8% SECURED CONVERTIBLE DEBENTURE DUE [EIGHTEEN MONTHS FROM DATE OF ISSUANCE]
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: ________________________
Original
Conversion Price (subject to adjustment herein): $1.50
$_______________
8%
SECURED CONVERTIBLE DEBENTURE DUE
[EIGHTEEN
MONTHS FROM DATE OF ISSUANCE]
THIS
8%
SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly
issued 8% Secured Convertible Debentures of TechnoConcepts, Inc, a Colorado
corporation, having a its principal place of business at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (the “Company”), designated as its 8%
Secured Convertible Debentures, due [Eighteen Months from Date of
Issuance] (this, “Debenture” and collectively with the other such
series of debentures, the “Debentures”).
FOR
VALUE
RECEIVED, the Company promises to pay to ________________________ or its
registered assigns (the “Holder”), or shall have paid pursuant to the
terms hereunder, the principal sum of $_______________ by [Eighteen Months
from
Date of Issuance], or such earlier date as this Debenture is required or
permitted to be repaid as provided hereunder (the “Maturity Date”), and to pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture in accordance with the provisions hereof.
This Debenture is subject to the following additional provisions:
Section
1.Definitions.
For the
purposes hereof, in addition to the terms defined elsewhere in this Debenture,
(a) capitalized terms not otherwise defined herein shall have the meanings
set
forth in the Subscription Agreement and (b) the following terms shall have
the
following meanings:
“Alternate
Consideration” shall have the meaning set forth in Section 5(e).
“Bankruptcy
Event” means any of the following events: (a) the Company or any Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof
commences a case or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency
or
liquidation or similar law of any jurisdiction relating to the Company or any
Significant Subsidiary thereof; (b) there is commenced against the Company
or
any Significant Subsidiary thereof any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered; (d) the Company
or any Significant Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not
discharged or stayed within 60 calendar days after such appointment; (e) the
Company or any Significant Subsidiary thereof makes a general assignment for
the
benefit of creditors; (f) the Company or any Significant Subsidiary thereof
calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (g) the Company or any Significant
Subsidiary thereof, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or takes any
corporate or other action for the purpose of effecting any of the foregoing.
1
“Base
Conversion Price” shall have the meaning set forth in Section 5(b).
“Business
Day” means any day except Saturday, Sunday, and any day which shall be a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or
other
governmental action to close.
“Buy-In”
shall have the meaning set forth in Section 4(d)(v).
“Change
of Control Transaction” means the occurrence after the date hereof of any of
(i) an acquisition after the date hereof by an individual or legal entity or
“group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 50% of the
voting securities of the Company (other than by means of conversion or exercise
of the Debentures, the Warrants and the Additional Warrants), or (ii) the
Company merges into or consolidates with any other Person, or any Person merges
into or consolidates with the Company and, after giving effect to such
transaction, the stockholders of the Company immediately prior to such
transaction own less than 50% of the aggregate voting power of the Company
or
the successor entity of such transaction, or (iii) the Company sells or
transfers all or substantially all of its assets to another Person and the
stockholders of the Company immediately prior to such transaction own less
than
50% of the aggregate voting power of the acquiring entity immediately after
the
transaction, or (iv) a replacement at one time or within a three year period
of
more than one-half of the members of the Company’s board of directors which is
not approved by a majority of those individuals who are members of the board
of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), or (v) the execution by the Company of an agreement
to which the Company is a party or by which it is bound, providing for any
of
the events set forth in clauses (i) through (iv) above.
“Common
Stock” means the common stock, no par value, of the Company and stock of any
other class of securities into which such securities may hereafter be
reclassified or changed.
“Common
Stock Equivalents” means all shares of Common Stock or any securities of the
Company which would entitle the holder thereof to acquire at any time Common
Stock (including without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock), whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which is issued in connection with such
issuance, at an effective price per share which is less than the Conversion
Price then in effect. If the Company issues any securities convertible or
exchangeable into Common Stock, the maximum number of shares of Common Stock
issuable thereunder shall be deemed to be Common Stock Equivalents issued as
of
the time of such issue, if the consideration per share of such Common Stock
Equivalents (as hereinafter determined) is less than the Conversion Price then
in effect. Common Stock Equivalents, however, shall not include the issuance
of
(i) shares of Common Stock or options to employees, officers or directors of
the
Company pursuant to any stock or option plan duly adopted by a majority of
the
non-employee members of the Board of Directors of the Company or a majority
of
the members of a committee of non-employee directors established for such
purpose, (ii) securities upon the conversion of any securities issued hereunder
or other securities sold as part of the same offering, convertible securities,
options or warrants issued and outstanding on the date of this Debenture,
provided that such securities have not been amended since the date of this
Debenture to increase the number of such securities, and (iii) securities issued
pursuant to acquisitions or strategic transactions, provided any such issuance
shall only be to an entity which is, itself or through its subsidiaries, an
operating company in a business synergistic with the business of the Company
and
in which the Company receives benefits in addition to the investment of funds,
but shall not include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose primary
business is investing in securities.
2
“Conversion
Date” shall have the meaning set forth in Section 4(a).
“Conversion
Price” shall have the meaning set forth in Section 4(b).
“Conversion
Shares” means, collectively, the shares of Common Stock issuable upon
conversion of this Debenture in accordance with the terms hereof.
“Debenture
Register” shall have the meaning set forth in Section 2(c).
“Dilutive
Issuance” shall have the meaning set forth in Section 5(b).
“Dilutive
Issuance Notice” shall have the meaning set forth in Section 5(b).
“Effectiveness
Period” shall have the meaning set forth in the Registration Rights
Agreement.
“Equity
Conditions” shall mean, during the period in question, (i) the Company shall
have duly honored all conversions and redemptions scheduled to occur or
occurring by virtue of one or more Notices of Conversion of the Holder, if
any,
(ii) the Company shall have paid all liquidated damages and other amounts owing
to the Holder in respect of this Debenture, (iii) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize
the
prospectus thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (iv)
the
Common Stock is trading on a Trading Market and all of the shares issuable
pursuant to the Transaction Documents are listed for trading on such Trading
Market (and the Company believes, in good faith, that trading of the Common
Stock on a Trading Market will continue uninterrupted for the foreseeable
future), (v) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the
shares issuable pursuant to the Transaction Documents, (vi) there is no existing
Event of Default or no existing event which, with the passage of time or the
giving of notice, would constitute an Event of Default,
(vii)
the
issuance of the shares in question (or, in the case of a Forced Conversion,
the
shares issuable upon conversion in full of the Forced Conversion) 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 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 100,000 shares per Trading
Day and the VWAP on each such Trading Day exceeds $6.00 per share (subject
to
adjustment for forward and reverse stock splits and the like).
“Event
of Default” shall have the meaning set forth in Section 8.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Forced
Conversion” shall have the meaning set forth in Section 6.
“Forced
Conversion Notice” shall have the meaning set forth in Section 6.
“Forced
Conversion Notice Date” shall have the meaning set forth in Section 6.
“Fundamental
Transaction” shall have the meaning set forth in Section 5(d).
“Interest
Payment Date” shall have the meaning set forth in Section 2(a).
“Late
Fees” shall have the meaning set forth in Section 2(d).
3
“Mandatory
Default Amount”
means
the sum of (i) the greater of (A) 130% of the outstanding principal amount
of
this Debenture (except that such percentage shall be increased to 150% of the
outstanding principal amount with respect to any Change of Control Transaction
that is an Event of Default under Section 9(a)(ix)), plus all accrued and unpaid
interest hereon, or (B) the outstanding principal amount of this Debenture
(except that such amount shall be increased to 135% of the outstanding principal
amount with respect to any Change of Control Transaction that is an Event of
Default under Section 9(a)(ix)), 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.
“Milestone
Default” shall have the meaning set forth in Section 9(a).
“Milestone
Default Amount”
means
the sum of (i) (A) 120% of the outstanding principal amount of this Debenture
(in the case of a default under Section 9(a)(i), (B) 115% of the outstanding
principal amount of this Debenture (in the case of a default under Section
9(a)(ii), or (C) 110% of the outstanding principal amount of this Debenture
(in
the case of a default under Section 9(a)(iii), (ii) all accrued and unpaid
interest hereon, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of this Debenture.
“New
York Courts” shall have the meaning set forth in Section 10(d).
“Notice
of Conversion” shall have the meaning set forth in Section 4(a).
“Operating
Income” means Revenue, less Cost of Goods Sold, less General &
Administrative Expenses, plus Depreciation, plus Amortization, plus cash
and
non-cash expenses associated with (i) the issuance and conversion of the
Debentures, (ii) the issuance and exercise of the warrants issued pursuant
to
the Transaction Documents in connection with the Debentures, (iii) the
conversion of the Company’s Series A Subordinated Secured Promissory Notes
(originally issued between May 2006 and January 2007), and
(iv)
the
issuance and exercise of warrants issued in connection with the conversion
of
any of the Company’s Series A Subordinated Secured Promissory Notes.
“Original
Issue Date” shall mean the date of the first issuance of the Debentures
regardless of the number of transfers of any Debenture and regardless of the
number of instruments which may be issued to evidence such Debenture.
“Permitted
Indebtedness” means (a) the Indebtedness existing on the Original Issue Date
and set forth on Schedule 4(bb) of the Subscription Agreement, (b) up to
$750,000 in additional Indebtedness,
(c)
lease
obligations and purchase money indebtedness of up to $250,000, in the aggregate,
incurred in connection with the acquisition of capital assets and lease
obligations with respect to newly acquired or leased assets, and (d)
Indebtedness of Asante Networks, Inc. in connection with lines of credit from
financial institutions tied to Asante Networks, Inc.’s accounts receivable or
inventory.
“Permitted
Lien” means the individual and collective reference to the following: (a)
Liens for taxes, assessments and other governmental charges or levies not yet
due or Liens for taxes, assessments and other governmental charges or levies
being contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of the management of the Company) have
been
established in accordance with GAAP; (b) Liens imposed by law which were
incurred in the ordinary course of the Company’s business, such as carriers’,
warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other
similar Liens arising in the ordinary course of the Company’s business, and
which (x) do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use thereof in the
operation of the business of the Company and its consolidated Subsidiaries
or
(y) are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing for the foreseeable future the
forfeiture or sale of the property or asset subject to such Lien; (c) Liens
incurred in connection with Permitted Indebtedness under clause (a) thereunder,
provided that no more than $1,000,000 of the principal amount of such
Indebtedness (not including interest, fees or liquidated damages thereon) ranks
senior in priority to the Debentures; (d) Liens incurred in connection with
Permitted Indebtedness under clauses (b) and (d) thereunder, and (e) Liens
incurred in connection with Permitted Indebtedness under clause (c) thereunder
provided that such Liens are not secured by assets of the Company or its
Subsidiaries other than the assets so acquired or leased.
4
“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.
“Registration
Rights Agreement”
means
Section 5 of the Subscription Agreement, entitled “Registration Rights”.
“Registration
Statement” means a registration statement that registers the resale of all
Conversion Shares of the Holder, who shall be named as a “selling stockholder”
therein, and meets the requirements of the Registration Rights Agreement.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Subscription
Agreement”
means
the subscription agreement to which the Company and each original Holder is
a
party, with respect to the private placement which commenced on January 19,
2007.
“Share
Delivery Date” shall have the meaning set forth in Section 4(d).
“Subsidiary”
shall have the meaning set forth in the Subscription Agreement.
“Trading
Day” means a day on which the principal Trading Market is open for business.
“Trading
Market” means the following principal market or exchange on which the Common
Stock is listed or quoted for trading on each date in question: the American
Stock Exchange, the Archipelago Exchange, the Nasdaq Over-the-Counter Bulletin
Board, the Nasdaq Capital Market, the Nasdaq Global Market, or the New York
Stock Exchange.
“Transaction
Documents” shall mean this Debenture, the Subscription Agreement, the
Warrants, the Additional Warrants, the Security Agreement, each Subsidiary
Guarantee, and any other documents or agreements executed in connection with
the
transactions contemplated under the Subscription Agreement.
“VWAP”
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the Trading Market on which the Common
Stock is then listed or quoted for trading as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m.
(New York City time); or
(b)
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 Company, provided
▇▇▇▇▇▇ does not have a reasonable objection to such selection.
Section
2.
Interest.
a)
Payment of Interest in Cash. The Company shall pay interest to the Holder
on the aggregate unconverted and then outstanding principal amount of this
Debenture at the rate of 8% per annum, payable on each Conversion Date (as
to
that principal amount then being converted), and on the Maturity Date (except
that, if any such date is not a Business Day, then such payment shall be due
on
the next succeeding Business Day) (each such date, an “Interest Payment
Date”), in cash.
5
b)
Intentionally
Omitted.
c)
Interest Calculations. Interest shall be calculated on the basis of a 360-day
year and shall accrue daily commencing on the Original Issue Date until payment
in full of the principal sum, together with all accrued and unpaid interest,
liquidated damages and other amounts which may become due hereunder, has been
made. Interest shall cease to accrue with respect to any principal amount
converted, provided that the Company actually delivers the Conversion Shares
within the time period required by Section 4(d)(ii). Interest hereunder will
be
paid to the Person in whose name this Debenture is registered on the records
of
the Company regarding registration and transfers of this Debenture (the
“DebentureRegister”).
d)
Late
Fee.
All
overdue accrued and unpaid interest to be paid hereunder shall entail a late
fee
at an interest rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law (“Late Fees”) which shall accrue daily from
the date such interest is due hereunder through and including the date of
payment in full.
e)
Prepayment.
Except
as otherwise set forth in this Debenture, the Company may not prepay any portion
of the principal amount of this Debenture without the prior written consent
of
the Holder.
Section
3. Registration of Transfers and Exchanges.
a)
Different Denominations. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will be
payable for such registration of transfer or exchange.
b)
Investment Representations. This Debenture has been issued subject to
certain investment representations of the original Holder set forth in the
Subscription Agreement and may be transferred or exchanged only in compliance
with the Subscription Agreement and applicable federal and state securities
laws
and regulations.
c)
Reliance on Debenture Register. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the Person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment
as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section
4. Conversion.
a)
Voluntary Conversion. At any time after the Original Issue Date until
this Debenture is no longer outstanding, this Debenture shall be convertible,
in
whole or in part, into shares of Common Stock at the option of the Holder,
at
any time and from time to time (subject to the conversion limitations set forth
in Section 4(c) hereof). The Holder shall effect conversions by delivering
to
the Company a Notice of Conversion, the form of which is attached hereto as
Annex A (a “Notice of Conversion”), specifying therein the
principal amount of this Debenture to be converted and the date on which such
conversion shall be effected (a “Conversion Date”). If no Conversion Date
is specified in a Notice of Conversion, the Conversion Date shall be the date
that such Notice of Conversion is deemed delivered hereunder. To effect
conversions hereunder, the Holder shall not be required to physically surrender
this Debenture to the Company unless the entire principal amount of this
Debenture plus all accrued and unpaid interest thereon has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing the
principal amount(s) converted and the date of such conversion(s). The Company
may deliver an objection to any Notice of Conversion within 2 Business Days
of
delivery of such Notice of Conversion. In the event of any dispute or
discrepancy, the records of the Company shall be controlling and determinative
in the absence of manifest error. The
Holder and any assignee,
by acceptance of this Debenture, acknowledge and agree that, by reason of the
provisions of this
paragraph, following conversion of a portion of this Debenture, the unpaid
and
unconverted principal amount of this Debenture may be less than the amount
stated on the face hereof.
6
b)
Conversion
Price.
The
conversion price in effect on any Conversion Date shall be equal to $1.50
(subject
to adjustment herein) (the “Conversion Price”).
c)
Conversion
Limitations.
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 and the rules and regulations promulgated
thereunder. To the extent that the limitation contained in this Section 4(c)
applies, the determination of whether this Debenture is convertible (in relation
to other securities owned by such Holder together with any Affiliates) and
of
which principal amount of this Debenture is convertible shall be in the sole
discretion of such Holder, and the submission of a Notice of Conversion shall
be
deemed to be such Holder’s determination of whether this Debenture may be
converted (in relation to other securities owned by such Holder together with
any Affiliates) and which principal amount of this Debenture is convertible,
in
each case subject to such aggregate percentage limitations. To ensure compliance
with this restriction, each Holder will be deemed to represent to the Company
each time it delivers a Notice of Conversion that such Notice of Conversion
has
not violated the restrictions set forth in this paragraph and the Company shall
have no obligation to verify or confirm the accuracy of such determination.
In
addition, a determination as to any group status as contemplated above shall
be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section 4(c),
in
determining the number of outstanding shares of Common Stock, a Holder may
rely
on the number of outstanding shares of Common Stock as stated in the most recent
of the following: (A) the Company’s most recent Form 10-QSB or Form 10-KSB, as
the case may be; (B) a more recent public announcement by the Company; or (C)
a
more recent notice by the Company or the Company’s transfer agent setting forth
the number of shares of Common Stock outstanding. Upon the written request of a
Holder, the Company shall within two Trading Days confirm orally and in writing
to such Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined
after
giving effect to the conversion or exercise of securities of the Company,
including this Debenture, by such Holder or its Affiliates since the date as
of
which such number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon conversion of this Debenture held by the
Holder. The Beneficial Ownership Limitation provisions of this Section 4(c)
may
be waived by such Holder, at the election of such Holder, upon not less than
61
days’ prior written notice to the Company, to change the Beneficial Ownership
Limitation to 9.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock upon
conversion of this Debenture held by the Holder, and the provisions of this
Section 4(c) shall continue to apply. Upon such a change of the Beneficial
Ownership Limitation from such 4.99% limitation to such 9.99% limitation, the
Beneficial Ownership Limitation may not be further waived. 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.
7
d)
Mechanics
of Conversion.
i.
Conversion
Shares Issuable Upon Conversion of Principal Amount.
The
number of shares of Common Stock issuable upon a conversion hereunder shall
be
determined by the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the Conversion Price.
ii.
Delivery of Certificate Upon Conversion. Not later than three (3) Trading
Days after each Conversion Date (the “Share Delivery Date”), the Company
shall deliver, or cause to be delivered, to the Holder (A) a certificate or
certificates representing the Conversion Shares which, on or after the Effective
Date, shall be free of restrictive legends and trading restrictions (other
than
those which may then be required by the Subscription Agreement) representing
the
number of shares of Common Stock being acquired upon the conversion of this
Debenture and (B) a bank or corporate check in the amount of accrued and unpaid
interest. On or after the Effective Date, the Company shall use its best efforts
to deliver any certificate or certificates required to be delivered by the
Company under this Section 4 electronically through the Depository Trust Company
or another established clearing corporation performing similar functions.
iii.
Failure
to Deliver Certificates.
If in
the case of any Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the third Trading Day
after the Conversion Date, the Holder shall be entitled to elect by written
notice to the Company at any time on or before its receipt of such certificate
or certificates, to rescind such Notice of 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 to the Company the Common
Stock
any certificates representing the principal amount of this Debenture tendered
for conversion under such rescinded Notice of Conversion.
iv.
Obligation
Absolute; Partial Liquidated Damages.
If the
Company fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the third Trading Day after the
Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, for each $1000 of principal amount being
converted, $10 per Trading Day (increasing to $20 per Trading Day after 5
Trading Days after such damages begin to accrue) for each Trading Day after
such
third Trading Day until such certificates are delivered. 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.
Nothing herein shall limit a Holder’s right to pursue actual damages or declare
an Event of Default pursuant to Section 8 herein 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.
8
v.
Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion.
In addition to any other rights available to the Holder, if the Company fails
for any reason to deliver to the Holder such certificate or certificates by
the
Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share
Delivery Date the Holder is required by its brokerage firm to purchase (in
an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Conversion Shares which the Holder
was entitled to receive upon the conversion relating to such Share Delivery
Date
(a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in
addition to any other remedies available to or elected by the Holder) the amount
by which (x) the Holder’s total purchase price (including any brokerage
commissions) for the Common Stock so purchased exceeds (y) the product of (1)
the aggregate number of shares of Common Stock that such Holder was entitled
to
receive from the conversion at issue multiplied by (2) the actual sale price
at
which the sell order giving rise to such purchase obligation was executed
(including any brokerage commissions) and (B) at the option of the Holder,
either reissue (if surrendered) this Debenture in a principal amount equal
to
the principal amount of the attempted conversion or deliver to the Holder the
number of shares of Common Stock that would have been issued if the Company
had
timely complied with its delivery requirements under Section 4(d)(ii). For
example, if the Holder purchases Common Stock having a total purchase price
of
$11,000 to cover a Buy-In with respect to an attempted conversion of this
Debenture with respect to which the actual sale price of the Conversion Shares
(including any brokerage commissions) giving rise to such purchase obligation
was a total of $10,000 under clause (A) of the immediately preceding sentence,
the Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Company, evidence of the amount
of such loss. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
shares of Common Stock upon conversion of this Debenture as required pursuant
to
the terms hereof.
vi.
Reservation of Shares Issuable Upon Conversion. The Company covenants
that it will at all times reserve and keep available out of its authorized
and
unissued shares of Common Stock for the sole purpose of issuance upon conversion
of this Debenture and payment of interest on this Debenture, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder (and the other holders of the
Debentures), not less than such aggregate number of shares of the Common Stock
as shall (subject to the terms and conditions set forth in the Subscription
Agreement) be issuable (taking into account the adjustments and restrictions
of
Section 5) upon the conversion of the outstanding principal amount of this
Debenture and payment of interest hereunder. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and nonassessable and, if the
Registration Statement is then effective under the Securities Act, shall be
registered for public sale in accordance with such Registration Statement.
vii.
Fractional
Shares.
Upon a
conversion hereunder, in the event the conversion yields a fractional share,
the
Holder shall be entitled to receive, in lieu of the final fraction of a share,
one (1) whole share of Common Stock.
9
viii.
Transfer
Taxes.
The
issuance of certificates for shares of the Common Stock on conversion of this
Debenture shall be made without charge to the Holder hereof for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificates, provided that the Company shall not be required to pay
any
tax that may be payable in respect of any transfer involved in the issuance
and
delivery of any such certificate upon conversion in a name other than that
of
the Holder of this Debenture so converted and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that
such
tax has been paid.
Section
5.
Certain
Adjustments.
a)
Stock
Dividends and Stock Splits.
If the
Company, at any time while this Debenture is outstanding: (A) pays a stock
dividend or otherwise makes a distribution or distributions payable in shares
of
Common Stock on shares of Common Stock or any Common Stock Equivalents (which,
for avoidance of doubt, shall not include any shares of Common Stock issued
by
the Company upon conversion of, or payment of interest on, the Debentures);
(B)
subdivides outstanding shares of Common Stock into a larger number of shares;
(C) combines (including by way of a reverse stock split) outstanding shares
of
Common Stock into a smaller number of shares; or (D) issues, in the event of
a
reclassification of shares of the Common Stock, any shares of capital stock
of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
any
treasury shares of the Company) outstanding immediately before such event and
of
which the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to this Section
shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
b)
Subsequent
Equity Sales.
If the
Company or any Subsidiary thereof, as applicable, at any time while this
Debenture is outstanding, sells or grants any option to purchase or sells or
grants any right to reprice its securities, or otherwise disposes of or issues
(or announces any sale, grant or any option to purchase or other disposition)
any Common Stock Equivalents entitling any Person to acquire shares of Common
Stock at an effective price per share that is lower than the then in effect
Conversion Price (such lower price, the “Base Conversion Price” and such
issuances collectively, a “Dilutive Issuance”) (if the holder of the
Common Stock Equivalents so issued shall at any time, whether by operation
of
purchase price adjustments, reset provisions, floating conversion, exercise
or
exchange prices or otherwise, or due to warrants, options or rights per share
which are issued in connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share that is lower than the
Conversion Price, such issuance shall be deemed to have occurred for less than
the Conversion Price on such date of the Dilutive Issuance), then the Conversion
Price shall be reduced to equal the Base Conversion Price. Such adjustment
shall
be made whenever such Common Stock Equivalents are issued. The Company shall
notify the Holder in writing, no later than the second Business Day following
the issuance of any Common Stock Equivalents subject to this Section 5(b),
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“Dilutive Issuance Notice”). For purposes of clarification, whether or
not the Company provides a Dilutive Issuance Notice pursuant to this Section
5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled
to
receive a number of Conversion Shares based upon the Base Conversion Price
on or
after the date of such Dilutive Issuance, regardless of whether the Holder
accurately refers to the Base Conversion Price in the Notice of Conversion.
c)
Subsequent
Rights Offerings.
If the
Company, at any time while the Debenture is outstanding, shall issue rights,
options or warrants to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share that is lower than the VWAP on the record date referenced below,
then
the Conversion Price shall be multiplied by a fraction of which the denominator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
delivery to the Company in full of all consideration payable upon exercise
of
such rights, options or warrants) would purchase at such VWAP. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
10
d)
Pro
Rata Distributions. If the Company, at any time while this Debenture is
outstanding, distributes to all holders of Common Stock (and not to the Holders)
evidences of its indebtedness or assets (including cash and cash dividends)
or
rights or warrants to subscribe for or purchase any security (other than the
Common Stock, which shall be subject to Section 5(b)), then in each such case
the Conversion Price shall be adjusted by multiplying such Conversion Price
in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the
then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one (1) outstanding share of the
Common Stock as determined by the Board of Directors of the Company in good
faith. In either case the adjustments shall be described in a statement
delivered to the Holder describing the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one (1)
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
e)
Fundamental Transaction. If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or consolidation of the Company
with or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one transaction or a series of related
transactions, (C) any tender offer or exchange offer (whether by the Company
or
another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of the Common Stock
or
any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in any
such
case, a “Fundamental Transaction”), then, upon any subsequent conversion
of this Debenture, the Holder shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion immediately
prior to the occurrence of such Fundamental Transaction, the same kind and
amount of securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of one (1) share of Common
Stock (the “Alternate
Consideration”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based on
the
amount of Alternate Consideration issuable in respect of one (1) share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration
it
receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder’s right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section
5(d)
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.
11
g)
Notice
to the Holder.
i.
Adjustment
to Conversion Price.
Whenever the Conversion Price is adjusted pursuant to any provision of this
Section 5, the Company shall promptly mail to each Holder a notice setting
forth
the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment. If the Company issues a variable rate
security in a Variable Rate Transaction (as defined in the Subscription
Agreement), despite the prohibition thereon in the Subscription Agreement,
the
Company shall be deemed to have issued Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be converted
or exercised.
ii.
Notice
to Allow Conversion by ▇▇▇▇▇▇.
If (A)
the Company shall declare a dividend (or any other distribution in whatever
form) on the Common Stock, (B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock of rights or warrants
to subscribe for or purchase any shares of capital stock of any class or of
any
rights, (D) the approval of any stockholders of the Company shall be required
in
connection with any reclassification of the Common Stock, any consolidation
or
merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory share exchange
whereby the Common Stock is converted into other securities, cash or property
or
(E) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, then, in each case,
the
Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of this Debenture, and shall cause to be delivered to
the
Holder at its last address as it shall appear upon the Debenture Register,
at
least 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.
Forced
Conversion.
Notwithstanding anything herein to the contrary, after the 6 month anniversary
of the Effective Date, on any date upon which all of the Equity Conditions
have
been met, the Company may, within two Trading Days of such date, deliver a
notice to the Holder (a “Forced Conversion Notice” and the date such notice is
received by the Holder, the “Forced Conversion Notice Date”) to cause the Holder
to immediately convert all or part of the then outstanding principal amount
of
Debentures pursuant to Section 4 (a “Forced Conversion”). The Company may only
effect a Forced Conversion Notice if all of the Equity Conditions are met
through the date of the applicable Forced Conversion. Any Forced Conversion
shall be applied ratably to all Holders based on their initial purchases of
Debentures pursuant to the Subscription Agreement. For purposes of clarity,
a
Forced Conversion shall be subject to all of the conditions of Section 4,
including the conversion limitations set forth in Section 4(c) and the Company’s
obligation to timely deliver certificates and interest payments, except
that
a Forced
Conversion may be effected by the Company regardless of whether the Holder
submits a Notice of Conversion provided that all other conditions are met.
Section
7.
Negative Covenants. As long as more than 20% of the aggregate principal amount
of the Debentures issued on the Original Issue Date pursuant to the Subscription
Agreements between the Company and the investors signatory thereto remain
outstanding and unconverted, the Company shall not, and shall not permit any
of
its Subsidiaries to, directly or indirectly, without the prior written approval
of those Holders owning more than a majority of the outstanding principal amount
of Debentures:
12
a)
other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
suffer to exist any indebtedness for borrowed money of any kind, including
but
not limited to, a guarantee, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom;
b)
other
than Permitted Liens, enter into, create, incur, assume or suffer to exist
any
Liens of any kind, on or with respect to any of its property or assets now
owned
or hereafter acquired or any interest therein or any income or profits
therefrom;
c)
amend
its charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;
d)
repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a
deminimis number of shares of its Common Stock or Common Stock
Equivalents other than as to (a) this Debenture, the Conversion Shares or
Warrant Shares as permitted or required under the Transaction Documents, and
(b)
repurchases of Common Stock or Common Stock Equivalents of departing officers
and directors of the Company (provided that such repurchases shall not exceed
an
aggregate of $100,000 for all officers and directors during the term of this
Debenture);
e)
enter
into any agreement with respect to any of the foregoing;
f)
pay
cash dividends or distributions on any equity securities of the Company;
or
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 10 Trading Days;
ii.
the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures which failure is not cured, if possible to cure,
within 10 Trading Days;
iii.
a
default or event of default (subject to any grace or cure period provided in
the
applicable agreement, document or instrument) shall occur under (A) any of
the
Transaction Documents or (B) any other material agreement, lease, document
or
instrument to which the Company or any Subsidiary is obligated (and not covered
by clause (vi) below);
iv.
any
representation or warranty made in this Debenture, any other Transaction
Documents, any written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Holder or any other
holder of Debentures shall be untrue or incorrect in any material respect as
of
the date when made or deemed made;
v.
the
Company or any Significant Subsidiary shall be subject to a Bankruptcy Event;
vi.
the
Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which
there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that (a) involves an
obligation greater than $150,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;
13
vii.
the
Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof; or
viii.
the
Common Stock shall not be eligible for listing or quotation for trading on
a
Trading Market and shall not be eligible to resume listing or quotation for
trading thereon within five Trading Days; or
ix.
the
Company shall be party to a Change of Control Transaction.
b)
Remedies Upon Event of Default. If any Event of Default occurs, the
outstanding principal amount of this Debenture, plus accrued but unpaid
interest, liquidated damages and other amounts owing in respect thereof through
the date of acceleration, shall become, at the Holder’s election, immediately
due and payable in cash at the Mandatory Default Amount. Commencing 5 days
after
the occurrence of any Event of Default that results in the eventual acceleration
of this Debenture, the interest rate on this Debenture shall accrue at an
interest rate equal to the lesser of 18% per annum or the maximum rate permitted
under applicable law. Upon the payment in full of the Mandatory Default Amount,
the Holder shall promptly surrender this Debenture to or as directed by the
Company. In connection with such acceleration described herein, the Holder
need
not provide, and the Company hereby waives, any presentment, demand, protest
or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder
and
all other remedies available to it under applicable law. Such acceleration
may
be rescinded and annulled by ▇▇▇▇▇▇ at any time prior to payment hereunder
and
the Holder shall have all rights as a holder of the Debenture until such time,
if any, as the Holder receives full payment pursuant to this Section 8(b).
No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section
9.
Milestone
Defaults.
a)
“Milestone Default” means, wherever used herein, whenever the Company
shall fail to achieve any of the following as reported in its periodic filings
on Forms 10-QSB, 10-KSB or other applicable filings with the Securities and
Exchange Commission:
i.
Revenue exceeding $12,000,000 and Operating Income (Loss) exceeding ($2,000,000)
for the period of January 1, 2007 through June 30, 2007;
ii.
Revenue exceeding $29,000,000 and Operating Income exceeding $4,000,000 for
the
period of January 1, 2007 through September 30, 2007; and
iii.
Revenue exceeding $47,000,000 and Operating Income exceeding $10,000,000 for
the
period of January 1, 2007 through December 31, 2007.
b)
Remedies Upon Milestone Defaults. If any Milestone Default occurs, at the
election of the Holder provided in writing to the Company within thirty (30)
calendar days of the filing of the applicable 10-QSB, 10-KSB or other filing
with the Securities and Exchange Commission, one-third (1/3) of the initial
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 immediately due and payable in cash at the Milestone
Default Amount. Commencing 10 days after ▇▇▇▇▇▇ gives notice for payment of
a
Milestone Default Amount, the Milestone Default Amount shall accrue interest
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 Milestone
Default Amount, the Holder shall promptly surrender this Debenture to or as
directed by the Company and, if any principal balance remains on the Debenture,
the Company shall reissue to the Holder a new Debenture reflecting such balance.
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 9(b).
No
such rescission or annulment shall affect any subsequent Milestone Default
or
impair any right consequent thereon.
14
Section
10.
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 ▇▇▇-▇▇▇-▇▇▇▇ Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, CFO
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 10.
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 10 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 10 between 5:30 p.m. (New York City
time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice
is
required to be given.
b)
Absolute Obligation. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, liquidated damages and
accrued interest, as applicable, on this Debenture at the time, place, and
rate,
and in the coin or currency, herein prescribed. This Debenture is a direct
debt
obligation of the Company. This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms set forth herein.
c)
Lost
or Mutilated Debenture.
If this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and substitution for and upon cancellation
of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the principal amount of this Debenture
so mutilated, lost, stolen or destroyed, but only upon receipt of evidence
of
such loss, theft or destruction of such Debenture, and of the ownership hereof,
reasonably satisfactory to the Company and customary and reasonable indemnity,
if requested.
d)
Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Debenture shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflict of laws thereof. Each party agrees that all legal
proceedings concerning the interpretation, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the “New York
Courts”). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Debenture
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in
any way any right to serve process in any other manner permitted by applicable
law. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Debenture or the transactions
contemplated hereby. If either party shall commence an action or proceeding
to
enforce any provisions of this Debenture, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys
fees and other costs and expenses incurred in the investigation, preparation
and
prosecution of such action or proceeding.
15
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.
i)
Assumption.
Any
successor to the Company or any surviving entity in a Fundamental Transaction
shall (i) assume, prior to such Fundamental Transaction, all of the obligations
of the Company under this Debenture and the other Transaction Documents pursuant
to written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) and (ii) issue to the
Holder a new debenture of such successor entity evidenced by a written
instrument substantially similar in form and substance to this Debenture,
including, without limitation, having a principal amount and interest rate
equal
to the principal amount and the interest rate of this Debenture and having
similar ranking to this Debenture, which shall be satisfactory to the Holder
(any such approval not to be unreasonably withheld or delayed). The provisions
of this Section 10(i) shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
of this Debenture.
j)
Secured
Obligation.
The
obligations of the Company under this Debenture are secured by all assets of
the
Company and each of the Company’s United States-based subsidiaries pursuant to
the Security Agreement, dated as of ____________, between the Company, Asante
Networks Inc., TechnoConcepts, Inc. (Nevada), and the Secured Parties (as
defined therein), subject to Permitted Liens ranking in priority to the
Debentures.
*********************
16
IN
WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
by a
duly authorized officer as of the date first above indicated.
| |
|
|
| By: | ||
|
Name:
|
||
|
Title:
|
||
17
ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the 8% Secured Convertible
Debenture of TechnoConcepts, Inc., a Colorado corporation (the “Company”), due
on [____________ , into shares of common stock, no par value (the “Common
Stock”), of the Company according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to
the
holder for any conversion, except for such transfer taxes, if any.
By
the
delivery of this Notice of Conversion the undersigned represents and warrants
to
the Company that its ownership of the Common Stock does not exceed the amounts
determined in accordance with Section 13(d) of the Exchange Act, specified
under
Section 4 of the Debenture.
The
undersigned agrees to comply with the prospectus delivery requirements under
the
applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
|
Conversion
calculations:
|
Date
to Effect Conversion: _________________
|
|
|
|
||
|
Principal
Amount of Debenture to be Converted: $________________
|
||
|
|
||
|
Number
of shares of Common Stock to be issued: _________________
|
||
|
|
||
|
Signature:
________________________________________________
Name:
___________________________________________________
Address:
_________________________________________________
_________________________________________________
|
||
|
Address
for delivery of shares (if different from above):
|
||
|
__________________________________________________
|
||
|
__________________________________________________
|
18
Schedule
1
CONVERSION
SCHEDULE
The
8%
Secured Convertible Debentures due on [________, in the aggregate principal
amount of $____________ issued by TechnoConcepts, Inc. This Conversion Schedule
reflects conversions made under Section 4 of the above referenced Debenture.
Dated:
|
Date
of Conversion
(or
for first entry,
Original
Issue Date)
|
|
Amount
of Conversion
|
|
Aggregate
Principal
Amount
Remaining
Subsequent
to
Conversion
(or
original
Principal
Amount)
|
|
Company
Attest
|
19