FORM OF AMENDED AND RESTATED VARIABLE RATE CONVERTIBLE DEBENTURE DUE MARCH 2009
EXHIBIT
4.6(A)
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
Original
Issue Date: March
13, 2006
Original
Conversion Price (subject to adjustment herein): $10.00
$________
FORM
OF AMENDED AND RESTATED
VARIABLE
RATE CONVERTIBLE DEBENTURE
DUE
MARCH 2009
THIS
VARIABLE RATE CONVERTIBLE DEBENTURE is one of a series of duly authorized and
validly issued Convertible Debentures of PacificNet, Inc., a Delaware
corporation, having its principal place of business at ▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇ Kong (the “Company”),
designated as its Variable Rate Convertible Debenture, due March 2009 (this
debenture, the “Debenture”
and
collectively with the other such series of debentures, the “Debentures”).
FOR
VALUE
RECEIVED, the Company promises to pay to _____________________ or
its
registered assigns (the “Holder”),
or
shall have paid pursuant to the terms hereunder, the principal sum of
$_______________
by March
13, 2009, 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:
1
“Alternate
Consideration”
shall
have the meaning set forth in Section 5(d).
“Bankruptcy
Event”
means
any of the following events: (a) the Company or any Significant Subsidiary
(as
such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not dismissed
within 60 days after commencement; (c) the Company or any Significant Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company or
any
Significant Subsidiary thereof suffers any appointment of any custodian or
the
like for it or any substantial part of its property that is not discharged
or
stayed within 60 calendar days after such appointment; (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the benefit of
creditors; (f) the Company or any Significant Subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any Significant Subsidiary
thereof, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate
or
other action for the purpose of effecting any of the foregoing.
“Base
Conversion Price”
shall
have the meaning set forth in Section 5(b).
“Business
Day”
means
any day except Saturday, Sunday, any day which shall be a federal legal holiday
in the United States or any day on which banking institutions in the State
of
New York are authorized or required by law or other governmental action to
close.
“Buy-In”
shall
have the meaning set forth in Section 4(d)(v).
“Change
of Control Transaction”
means
the occurrence after the date hereof of any of the following: (i) an acquisition
after the date hereof by an individual or legal entity or “group” (as described
in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of 33% of the voting securities of the
Company (other than by means of conversion or exercise of the Debentures and
the
Securities issued together with the Debentures), or (ii) the Company merges
into
or consolidates with any other Person, or any Person merges into or consolidates
with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 66% of the
aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers all or substantially all
of
its assets to another Person and the stockholders of the Company immediately
prior to such transaction own less than 66% of the aggregate voting power of
the
acquiring entity immediately after the transaction, or (iv) a replacement at
one
time or within a two 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
“Closing
Price”
means
on any particular date (a) the last reported closing bid price per share of
Common Stock on such date on the Trading Market (as reported by Bloomberg L.P.
at 4:15 PM (New York time)), or (b) if there is no such price on such date,
then
the closing bid price on the Trading Market on the date nearest preceding such
date (as reported by Bloomberg L.P. at 4:15 PM (New York time)), or (c) if
the Common Stock is not then listed or quoted on the Trading Market and if
prices for the Common Stock are then listed or quoted on the OTC Bulletin Board
or reported in the “pink sheets” published by Pink Sheets LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported, or (d) if
the shares of Common Stock are not then publicly traded the fair market value
of
a share of Common Stock as determined by an appraiser selected in good faith
by
the Purchasers of a majority in interest of the Debentures then
outstanding.
“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(c).
“Dilutive
Issuance”
shall
have the meaning set forth in Section 5(b).
“Dilutive
Issuance Notice”
shall
have the meaning set forth in Section 5(b).
“Effectiveness
Period”
shall
have the meaning set forth in the Registration Rights Agreement.
“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 the
foreseeable future), (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
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) after
the
issuance of the shares in question (or, in the case of a Monthly Redemption,
the
shares issuable upon conversion in full of the Monthly Redemption Amount)),
the
issuance of all Conversion Shares under the Debentures and all Warrant Shares
under the Warrants upon conversion or exercise in full would not violate the
limitations set forth in Section 4(c)(i) and Section 4(c)(ii) 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 possession of any information that is, or might
constitute, material nonpublic 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(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(d).
“Interest
Conversion Rate”
means
the
lesser of (a) the Conversion Price or (b) the
80%
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).
4
“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(a) hereof.
“Monthly
Conversion Price”
shall
have the meaning set forth in Section 6(a) hereof.
“Monthly
Redemption”
means
the redemption of this Debenture pursuant to Section 6(a) hereof.
“Monthly
Redemption Amount”
means,
as to a Monthly Redemption, $363,638.
“Monthly
Redemption Date”
means
January 1, 2007 and the 1st of each month thereafter and terminating upon the
full redemption of this Debenture.
“Monthly
Redemption Notice”
shall
have the meaning set forth in Section 6(a) hereof.
“Monthly
Redemption Period”
shall
have the meaning set forth in Section 6(a) hereof.
“Monthly
Redemption Share Amount”
shall
have the meaning set forth in Section 6(a) 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).
5
“Optional
Redemption”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Amount”
means
the sum of (i) 120% of the principal amount of the Debenture then outstanding,
(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(b).
“Optional
Redemption Notice”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Notice Date”
shall
have the meaning set forth in Section 6(b).
“Original
Issue Date”
means
the date of the first issuance of 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(ff)
attached
to the Purchase Agreement, (b) lease obligations and purchase money indebtedness
of up to $20,000,000, in the aggregate, incurred in connection with the
acquisition of capital assets and lease obligations with respect to newly
acquired or leased assets and (c) up to $50,000,000 of additional Indebtedness
incurred by the Company in connection with raising capital for the acquisition
of another entity (by merger, consolidation, the acquisition of all or
substantially of the assets of such entity or similar transaction), provided
that in the case of (b) and (c) above, such Indebtedness does not mature or
require payments of principal prior to the Maturity Date and is made expressly
subordinate in right of payment to the Indebtedness evidenced by this Debenture,
as reflected in a written agreement reasonably acceptable to, and approved
by,
the Holder in writing.
“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 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.
6
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Pre-Redemption
Conversion Shares”
shall
have the meaning set forth in Section 6(a) hereof.
“Purchase
Agreement”
means
the Securities Purchase Agreement among the Company and the original Holders,
dated as of February 28, 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 and
Interest 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).
“Shareholder
Approval”
shall
have the meaning set forth in Section 4(c)(i).
“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 National Market or the New York Stock
Exchange.
“Transaction
Documents”
shall
have the meaning set forth in the Purchase Agreement.
7
“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 Holder
and
reasonably acceptable to the Company.
Section
2. Interest.
a) Payment
of Interest in Cash or Kind.
At the
Closing, the Company prepaid the Holder the first year’s interest by means of an
original issue discount. 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 beginning on the first anniversary of the Original
Issue Date until the day immediately prior to the second anniversary of the
Original Issue Date, increasing to 7% per annum from the second anniversary
of
the Original Issue Date, payable on a monthly basis on the first day of each
month, beginning on the first day of the 13th
month
after the Original Issue Date, on each Conversion Date (as to that principal
amount then being converted) and on the Maturity Date (except that, if any
such
date is not a Business Day, then such payment shall be due on the next
succeeding Business Day) (each such date, an “Interest
Payment Date”),
in
cash or duly authorized, validly issued, fully paid and non-assessable shares
of
Common Stock at the Interest Conversion Rate (the amount to be paid in shares,
the “Interest
Share Amount”),
or a
combination thereof; provided,
however,
that
(i) payment in shares of Common Stock may only occur if 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 all of the Equity Conditions have been met (unless waived by the Holder
in writing), (ii) the Company shall have given the Holder notice in accordance
with the notice requirements set forth below and (iii) as to such Interest
Payment Date, prior to such Interest Notice Period (but not more than 5 Trading
Days prior to the commencement of such Interest Notice Period), the Company
shall have delivered to the Holder’s account with The Depository Trust Company a
number of shares of Common Stock to be applied against such Interest Share
Amount equal to the quotient of (x) the applicable Interest Share Amount divided
by (y) the then Conversion Price (the “Interest
Conversion Shares”).
8
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 or shares of Common Stock 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 provide such written notice
shall be deemed an election by the Company to pay the interest on such Interest
Payment Date in cash. At any time the Company delivers a notice to the Holder
of
its election to pay the interest in shares of Common Stock, the Company shall
timely file a prospectus supplement pursuant to Rule 424 disclosing such
election. The aggregate number of shares of Common Stock otherwise issuable
to
the Holder on an Interest Payment Date shall be reduced by the number of
Interest Conversion Shares previously issued to the Holder in connection with
such Interest Payment Date.
c) Interest
Calculations.
Interest shall be calculated on the basis of a 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, 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). 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 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 able to
pay
accrued interest in Common Stock because it fails to satisfy the conditions
for
payment in Common Stock set forth above, 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.
9
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 (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 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) and shall
make appropriate notations on the Conversion Schedule attached hereto as
Schedule
1.
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.
10
b) Conversion
Price.
The
conversion price in effect on any Conversion Date shall be equal to $10.00
(subject
to adjustment herein) (the “Conversion
Price”).
c) Conversion
Limitations.
i. Nasdaq
National 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 entitled to 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. The Holder acknowledges and agrees that shares of Common
Stock
issuable upon conversion hereof or exercise of the Warrants are not eligible
to
vote in connection with the Shareholder Approval.
11
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-QSB (or Form 10-Q) or Form 10-KSB (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 or oral
request of a Holder, the Company shall within two Trading Days confirm orally
and in writing to such Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Debenture, by such Holder or its
Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99%
of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon conversion of
this Debenture held by the Holder. The Beneficial Ownership Limitation
provisions of this Section 4(c)(ii) may be waived by such Holder, at the
election of such Holder, upon not less than 61 days’ prior notice to the
Company, to change the Beneficial Ownership Limitation to 9.99% of the number
of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon conversion of this Debenture held by
the
Holder and the provisions of this Section 4(c)(ii) shall continue to apply.
Upon
such a change by a Holder of the Beneficial Ownership Limitation from such
4.99%
limitation to such 9.99% limitation, the Beneficial Ownership Limitation may
not
be further waived by such Holder. The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity with
the terms of this Section 4(c)(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.
12
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 Notice 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.
13
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 after such third Trading Day, but on or before
its receipt of such certificate or certificates, to rescind such Conversion,
in
which event the Company shall promptly return to the Holder any original
Debenture delivered to the Company and the Holder shall promptly return the
Common Stock certificates representing the principal amount of this Debenture
tendered for conversion to the Company.
iv. Obligation
Absolute; Partial Liquidated Damages.
The
Company’s obligations to issue and deliver the Conversion Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation
to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares; provided,
however,
that
such delivery shall not operate as a waiver by the Company of any such action
the Company may have against the Holder. In the event the Holder of this
Debenture shall elect to convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on any claim that the Holder
or anyone associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless an injunction from
a
court, on notice to Holder, restraining and or enjoining conversion of all
or
part of this Debenture shall have been sought and obtained, and the Company
posts a surety bond for the benefit of the Holder in the amount of 150% of
the
outstanding principal amount of this Debenture, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which
shall
be payable to such Holder to the extent it obtains judgment. In the absence
of
such injunction, the Company shall issue Conversion Shares or, if applicable,
cash, upon a properly noticed conversion. If the Company fails for any reason
to
deliver to the Holder such certificate or certificates pursuant to Section
4(d)(ii) by the third 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 third Trading Day until such
certificates are delivered; provided, however that if the Holder rescinds or
withdraws such conversion notice such liquidated damages shall cease to continue
to accrue after such date. 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.
14
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 and payment of interest on this
Debenture, each as herein provided, free from preemptive rights or any other
actual contingent purchase rights of Persons other than the Holder (and the
other holders of the Debentures), not less than such aggregate number of shares
of the Common Stock as shall (subject to the terms and conditions set forth
in
the Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the outstanding principal
amount of this Debenture and payment of interest hereunder. The Company
covenants that all shares of Common Stock that shall be so issuable shall,
upon
issue, be duly authorized, validly issued, fully paid and nonassessable and,
if
the Registration Statement is then effective under the Securities Act, shall
be
registered for public sale in accordance with such Registration
Statement.
15
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, 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.
16
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 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.
17
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.
18
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 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.
19
Section
6. Redemption
and Forced Conversion.
a) Monthly
Redemption.
On each
Monthly Redemption Date, the Company shall redeem the Monthly Redemption Amount
plus accrued but unpaid interest, liquidated damages and any other amounts
then
owing to such Holder in respect of this Debenture (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 20 Trading Days’ prior written irrevocable
notice (the “Monthly
Redemption Notice”
and
the
20 Trading Day period immediately following the Monthly Redemption Notice,
the
“Monthly
Redemption Period”),
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) 88% 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, prior to such Monthly Redemption
Period (but not more than 5 Trading Days prior to the commencement of the
Monthly Redemption Period), the Company shall have delivered to the Holder’s
account with The Depository Trust Company 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
Redemption Period until the date the Monthly Redemption Amount is paid in full
shall be first applied to the principal amount subject to the Monthly Redemption
Amount payable in cash and then to the Monthly Redemption Share Amount. Any
principal amount of this Debenture converted during the applicable Monthly
Redemption Period in excess of the Monthly Redemption Amount shall be applied
against the last principal amount of this Debenture scheduled to be redeemed
hereunder, in reverse time order from the Maturity Date; provided,
however,
if any
such conversion is applied against such Monthly Redemption Amount, the
Pre-Redemption Conversion Shares, if any were issued in connection with such
Monthly Redemption or were not already applied to such conversions, shall be
first applied against such conversion. The Company covenants and agrees that
it
will honor all 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.
20
b) Optional
Redemption at Election of Company.
Subject
to the provisions of this Section 6, at any time after the 12-month anniversary
of 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 Debentures for cash in an amount
equal to the Optional Redemption Amount 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.
c) Redemption
Procedure.
The
payment of cash or issuance of Common Stock, as applicable, pursuant to an
Optional Redemption or Monthly Redemption shall be made on the Optional
Redemption Date or Monthly Redemption Date, as applicable. 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
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 or Monthly Redemption Amount, as applicable remains unpaid
after such date, the Holder may elect, by written notice to the Company given
at
any time thereafter, 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. 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.
21
d) Forced
Conversion.
Notwithstanding anything herein to the contrary, if after the six month
anniversary of the Effective Date, the Closing Price for each Trading Day during
any consecutive 20 calendar days, which period shall have commenced only after
the six month anniversary of the Effective Date, such period the “Threshold
Period”))
exceeds $15.00 (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) and the average daily volume
for
such Threshold Period exceeds 100,000 shares of Common Stock per Trading Day
(subject to adjustment for forward and reverse stock splits, recapitalizations,
stock dividends and the like after the Original Issue Date), the Company may,
within 1 Trading Day 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 up to 50% of the then outstanding principal amount
of Debentures plus, if so specified in the Forced Conversion Notice, accrued
but
unpaid interest, 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. Notwithstanding anything herein to the contrary,
the Company may only deliver an additional Forced Conversion Notice provided
that such second Forced Conversion Notice Date is at least 13 months following
the Original Issue Date and each Forced Conversion Notice is dependent on a
separate Threshold Period from a prior Forced Conversion Notice. 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 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.
Section
7. Negative
Covenants.
As long
as 20% of the aggregate principal amount of all Debentures issued on the
Original Issue Date remain outstanding, the Company shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, without the prior
written consent of the holders of all Debentures then outstanding (provided,
however, that if the principal amount of a holder’s Debenture is less $50,000,
such holder’s consent shall not be required):
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;
22
b) other
than Permitted Liens, enter into, create, incur, assume or suffer to exist
any
Liens of any kind, on or with respect to any of its property or assets now
owned
or hereafter acquired or any interest therein or any income or profits
therefrom;
c) amend
its
charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;
d) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis
number
of shares of its Common Stock or Common Stock Equivalents other than as to
(a)
the Conversion Shares or Warrant Shares as permitted or required under the
Transaction Documents, (b) 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), (c)
repurchases of Common Stock pursuant to the Company’s Corporate Stock Repurchase
Program; and (d) repurchases of up to 200,000 shares of Common Stock that are
subject to Rule 144, from former controlling shareholders of entities acquired
by the Company that are not Affiliates of the Company or any of its
Subsidiaries, provided that (i) the per share purchase price of such shares
shall not exceed $6.50 and (ii) such repurchased shares are retired to
treasury.
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.
At
such
time that less than 20% of the aggregate principal amount of all Debentures
issued on the Original Issue Date remain outstanding, the Company shall no
longer be subject to the negative covenants set forth in this Section 8 above
or
be required to obtain prior written consent of the holders of the Debentures
to
take the foregoing actions.
Section
8. Events
of Default.
a) “Event
of Default”
means,
wherever used herein, any of the following events (whatever the reason for
such
event and whether such event shall be voluntary or involuntary or effected
by
operation of law or pursuant to any judgment, decree or order of any court,
or
any order, rule or regulation of any administrative or governmental
body):
i. any
default in the payment of (A) the principal amount of any Debenture or (B)
interest, liquidated damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default under clause
(B) above, is not cured within 3 Trading Days;
23
ii. the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (xi) below) which failure is not cured,
if
possible to cure, within the earlier to occur
of
(A)
5
Trading
Days after notice of such failure sent by the Holder or by any other
Holder
and (B)
10 Trading Days after the Company has become or should have become aware of
such
failure;
iii. a
default
or event of default (subject to any grace or cure period provided in the
applicable agreement, document or instrument) shall occur under (A) any of
the
Transaction Documents or (B) any other material agreement, lease, document
or
instrument to which the Company or any Subsidiary is obligated (and not covered
by clause (vi) below);
iv. any
representation
or warranty made in this Debenture, any other Transaction Documents, any written
statement pursuant hereto or thereto or any other report, financial statement
or
certificate made or delivered to the Holder or any other Holder shall
be
untrue or incorrect in any material respect as of the date when made or deemed
made;
v. the
Company or any Significant Subsidiary shall be subject to a Bankruptcy
Event;
vi. the
Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which
there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring 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 33% of
its
assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);
ix. a
Registration Statement shall not have been declared effective by the Commission
on or prior to the 180th calendar
day after the Closing Date;
24
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 20 consecutive Trading Days
or
60 non-consecutive Trading Days during any 12 month period; provided,
however,
that if
the Company
is negotiating a merger, consolidation, acquisition or sale of all or
substantially all of its assets or a similar transaction and, in the written
opinion of counsel to the Company, the Registration Statement would be required
to be amended to include information concerning such pending transaction(s)
or
the parties thereto which information is not available or may not be publicly
disclosed at the time, the Company shall be permitted an additional 10
consecutive Trading Days during any 12 month period pursuant to this Section
8(a)(x);
xi. the
Company shall fail for any reason to deliver certificates to a Holder prior
to
the 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;
xii. any
Person shall breach any voting agreement or lock up agreement delivered to
the
initial Holders pursuant to Section 2.2(a) of the Purchase Agreement;
or
xiii. any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any Subsidiary or any of their respective property or
other
assets for more than $50,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.
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.
25
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 011-852-279-30689,
Attn: ▇▇▇▇▇▇ ▇▇▇▇, President with
a
copy to Loeb & ▇▇▇▇ ▇▇, Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq., facsimile number
▇▇▇-▇▇▇-▇▇▇▇ 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.
26
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.
27
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.
*********************
28
IN
WITNESS WHEREOF, the Company has caused this Amended and Restated Debenture
to
be duly executed by a duly authorized officer as of the date first above
indicated.
|
PACIFICNET,
INC.
|
|
|
By:__________________________________________
Name:
Title:
|
29
ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the Variable Rate
Convertible Debenture of Pacificnet, Inc., a Delaware corporation (the
“Company”),
due
on February ___, 2009, 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:
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:
30
Schedule
1
CONVERSION
SCHEDULE
The
Variable Rate Convertible Debentures due on February ___, 2009, in the aggregate
principal amount of $____________ issued by Pacificnet, Inc. This Conversion
Schedule reflects conversions made under Section 4 of the above referenced
Debenture.
Dated:
|
Date
of Conversion
(or
for first entry, Original
Issue
Date)
|
Amount
of
Conversion
|
Aggregate
Principal
Amount
Remaining
Subsequent
to
Conversion
(or
original
Principal
Amount)
|
Company
Attest
|
31