption Share Amount equal to the quotient of
(x) the applicable Monthly Redemption Share Amount divided by (y) the then
Conversion Price (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, plus accrued but
unpaid interest, liquidated damages and any other amounts then owing to the
Holder, are 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 Conversion 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 Conversion 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 Notice of Conversions 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.
c) Redemption
Procedure. The payment of cash or issuance of Common Stock, as
applicable, pursuant to an Optional Redemption or Monthly Redemption shall be
payable on the Optional Redemption Date or Monthly Redemption
Date. If any portion of the payment pursuant to an Optional
Redemption or Monthly 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 18% 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 remains unpaid after such date, the Holder may elect,
by written notice to the Company given at any time thereafter, to return such
portion of the Optional Redemption Amount or Monthly Redemption Amount as has
been paid and invalidate such Optional Redemption or Monthly Redemption,
ab initio, 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. Notwithstanding anything to the contrary in this Section
6, the Company's determination to redeem in cash or its elections under Section
6(b) shall be applied ratably among the Holders of Debentures. 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.
d) Forced Conversion.
Notwithstanding anything herein to the contrary, if after the Effective Date,
the VWAP for any 20 Trading Days in any 30 consecutive Trading Days, which 30
Trading Day period shall have commenced only after the Effective Date (such 30
Trading Day period, the "Threshold Period"),
exceeds 200% of the then-applicable 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), the Company may, within 3 Trading Days after the end of any such
Threshold Period, deliver a written notice to the Holder (a "Forced Conversion
Notice" and the date such notice is delivered to the Holder, the "Forced Conversion Notice
Date") to cause the Holder to convert all or part of the then outstanding
Principal Amount of this Debenture plus, if so specified in the Forced
Conversion Notice, accrued but unpaid interest, liquidated damages and other
amounts owing to the Holder under this Debenture, 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 (unless waived in writing
by the Holder) 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 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 the 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.
Section 7. Negative Covenants.
As long as any portion of this Debenture remains outstanding, unless the holders
of at least 75% in Principal Amount of the then outstanding Debentures shall
have otherwise given prior written consent, the Company shall not, and shall not
permit any of its subsidiaries (whether or not a Subsidiary on the Original
Issue Date) 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; provided, however, that the prohibition on indebtedness set forth in
this Section 7(a) shall not apply if, subsequent to such indebtedness, the
Current Ratio shall equal or exceed 1.0;
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 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, other than
the Company's Series A Convertible Preferred Stock;
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.
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 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) 10 Trading Days after
notice of such failure sent by the Holder or by any other Holder and (B) 20
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 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 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);
ix. if, after
September 27, 2008, the Company is not in compliance with Rule 144(c)(1) for
more than, in the aggregate, 60 days in any 12 month period or any other
conditions exist for such a period of time that the Holder is unable to sell the
Conversion Shares pursuant to Rule 144 without volume or manner of sale
restrictions as determined by counsel to the Company pursuant to a written
opinion letter to such effect, addressed and acceptable to the Transfer Agent
and the Purchasers; provided, however, that it
shall not be an Event of Default during any period in which the Holder is an
Affiliate of the Company (or for the 90 day period immediately following any
such period that such Holder is an Affiliate of the Company) solely as a result
of the Holder purchasing shares of Common Stock in the open market or waiving
the beneficial ownership limitations included in any of the Common Stock
Equivalents held by the Holder;
x. the
Company shall fail for any reason to deliver certificates to a Holder prior to
the fifth 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
xi. 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 $150,000, 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 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 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.
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 the Holder 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.
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 impede 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.
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 each Subsidiary pursuant
to the Security Agreement dated as of the date hereof between the Company, the
Subsidiaries of the Company and the Secured Parties (as defined
therein).
*********************
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.
|
TELANETIX,
INC.
|
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By: /s/ ▇▇▇▇▇▇ ▇.
▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
|
Schedule
of Holders of the Form of Debenture
(Provided
per Instruction 2 to Item 6 of Regulation S-K)
|
Investor
|
Principal Original Amount
|
|||
|
Enable
Growth Partners LP
|
$ | 3,257,143 | ||
|
▇▇▇▇▇▇
Diversified Strategy Master Fund LLC, ena
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$ | 171,429 | ||
ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert Principal Amount under the Original Issue
Discount 6% Senior Secured Convertible Debenture due April 30, 2008 of
Telanetix, Inc., a Delaware corporation (the "Company"), into shares of common
stock, par value $0.0001 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
for Deliver of Common Stock Certificates:
Or
DWAC
Instructions
Broker
No:
Account
No.:
Schedule
1
CONVERSION
SCHEDULE
The
Original Issue Discount 6% Senior Secured Convertible Debentures due on April
30, 2008 in the aggregate Principal Amount of $____________ are issued by
Telanetix, Inc., a Delaware corporation. This Conversion Schedule
reflects conversions made under Section 4 of the above referenced
Debenture.
Dated:
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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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Company
Attest
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