10% SECURED CONVERTIBLE DEBENTURE DUE March 11, 2011
Exhibit
10.16
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: September 11, 2009
Conversion
Price (subject to adjustment herein): $0.90
$__________________
10%
SECURED CONVERTIBLE DEBENTURE
DUE March
11, 2011
THIS 10% SECURED CONVERTIBLE DEBENTURE
is a duly authorized and validly issued 10% Convertible Debentures of Axion
International Holdings, Inc., a Colorado corporation, formally known as
Analytical Surveys, Inc., having its principal place of business at ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the “Company”), designated
as its 10% Convertible Debenture due March 11, 2011 (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 registered assigns
(collectively, the “Holder”), or shall
have paid pursuant to the terms hereunder, the principal sum of $ __________________
($______________) Dollars on the Maturity Date (as
defined below) or such earlier date as this Debenture is required or permitted
to be repaid as provided hereunder, and to pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to
the following additional provisions:
1
Section 1. Definitions. For
the purposes hereof, in addition to the terms defined elsewhere in this
Debenture, the following terms shall have the following meanings:
“Alternate
Consideration” shall have the meaning set forth in Section
5(e).
“Bankruptcy Event”
means any of the following events: (a) the Company or any Significant Subsidiary
(as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not dismissed
within 60 days after commencement; (c) the Company or any Significant Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company or any
Significant Subsidiary thereof suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not discharged or
stayed within 60 calendar days after such appointment; (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the benefit of
creditors; (f) the Company or any Significant Subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any Significant Subsidiary
thereof, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.
“Beneficial Ownership
Limitation” shall have the meaning set forth in Section
4(c).
“Business Day” means
any day except Saturday, Sunday, any day which shall be a federal legal holiday
in the United States or any day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to
close.
“Buy-In” shall have
the meaning set forth in Section 4(d)(v).
“Change of Control
Transaction” means the occurrence after the date hereof of any of (i) an
acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 40% 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 60% 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
60% of the aggregate voting power of the acquiring entity immediately after the
transaction, or (iv) a replacement at one time or within a three year period of
more than one-half of the members of the Company’s board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), or (v) the execution by the Company of an agreement
to which the Company is a party or by which it is bound, providing
for any of the events set forth in clauses (i) through (iv)
above. Any transaction between the Company and Axion International
Inc., whether contemporaneous with the issuance of this amended and restated
debenture, or otherwise, shall not be deemed to be a change of
control.
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 p.m. (New York City time)), or (b) if there is no such price on such
date, the closing bid price on the Trading Market on the date nearest preceding
such date (as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)), or
(c) if the Common Stock is not then listed or quoted for the Trading Market and
if prices for the Common Stock are then reported in the “pink sheets” published
by Pink Sheets LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported, or (d) if the shares of Common Stock are not publicly
traded, the fair market value of a share of Common Stock as
determined by a qualified, independent appraiser selected in good faith by the
Purchasers holding at least 50.1% in principal amount of the outstanding
Debentures and reasonably acceptable to the Company.
“Common Stock” means
the common stock, no par value per share, of the Company and stock of any other
class of securities into which such securities may hereafter be reclassified or
changed into.
“Conversion Date”
shall have the meaning set forth in Section 4(a).
“Conversion Price”
shall have the meaning set forth in Section 4(b).
“Conversion Shares”
means, collectively, the shares of Common Stock issuable upon conversion of this
Debenture in accordance with the terms hereof.
“Debenture Register”
shall have the meaning set forth in Section 2(b).
“Equity Conditions”
means, during the period in question, (i) the Company shall have duly honored
all conversions and redemptions scheduled to occur or occurring by virtue of one
or more Notices of Conversion of the Holder, if any, (ii) the Company shall have
paid all liquidated damages and other amounts owing to the Holder in respect of
this Debenture, (iii) all of the Conversion Shares may be resold pursuant to
Rule 144 without volume or manner-of-sale restrictions or current public
information requirements as determined by the counsel to the Company pursuant to
a written opinion letter to such effect, addressed and acceptable to the
Transfer Agent and the Holder, (iv) the Common Stock is trading on a Trading
Market and all of the shares issuable hereunder are listed or quoted for trading
on such Trading Market (and the Company believes, in good faith, that trading of
the Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (v) there is a sufficient number of authorized but unissued
and otherwise unreserved shares of Common Stock for the issuance of all of the
shares issuable hereunder, (vi) there is no existing Event of Default or no
existing event which, with the passage of time or the giving of notice, would
constitute an Event of Default, (vii) the issuance of the shares in question
(or, in the case of an Optional Redemption, the shares issuable upon conversion
in full of the Optional Redemption) to the Holder would not violate the
limitations set forth in Section 4(c) herein, (viii) there has been no public
announcement of a pending or proposed Fundamental Transaction or Change of
Control Transaction that has not been consummated, (ix) the Holder is not in
possession of any information provided by the Company that constitutes, or may
constitute, material non-public information and (x) for a period of 20
consecutive Trading Days prior to the applicable date in question, the daily
trading volume for the Common Stock on the principal Trading Market exceeds
25,000 shares (subject to adjustment for forward and reverse stock splits and
the like) per Trading Day.
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.
“Fundamental
Transaction” shall have the meaning set forth in Section
5(e).
“Interest Conversion
Rate” means the Conversion Price.
“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(b).
“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(c).
“Mandatory Default
Amount” means the sum of (i) the greater of (A) 120% of the
outstanding principal amount of this Debenture, plus all accrued and unpaid
interest thereon, 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; provided,
however, that solely in connection with Section 8(a)(viii), Mandatory Default
Amount shall equal 100% of the outstanding principal amount of this Debenture,
all accrued and unpaid interest thereon and all other amounts, costs, expenses
and liquidated damages due in respect of this Debenture.
“Maturity Date” shall
mean February __, 2011.
“New York Courts”
shall have the meaning set forth in Section 9(d).
4
“Notice of Conversion”
shall have the meaning set forth in Section 4(a).
“Optional Redemption”
shall have the meaning set forth in Section 6(a).
“Optional Redemption
Amount” means, (A) if the Company elects to undertake an Optional
Redemption at any time during the period commencing six (6) months following the
Original Issue Date and ending on the first anniversary thereof, the
sum of (i) that portion or all of the principal amount of this Debenture then
outstanding and set forth in the Optional Redemption Notice, (ii) accrued but
unpaid interest that would have accrued on such outstanding principal amount of
this Debenture during such period and (iii) all liquidated damages and other
amounts due in respect of the Debenture, or, (B) if the Company elects to
undertake an Optional Redemption at any time following the first anniversary
date of the Original Issue Date through the Maturity Date, the sum of (i) that
portion or all of the principal amount of this Debenture then outstanding and
set forth in the Optional Redemption Notice, (ii) accrued but unpaid interest on
such outstanding principal amount of this Debenture and (iii) all liquidated
damages and other amounts due in respect of the Debenture.
“Optional Redemption
Date” shall have the meaning set forth in Section 6(a).
“Optional Redemption
Notice” shall have the meaning set forth in Section 6(a).
“Optional Redemption Notice
Date” shall have the meaning set forth in Section 6(a).
“Original Issue Date”
means the date of the first issuance of the Debentures, regardless of any
transfers of any Debenture and regardless of the number of instruments which may
be issued to evidence such Debentures.
“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.
“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).
“Significant
Subsidiary” means Axion International, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company whose operations represent the principal
business activities and operations of the Company.
“Threshold Period”
shall have the meaning set forth in Section 6(c).
“Trading Day” means a
day on which the principal Trading Market is open for business, and, if the
Common Stock is not then listed or quoted for trading on a Trading Market,
Trading Day shall mean a Business Day.
5
“Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the NASD over-the-Counter Bulletin
Board.
“VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from
9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b) if
the OTC Bulletin Board is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on the
OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on
the OTC Bulletin Board and if prices for the Common Stock are then reported in
the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (d) in all other cases,
the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably acceptable to the
Company.
Section 2. Interest.
(a) Payment of Interest in Cash
or Kind. The Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture: at the rate
of 10% per annum, if paid in cash, or at the rate of 12% per annum, if paid in
shares of Common Stock, payable semi-annually on January 1 and July 1
during the term hereof, on each Conversion Date (as to that principal amount
then being converted) and on the Maturity Date (each such date, an “Interest Payment
Date”) (if any Interest Payment Date is not a Business Day, then the
applicable payment shall be due on the next succeeding Business Day), in cash
or, at the Holder’s option, in duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock in an amount equal to one (1) share of
Common Stock for each $0.90 of interest then due (the “Interest Conversion
Shares”) at such rate (the “Interest Conversion Rate”) (the
dollar amount to be paid in shares, the “Interest Share
Amount”) or a combination thereof; provided, however, that payment in
shares of Common Stock may only occur if the Holder shall have given the Company
notice in accordance with the notice requirements set forth below.
(b) ▇▇▇▇▇▇’s Election to Have
Company Pay Interest in Cash or Shares of Common
Stock. Subject to the terms and conditions herein, the
decision whether to pay interest hereunder in cash, shares of Common Stock or a
combination thereof shall be at the sole discretion of the Holder. At
least Twenty (20) Trading Days immediately prior to the applicable Interest
Payment Date (such Twenty (20) Trading Day period being “Interest Notice
Period”), the Holder shall deliver to the Company a written notice of
▇▇▇▇▇▇’s election to receive the 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 Holder 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 Holder’s
election (whether specific to an Interest Payment Date or continuous) shall be
irrevocable as to such Interest Payment Date. Subject to the
aforementioned conditions, failure to timely deliver such written notice to the
Company shall be deemed an election by the Holder to receive the interest on
such Interest Payment Date in cash.
6
(c) Interest
Calculations. Interest shall be calculated on the basis of a 360-day
year, consisting of twelve 30 calendar day periods, and shall accrue daily
commencing on the Original Issue Date until payment in full of the outstanding
principal, together with all accrued and unpaid interest, liquidated damages and
other amounts which may become due hereunder, has been made. Payment
of interest in shares of Common Stock (other than the Interest Conversion Shares
issued prior to an Interest Notice Period) shall otherwise occur pursuant to
Section 4(d)(ii) herein and, solely for purposes of the payment of interest in
shares, the Interest Payment Date shall be deemed the Conversion
Date. Interest shall cease to accrue with respect to any principal
amount converted, provided that, the Company actually delivers the Conversion
Shares within the time period required by Section 4(d)(ii)
herein. Interest hereunder will be paid to the Person in whose name
this Debenture is registered on the records of the Company regarding
registration and transfers of this Debenture (the “Debenture
Register”).
(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 (the “Late Fees”) which
shall accrue daily from the date such interest is due hereunder through and
including the date of actual payment in full.
(e) Prepayment. Except
as otherwise provided in Section 6(a) and (b) of this Debenture providing for
Optional Redemption, the Company may not prepay any portion of the principal
amount of this Debenture without the prior written consent of the
Holder.
Section 3.A.
Collateral
Security.
The
outstanding principal amount of the Debentures, all accrued interest thereon as
well as any other obligations arising hereunder or under the Warrants shall be
secured by certain collateral described in the Security Agreement between the
Company and all of the Holders, of even date herewith, the terms and provisions
of which are hereby incorporated into this Debenture in their
entirety.
B.
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.
7
(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 commencing six (6) months following the Original Issue Date until
this Debenture is no longer outstanding, this Debenture shall be convertible, in
whole or in part, into shares of Common Stock at the option of the Holder, at
any time and from time to time (subject to the conversion limitations set forth
in Section 4(c) hereof). The Holder shall effect conversions by
delivering to the Company a notice of conversion, the form of which is attached
hereto as Annex
A (a “Notice of
Conversion”), specifying therein the principal amount of this Debenture
to be converted and the date on which such conversion shall be effected (such
date, the “Conversion
Date”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
is deemed delivered hereunder. To effect conversions hereunder, the
Holder shall not be required to physically surrender this Debenture to the
Company unless the entire principal amount of this Debenture 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), which records shall be reconciled by the Company and the Holder
in writing (by facsimile, e-mail or other written form) after each such
conversion. The Company may deliver an objection to any Notice of
Conversion within 1 Business Day of delivery of such Notice of Conversion. The Holder, and any assignee by
acceptance of this Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this Debenture may be
less than the amount stated on the face hereof.
(b) Conversion
Price. The conversion price in effect on any Conversion Date
shall be equal to $0.90
subject to adjustment herein (the “Conversion
Price”).
8
(c) 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), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act. To the extent that the limitation contained in this Section 4(c)
applies, the determination of whether this Debenture is convertible (in relation
to other securities owned by such Holder together with any Affiliates) and of
which principal amount of this Debenture is convertible shall be in the sole
discretion of such Holder, and the submission of a Notice of Conversion shall be
deemed to be such Holder’s determination of whether this Debenture may be
converted (in relation to other securities owned by such Holder together with
any Affiliates) and which principal amount of this Debenture is convertible, in
each case subject to such aggregate percentage limitations. To ensure compliance
with this restriction, each Holder will be deemed to represent to the Company
each time it delivers a Notice of Conversion that such Notice of Conversion has
not violated the restrictions set forth in this paragraph and the Company shall
have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act. For purposes of this Section 4(c), in determining
the number of outstanding shares of Common Stock, a Holder may rely on the
number of outstanding shares of Common Stock as stated in the most recent of the
following: (A) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case
may be; (B) a more recent public announcement by the Company; or (C) a more
recent notice by the Company or the Company’s transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the written or oral
request of a Holder, the Company shall within two Trading Days confirm orally
and in writing to such Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Debenture, by such Holder or its
Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of this Debenture held by the
Holder. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 4(c) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership Limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Debenture.
(d) Mechanics of
Conversion.
i. Conversion Shares Issuable
Upon Conversion of Principal Amount. The number of shares of
Common Stock issuable upon a conversion hereunder shall be determined by the
quotient obtained by dividing (x) the outstanding principal amount of this
Debenture to be converted by (y) the Conversion Price.
9
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 representing the number of shares of Common Stock being acquired upon the
conversion of this Debenture and (B) a bank check in the amount of accrued and
unpaid interest.
iii.
Failure to Deliver
Certificates. If in the case of any Notice of Conversion such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the fifth Trading Day after the Conversion Date, the Holder
shall be entitled to elect by written notice to the Company at any time on or
before its receipt of such certificate or certificates, to rescind such notice
and Conversion, in which event the Company shall promptly return to the Holder
any original Debenture delivered to the Company and the Holder shall promptly
return the Common Stock certificates representing the principal amount of this
Debenture tendered for conversion to the Company.
iv. Obligation Absolute; Partial
Liquidated Damages. The Company’s obligations to issue and
deliver the Conversion Shares upon conversion of this Debenture in accordance
with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder or any
other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any
other circumstance which might otherwise limit such obligation of the Company to
the Holder in connection with the issuance of such Conversion Shares; provided, however, that such
delivery shall not operate as a waiver by the Company of any such action the
Company may have against the Holder. In the event the Holder of this
Debenture shall elect to convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on any claim that the Holder
or anyone associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless an injunction from a
court, on notice to Holder, restraining and or enjoining conversion of all or
part of this Debenture shall have been sought and obtained, and the Company
posts a surety bond for the benefit of the Holder in the amount of 150% of the
outstanding principal amount of this Debenture, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to such Holder to the extent it obtains judgment. In the
absence of such injunction, the Company shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion. If the Company
fails for any reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion Date,
the Company shall pay to such Holder, in cash, as liquidated damages and not as
a penalty, for each $1000 of principal amount being converted, $10 per Trading
Day (increasing to $20 per Trading Day on the tenth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such fifth
Trading Day until such certificates are
delivered. 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.
10
v. Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion. In addition to
any other rights available to the Holder, if the Company fails for any reason to
deliver to the Holder such certificate or certificates by the Share Delivery
Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the
Holder is required by its brokerage firm to purchase (in an open market
transaction or otherwise), or the Holder’s brokerage firm otherwise purchases,
shares of Common Stock to deliver in satisfaction of a sale by 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, 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 be issuable (taking into account the adjustments and restrictions of
Section 5) upon the conversion of the outstanding principal amount of this
Debenture. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable.
11
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, one 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 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 the Debentures); (B) subdivides outstanding
shares of Common Stock into a larger number of shares; (C) combines (including
by way of a reverse stock split) outstanding shares of Common Stock into a
smaller number of shares; or (D) issues, in the event of a reclassification of
shares of the Common Stock, any shares of capital stock of the Company, then the
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding any treasury shares of the
Company) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to this Section shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(b)
[INTENTIONALLY DELETED]
(c)
[INTENTIONALLY DELETED]
(d)
[INTENTIONALLY DELETED]
12
(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 one 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 one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Conversion Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration. If holders
of Common Stock are given any choice as to the securities, cash or property to
be received in a Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon any conversion of
this Debenture following such Fundamental Transaction. To the extent
necessary to effectuate the foregoing provisions, any successor to the Company
or surviving entity in such Fundamental Transaction shall issue to the Holder a
new debenture consistent with the foregoing provisions and evidencing the
Holder’s right to convert such debenture into Alternate Consideration. The terms
of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this Section 5(e) and insuring that this Debenture (or any
such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
(f) Calculations. All
calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this
Section 5, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding any treasury shares of the Company) issued and
outstanding.
(g) Notice to the
Holder.
i. Adjustment to Conversion
Price. Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 5, the Company shall promptly mail to each Holder
a notice setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
13
ii. Notice to Allow Conversion
by ▇▇▇▇▇▇. If (A) the Company shall declare a dividend (or any
other distribution in whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common
Stock of rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, or (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be delivered to the Holder at its last address as it shall appear upon
the Debenture Register, at least 20 calendar days prior to the applicable record
or effective date hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture
during the 20-day period commencing on the date of such notice through the
effective date of the event triggering such notice.
Section 6. Redemption and Forced
Conversion.
(a) Optional Redemption at
Election of Company. Subject to the provisions of this Section
6 and commencing six (6) months following the Original Issue Date, the Company
may deliver a notice to the Holder (an “Optional Redemption Notice” and the date
such notice is deemed delivered hereunder, the “Optional Redemption Notice
Date”) of its irrevocable election to redeem some or all of the then outstanding
principal amount of this Debenture for cash in an amount equal to the Optional
Redemption Amount on the 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 each of
the Equity Conditions shall have been met on each Trading Day during the period
commencing on the Optional Redemption Notice Date through to the Optional
Redemption Date and through and including the date payment of the Optional
Redemption Amount is actually made. If any of the Equity Conditions
shall cease to be satisfied at any time during the 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 in which case the Optional Redemption Notice shall be
null and void, ab
initio.
14
(b) Redemption
Procedure. The payment of cash or issuance of Common Stock, as
applicable, pursuant to an Optional Redemption shall be payable on the Optional
Redemption Date. If any portion of the payment pursuant to an
Optional Redemption shall not be paid by the Company by the applicable due date,
interest shall accrue thereon at an interest rate equal to the lesser of 18% per
annum or the maximum rate permitted by applicable law until such amount is paid
in full. Notwithstanding anything herein contained to the contrary,
if any portion of the Optional Redemption Amount remains unpaid after such date,
the Holder may elect, by written notice to the Company given at any time
thereafter, to invalidate such Optional Redemption, ab initio,
and the Company shall have no further right to exercise such Optional
Redemption. The Holder may elect to convert the outstanding principal
amount of the Debenture pursuant to Section 4 prior to actual payment in cash
for any redemption under this Section 6 by the delivery of a Notice of
Conversion to the Company. 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) Forced Conversion.
Notwithstanding anything herein to the contrary, if the VWAP for each of any 30
consecutive Trading Days (such period the “Threshold Period”),
exceeds $2.00 (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), 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 all or part of the then outstanding
principal amount of this Debenture plus, if so specified in the Forced
Conversion Notice, accrued but unpaid interest, liquidated damages and other
amounts owing to the Holder under this Debenture, it being agreed that the
“Conversion Date” for purposes of Section 4 shall be deemed to occur on the
third Trading Day following the Forced Conversion Notice Date (such third
Trading Day, the “Forced Conversion
Date”). The Company may not deliver a Forced Conversion
Notice, and any Forced Conversion Notice delivered by the Company shall not be
effective, unless all of the Equity Conditions are met 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. For
purposes of clarification, a Forced Conversion shall be subject to all of the
provisions of Section 4, including, without limitation, the provision requiring
payment of liquidated damages and limitations on conversions.
Section 7. Negative Covenants.
As long as any portion of this Debenture remains outstanding, the Company shall
not, and shall not permit any of its Subsidiaries to, directly or
indirectly:
(a)
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 and (b) repurchases
of Common Stock or Common Stock Equivalents of departing officers and directors
of the Company, provided that such repurchases shall not exceed an aggregate of
$100,000 for all officers and directors during the term of this
Debenture);
15
(b) pay
cash dividends or distributions on any equity securities of the
Company;
(c) enter
into any transaction with any Affiliate of the Company (other than reasonable
fees and compensation paid to and indemnity provided on behalf of officers,
directors, employees or consultants of the Company or any of its Subsidiaries
and transactions exclusively between or among the Company and any of its
Subsidiaries) which would be required to be disclosed in any public filing with
the Commission, unless such transaction is made on an arm’s-length basis and
expressly approved by a majority of the disinterested directors of the Company
(even if less than a quorum otherwise required for board approval);
(d) 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;
(e)
distribute 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; or
(f) enter
into any agreement with respect to any of the foregoing.
Section 8. Events of
Default.
(a)
“Event of
Default” means, wherever used herein, any of the following events
(whatever the reason for such event and whether such event shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
i. any
default in the payment of (A) the principal amount of any Debenture or (B)
interest, liquidated damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default under clause
(B) above, is not cured within 3 Trading Days;
ii. the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (xi) below) which failure is not cured, if
possible to cure, within the earlier to occur of (A) 5 Trading Days after notice
of such failure sent by the Holder or by any other Holder and (B) 10 Trading
Days after the Company has become or should have become aware of such
failure;
iii. the
Company or any Significant Subsidiary shall be subject to a Bankruptcy
Event;
16
iv. the
Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that (a) involves an
obligation greater than $500,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;
v. the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or in excess of 40% of its
and it Subsidiaries’ assets on a consolidated basis in one transaction or a
series of related transactions (whether or not such sale would constitute a
Change of Control Transaction);
vi. the
Company shall fail for any reason to deliver certificates to a Holder prior to
the tenth Trading Day after a Conversion Date pursuant to Section 4(d) or the
Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof;
vii. 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 $100,000, 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.
17
Section 9. Miscellaneous.
(a) Notices. Any
and all notices or other communications or deliveries to be provided by the
Holder hereunder, including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, Attention: President 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, and indemnify, if requested, all
reasonably satisfactory to the Company.
(d) Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflict of laws
thereof. Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the transactions hereunder (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, County 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, 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.
18
(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.
(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.
19
(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 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.
*********************
20
IN WITNESS WHEREOF, the Company has
caused this Debenture to be duly executed by a duly authorized officer as of the
11th day of September, 2009.
|
|
|
By:__________________________________________
Name: ▇▇▇▇
▇. ▇▇▇▇▇
Title: President
|
21
ANNEX
A
NOTICE
OF CONVERSION
The undersigned hereby elects to
convert principal under the 10% Convertible Debenture due March 11, 2011 of
Axion International Holdings, Inc., a Colorado corporation (the “Company”), into
shares of common stock, no par value per share (the “Common Stock”), of the
Company according to the conditions hereof, as of the date written
below. If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.
By the delivery of this Notice of
Conversion the undersigned represents and warrants to the Company that its
ownership of the Common Stock does not exceed the amounts specified under
Section 4 of this Debenture, as determined in accordance with Section 13(d) of
the Exchange Act.
The undersigned agrees to comply with
the prospectus delivery requirements under the applicable securities laws in
connection with any transfer of the aforesaid shares of Common
Stock.
|
Conversion
calculations:
|
Date
to Effect Conversion:
|
|
Principal
Amount of Debenture to be Converted:
|
|
|
Number
of shares of Common Stock to be issued:
|
|
|
Signature:
|
|
|
Name:
|
|
|
Address:
|
22
Schedule
1
CONVERSION
SCHEDULE
The 10%
Convertible Debentures due on March 11, 2011 in the aggregate principal amount
of $________________ is issued by Axion International Holdings, Inc., a Colorado
corporation. This Conversion Schedule reflects conversions made under
Section 4 of the above referenced Debenture.
Dated:
|
Date
of Conversion
(or
for first entry, Original Issue Date)
|
Amount
of Conversion
|
Aggregate
Principal Amount Remaining Subsequent to Conversion
(or
original Principal Amount)
|
Company
Attest
|
23
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE 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 EXERCISE OF THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
COMMON
STOCK PURCHASE WARRANT
$0.90
EXERCISE PRICE
Warrant
Shares: _______Initial Exercise Date: February __, 2010, Issue Date: August__,
2009
THIS
COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies
that, for value received, ______________ (the "Holder"), is
entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the six month
anniversary of the date hereof and provided that the “Exercise Conditions” set
forth in Section 2(b) are met (the "Initial Exercise
Date") and on or prior to the close of business on the three year
anniversary of the Initial Exercise Date (the "Termination Date")
but not thereafter, to subscribe for and purchase from Axion International
Holdings, Inc., a Colorado corporation (the "Company"), up to
___________ (____________) shares (the "Warrant Shares") of
common stock, no par value per share, of the Company (the "Common Stock"). The
purchase price of one share of Common Stock under this Warrant shall be equal to
the Exercise Price, as defined in Section 2(b).
Section 1. Definitions.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in that certain Securities Purchase Agreement (the "Purchase Agreement"),
dated August __, 2009, among the Company and the purchasers signatory
thereto.
24
Section 2. Exercise.
|
|
d.
|
Exercise of
Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after
the Initial Exercise Date and subject to the Exercise Conditions set forth
below on or before the Termination Date by delivery to the Company of a
duly executed facsimile copy of the Notice of Exercise Form annexed hereto
(or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of such Holder
appearing on the books of the Company); and, within 3 Trading Days of the
date said Notice of Exercise is delivered to the Company, the Company
shall have received payment of the aggregate Exercise Price of the shares
thereby purchased by wire transfer or cashier's check drawn on a United
States bank. Notwithstanding anything herein to the contrary, the Holder
shall not be required to physically surrender this Warrant to the Company
until the Holder has purchased all of the Warrant Shares available
hereunder and the Warrant has been exercised in full, in which case, the
Holder shall surrender this Warrant to the Company for cancellation within
3 Trading Days of the date the final Notice of Exercise is delivered to
the Company. Partial exercises of this Warrant resulting in purchases of a
portion of the total number of Warrant Shares available hereunder shall
have the effect of lowering the outstanding number of Warrant Shares
purchasable hereunder in an amount equal to the applicable number of
Warrant Shares purchased. The Holder and the Company shall maintain
records showing the number of Warrant Shares purchased and the date of
such purchases, which records shall be reconciled by the Company and the
Holder in writing after each such purchase. The Company shall deliver any
objection to any Notice of Exercise Form within one Business Day of
receipt of such notice. 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 Warrant, acknowledge and agree that, by reason of the provisions of
this paragraph, following the purchase of a portion of the Warrant Shares
hereunder, the number of Warrant Shares available for purchase hereunder
at any given time may be less than the amount stated on the face
hereof.
|
|
|
e.
|
Exercise Price and
Exercise Conditions . The exercise price per share of the Common
Stock under this Warrant shall be $0.90, subject to
adjustment hereunder (the "Exercise
Price") and subject to the following “Exercise
Conditions:
|
(i) The
Holder may exercise this Warrant to purchase one-third (1/3) of
the Warrant Shares purchasable under this Warrant provided
that the VWAP averages at least $1.00 for a ten (10) consecutive
trading day period prior to the sending of any Notice of
Exercise Form to the Company;
(ii) The
Holder may exercise this Warrant to purchase one-third (1/3) of
the Warrant Shares purchasable under this Warrant provided
that the VWAP averages at least $1.50 for a ten (10) consecutive
trading day period prior to the sending of any Notice of
Exercise Form to the Company, and;
25
(iii) The
Holder may exercise this Warrant to purchase one-third (1/3) of
the Warrant Shares purchasable under this Warrant provided
that the VWAP averages at least $1.75 for a ten (10) consecutive
trading day period prior to the sending of any Notice of
Exercise Form to the Company, it being understood that the Exercise
Conditions set forth above are cumulative so that, for example,
if the WVAP averages $2.00 during any ten (10) consecutive
trading day period following the Initial Exercise Date, the
Holder may exercise the right to purchase all of the Warrant Shares
available under this Warrant.
Cashless Exercise. At
any time after one year from the date of issuance of this Warrant and provided
that the Exercise Conditions set forth in Section 2 (b) above are met, may also
be exercised at such time by means of a "cashless exercise" in which the Holder
shall be entitled to receive a certificate for the number of Warrant Shares
equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A) = the
VWAP on the Trading Day immediately preceding the date of such
election;
(B) = the
Exercise Price of this Warrant, as adjusted; and
(X) = the
number of Warrant Shares issuable upon exercise of this Warrant in accordance
with the terms of this Warrant by means of a cash exercise rather than a
cashless exercise.
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be
automatically exercised via cashless exercise pursuant to this Section
2(c).
26
|
|
▇.
|
▇▇▇▇▇▇'▇
Restrictions. The Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of
this Warrant, pursuant to Section 2(c) or otherwise, to the extent that
after giving effect to such issuance after exercise as set forth on the
applicable Notice of Exercise, 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), as set forth on the
applicable Notice of Exercise, 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 exercise of this Warrant with respect to
which such determination is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) exercise of the
remaining, nonexercised portion of this Warrant beneficially owned by such
Holder or any of its Affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of the Company
(including, without limitation, any other Debentures or Warrants) subject
to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by such Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 2(d)(i), beneficial ownership shall be calculated
in accordance with Section 13(d) of the Exchange Act, it being
acknowledged by a Holder that the Company is not representing to such
Holder that such calculation is in compliance with Section 13(d) of the
Exchange Act and such Holder is solely responsible for any schedules
required to be filed in accordance therewith. To the extent that the
limitation contained in this Section 2(d) applies, the determination of
whether this Warrant is exercisable (in relation to other securities owned
by such Holder together with any Affiliates) and of which a portion of
this Warrant is exercisable shall be in the sole discretion of a Holder,
and the submission of a Notice of Exercise shall be deemed to be each
Holder's determination of whether this Warrant is exercisable (in relation
to other securities owned by such Holder together with any Affiliates) and
of which portion of this Warrant is exercisable, in each case subject to
such aggregate percentage limitation, 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.
For purposes of this Section 2(d), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company's most
recent Form 10-QSB or Form 10-KSB , as the case may be, (y) a more recent
public announcement by the Company or (z) any other 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 Warrant, 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 exercise of this Warrant. The
Beneficial Ownership Limitation provisions of this Section 2(d)(i) may be
waived by such ▇▇▇▇▇▇, 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 exercise of this Warrant, and the provisions of this
Section 2(d) 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 2(d)(i) 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 Warrant.
|
27
|
|
g.
|
Mechanics of
Exercise.
|
|
|
i.
|
Authorization of
Warrant Shares. The Company covenants that all Warrant Shares which
may be issued upon the exercise of the purchase rights represented by this
Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges created by the Company in
respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such
issue).
|
|
|
ii.
|
Delivery of
Certificates Upon Exercise. Certificates for shares purchased
hereunder shall be transmitted by the transfer agent of the Company to the
Holder by crediting the account of the Holder's prime broker with the
Depository Trust Company through its Deposit Withdrawal Agent Commission
("DWAC")
system if the Company is a participant in such system, and otherwise by
physical delivery to the address specified by the Holder in the Notice of
Exercise within 3 Trading Days from the delivery to the Company of the
Notice of Exercise Form, surrender of this Warrant (if required) and
payment of the aggregate Exercise Price as set forth above ("Warrant Share Delivery
Date"). This Warrant shall be deemed to have been exercised on the
date the Exercise Price is received by the Company. The Warrant Shares
shall be deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Warrant has
been exercised by payment to the Company of the Exercise Price (or by
cashless exercise, if permitted) and all taxes required to be paid by the
Holder, if any, pursuant to Section 2(e)(vii) prior to the issuance of
such shares, have been paid.
|
28
|
|
iii.
|
Delivery of New
Warrants Upon Exercise. If this Warrant shall have been exercised
in part, the Company shall, at the request of a Holder and upon surrender
of this Warrant certificate, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased Warrant Shares
called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.
|
|
|
iv.
|
Rescission
Rights. If the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the
Warrant Shares pursuant to this Section 2(e)(iv) by the Warrant Share
Delivery Date, then the Holder will have the right to rescind such
exercise.
|
|
|
v.
|
Compensation for
Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In
addition to any other rights available to the Holder, if the Company fails
to cause its transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to an exercise on or
before the Warrant Share Delivery Date, and if after such date the Holder
is required by its broker to purchase (in an open market transaction or
otherwise) or the Holder's brokerage firm otherwise purchases, shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Shares which the Holder anticipated receiving upon such exercise
(a "Buy-In"), then
the Company shall (1) pay in cash to the Holder the amount by which (x)
the Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the amount
obtained by multiplying (A) the number of Warrant Shares that the Company
was required to deliver to the Holder in connection with the exercise at
issue times (B) the price at which the sell order giving rise to such
purchase obligation was executed, and (2) at the option of the Holder,
either reinstate the portion of the Warrant and equivalent number of
Warrant Shares for which such exercise was not honored or deliver to the
Holder the number of shares of Common Stock that would have been issued
had the Company timely complied with its exercise and delivery obligations
hereunder. 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 exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) 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 exercise of the Warrant as required pursuant to the
terms hereof.
|
29
|
|
vi.
|
No Fractional Shares
or Scrip. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase
upon such exercise, the Company shall at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price or round up to the next whole
share.
|
|
|
vii.
|
Charges, Taxes and
Expenses. Issuance of certificates for Warrant Shares shall be made
without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such
certificates shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided, however, that
in the event certificates for Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer
tax incidental thereto.
|
30
|
|
viii.
|
Closing of
Books. The Company will not close its stockholder books or records
in any manner which prevents the timely exercise of this Warrant, pursuant
to the terms hereof.
|
Section 3. Certain Adjustments.
|
|
i.
|
Stock Dividends and
Splits. If the Company, at any time while this Warrant is
outstanding: (A) pays a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by
the Company upon exercise of this Warrant), (B) subdivides outstanding
shares of Common Stock into a larger number of shares, (C) combines
(including by way of reverse stock split) outstanding shares of Common
Stock into a smaller number of shares, or (D) issues by reclassification
of shares of the Common Stock any shares of capital stock of the Company,
then in each case the Exercise Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event and the number of shares
issuable upon exercise of this Warrant shall be proportionately adjusted.
Any adjustment made pursuant to this Section 3(a) 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.
|
31
|
|
j.
|
[INTENTIONALLY
DELETED]
|
|
|
k.
|
[INTENTIONALLY
DELETED]
|
|
|
l.
|
[INTENTIONALLY
DELETED]
|
|
|
m.
|
Fundamental
Transaction. If, at any time while this Warrant 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 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 exercise of this Warrant,
the Holder shall have the right to receive, for each Warrant Share that
would have been issuable upon such exercise immediately prior to the
occurrence of such Fundamental Transaction, at the option of the Holder,
(a) upon exercise of this Warrant, the number of shares of Common Stock of
the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and any additional consideration (the "Alternate
Consideration") receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of
assets by a Holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event or (b) if the
Company is acquired in an all cash transaction, cash equal to the value of
this Warrant as determined in accordance with the Black-Scholes option
pricing formula. For purposes of any such exercise, the determination of
the Exercise Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise 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 exercise of this Warrant 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 warrant consistent
with the foregoing provisions and evidencing the Holder's right to
exercise such warrant 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 3(e) and insuring that this Warrant
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental
Transaction.
|
32
|
|
n.
|
Calculations.
All calculations under this Section 3 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 3, 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 treasury shares, if any) issued and
outstanding.
|
|
|
o.
|
Voluntary Adjustment
By Company. The Company may at any time during the term of this
Warrant reduce the then current Exercise Price to any amount and for any
period of time deemed appropriate by the Board of Directors of the
Company.
|
|
|
p.
|
Notice to
Holder.
|
|
|
i.
|
Adjustment to Exercise
Price. Whenever the Exercise Price is adjusted pursuant to any
provision of this Section 3, the Company shall promptly mail to the Holder
a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. If
the Company enters into a Variable Rate Transaction (as defined in the
Purchase Agreement), 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.
|
33
|
|
ii.
|
Notice to Allow
Exercise 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 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; (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
mailed to the Holder at its last address as it shall appear upon the
Warrant Register of the Company, 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 mail such notice or any defect therein or in the mailing
thereof shall not affect the validity of the corporate action required to
be specified in such notice. The Holder is entitled to exercise this
Warrant during the 20-day period commencing on the date of such notice to
the effective date of the event triggering such
notice.
|
34
Section 4. Transfer of
Warrant.
|
|
e.
|
Transferability.
Subject to compliance with any applicable securities laws and the
conditions set forth in Section 4(d) hereof and to the provisions of
Section 4.1 of the Purchase Agreement, this Warrant and all rights
hereunder (including, without limitation, any registration rights) are
transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Company or its designated agent, together with a
written assignment of this Warrant substantially in the form attached
hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the Company
shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination or denominations specified
in such instrument of assignment, and shall issue to the assignor a new
Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned, may
be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
|
35
|
|
f.
|
New Warrants.
This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with
a written notice specifying the names and denominations in which new
Warrants are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with Section 4(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such
notice.
|
|
|
g.
|
Warrant
Register. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to
time. The Company may deem and treat the registered Holder of this Warrant
as the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.
|
|
|
h.
|
Transfer
Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the Company shall require,
as a condition of allowing such transfer, that (i) the Holder or
transferee of this Warrant, as the case may be, furnish to the Company a
written opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the
Securities Act and under applicable state securities or blue sky laws, and
(ii) the Holder or transferee execute and deliver to the Company an
investment letter in form and substance acceptable to the Company, and
(iii) the transferee be an "accredited investor" as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the
Securities Act or a "qualified institutional buyer" as defined in Rule
144A(a) promulgated under the Securities
Act.
|
36
Section 5. Miscellaneous.
|
|
o.
|
No Rights as
Shareholder Until Exercise. This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof as set forth in Section
2(e)(ii).
|
|
|
p.
|
Loss, Theft,
Destruction or Mutilation of Warrant. The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it
(which, in the case of the Warrant, shall not include the posting of any
bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant
or stock certificate of like tenor and dated as of such cancellation, in
lieu of such Warrant or stock
certificate.
|
|
|
q.
|
Saturdays, Sundays,
Holidays, etc. If the last or appointed day for the taking of any
action or the expiration of any right required or granted herein shall not
be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding Business
Day.
|
|
|
r.
|
Authorized
Shares. The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common Stock
a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant. The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares may be
issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed.
|
Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment. Without limiting the generality of the foregoing, the Company will
(a) not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par value, (b)
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares upon the exercise of this Warrant, and (c) use commercially reasonable
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.
37
Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
|
|
s.
|
Jurisdiction.
All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase
Agreement.
|
|
|
t.
|
Restrictions.
The Holder acknowledges that the Warrant Shares acquired upon the exercise
of this Warrant will have restrictions upon resale imposed by state and
federal securities laws.
|
|
|
u.
|
Nonwaiver and
Expenses. No course of dealing or any delay or failure to exercise
any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice ▇▇▇▇▇▇'s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the
Termination Date. If the Company willfully and knowingly fails to comply
with any provision of this Warrant, which results in any material damages
to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings,
incurred by Holder in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies
hereunder.
|
|
|
v.
|
Notices. Any
notice, request or other document required or permitted to be given or
delivered to the Holder by the Company shall be delivered in accordance
with the notice provisions of the Purchase
Agreement.
|
|
|
w.
|
Limitation of
Liability. No provision hereof, in the absence of any affirmative
action by Holder to exercise this Warrant to purchase Warrant Shares, and
no enumeration herein of the rights or privileges of Holder, shall give
rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the
Company.
|
38
|
|
x.
|
Remedies.
Holder, in addition to being entitled to exercise all rights granted by
law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant and hereby
agrees to waive and not to assert the defense in any action for specific
performance that a remedy at law would be
adequate.
|
|
|
y.
|
Successors and
Assigns. Subject to applicable securities laws, this Warrant and
the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder. The provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant and
shall be enforceable by any such Holder or holder of Warrant
Shares.
|
|
|
z.
|
Amendment. This
Warrant may be modified or amended or the provisions hereof waived with
the written consent of the Company and the
Holder.
|
|
|
aa.
|
Severability.
Wherever possible, each provision of this Warrant shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this
Warrant.
|
|
|
bb.
|
Headings. The
headings used in this Warrant are for the convenience of reference only
and shall not, for any purpose, be deemed a part of this
Warrant.
|
********************
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.
By:___________________________________
▇▇▇▇▇
▇▇▇▇▇▇▇▇, Chief Executive Officer
39
EXERCISE
NOTICE
TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT
TO PURCHASE COMMON STOCK
The
undersigned holder hereby exercises the right to purchase ______
of the shares of Common Stock (“Warrant Shares”) of AXION INTERNATIONAL
HOLDINGS, INC, a Colorado corporation (the “Company”), evidenced by the
attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Form
of Exercise Price. The Holder intends that payment of the Exercise Price shall
be made as:
___ a
“Cashless Exercise” with respect to _____ Warrant Shares
___ b
Cash Exercise, at $0.90 per Common Share with respect to ______ Warrant
Shares
2.
Delivery of Warrant Shares. The Company shall deliver to the Holder ______
Warrant Shares in accordance with the terms of the Warrant.
Date:
______ __, _____
|
Name
of Registered Holder
|
||
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
40