EXHIBIT 4.1
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
(THE "ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION UNDER THE ACT OR AN
EXEMPTION THEREFROM.
CHINA MOBILITY SOLUTIONS, Inc.
Senior Convertible Debenture
Due: August [ ], 2006
$______________ Vancouver, B.C. Canada
No. ___________
FOR VALUE RECEIVED, China Mobility Solutions, Inc., a Florida corporation (the
"COMPANY"), hereby promises to pay to ______________ (the "HOLDER"), a
_________________ with a principal place of business located at _______________
or its registered assigns, the sum of ____________ Dollars ($____________) on
August [ ], 2006 (the "MATURITY DATE") plus interest thereon payable as
described in Section 1 below. This Debenture is one of a duly authorized issue
of Debentures of the Company designated as its "Senior Convertible Debentures
due 2006" (herein called the "DEBENTURES"), in the aggregate principal amount of
$2,000,000 (plus up to $1,350,000 of Debentures which may be issued as
over-subscriptions) at a per unit ("UNIT") purchase price ("PURCHASE PRICE") of
$25,000 and is issued pursuant to a Debenture Purchase and Warrant Agreement,
dated as of June 30, 2005, as amended (herein called the "AGREEMENT"), among the
Company and the Purchasers named therein, to which Agreement and all agreements
supplemental thereto reference is hereby made for a statement of the respective
rights and duties thereunder of the Company and the Holder and the terms upon
which this Debenture is, and is to be, delivered. Each Unit consists of a
$25,000 principal amount of Debentures, and Class A Warrants and Class B
Warrants (the "WARRANTS") to purchase shares of common stock, $0.001 par value
(the "COMMON STOCK") of the Company (the "WARRANT SHARES"). The number of
Warrants Shares issuable upon exercise of both the Class A Warrants and Class B
Warrants shall be determined by dividing the purchase price per Unit of $25,000
by the Conversion Price of the Debentures. This Debenture is being issued pari
passu with the other Debentures sold by the Company pursuant to the Agreement.
All capitalized terms used herein as defined terms but not otherwise
defined shall have the respective meanings ascribed to such terms in the
Agreement.
1. INTEREST AND PAYMENT
(a) The unpaid principal balance of this Debenture shall bear interest,
from and including the date hereof to and including the date upon which the
principal hereof shall have been paid in full at the rate of not less than 6%
per annum, equal to the sum of (i) 2% per annum, and (ii) the interest rate (the
"Interest") from time to time published in the "Money Rates" section of The Wall
Street Journal as the one-month London Interbank Offer Rate ("LIBOR"). Interest
shall be payable quarterly in arrears in cash or in kind, at the Holder's
option, commencing [ ], 2005.
(b) The Holder may elect in its sole discretion to receive Interest in
shares of the Company's Common Stock ("Interest Shares") in accordance with this
section. Payment of Interest in shares of Common Stock may only occur if: (i)
there is an effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the Interest
Shares; (ii) the Common Stock is listed for trading on a Principal Market; and
(iii) 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 Offering. Not less than 10 Trading Days prior to each Interest
payment date, the Holder shall provide the Company with written notice of its
election to receive Interest hereunder either in cash or Interest Shares.
Subject to the aforementioned conditions, failure to timely provide such written
notice shall be deemed an election by the Holder to receive the Interest on such
date in cash. The number of Interest Shares to be issued upon payment of
Interest under this Debenture shall be the number determined by a 10% discount
to the average Closing bid price of the Company's Common Stock for the 5
consecutive trading days commencing on the 15th day of the month in which
Interest shall by paid (or if such 15th day not a Business Day, then on the
Business Day immediately following such date).
(c) Payments of principal and interest shall be made in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public or private debts. No reference herein to
the Agreement and no provisions of this Debenture or of the Agreement shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of and interest on this Debenture at the
times, places, and rates, and in the coin or currency, herein prescribed.
(d) All payments received on account of this Debenture shall be applied
first to the payment of accrued interest on this Debenture and then to the
reduction of the unpaid principal balance of this Debenture.
(e) If payment of the outstanding principal amount of this Debenture,
together with accrued unpaid interest thereon at the applicable rate of interest
(as set forth herein), is not made on the earlier to occur of (i) the Maturity
Date and (ii) the Accelerated Maturity Date (as defined below), then interest
shall accrue on the outstanding principal amount due under this Debenture and on
any unpaid accrued interest due on this date of the payment in full of such
amounts (including from and after the date of the entry of judgment in favor of
the Holder in an action to collect this Debenture) at an annual rate equal to
the lesser of twelve percent (12%) or the maximum rate of interest permitted by
applicable law.
(f) Notwithstanding anything to the contrary contained in this
Debenture, the Company shall not be obligated to pay, and the Holder shall not
be entitled to charge, collect, or receive, interest in excess of the maximum
rate allowed by applicable law. During any period of time in which the interest
rate specified herein exceeds such maximum rate, any amounts of interest
collected by the Holder in excess of such maximum rate shall be deemed to apply
to principal and all payments of interest and principal shall be recalculated to
allow for such characterization.
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(g) In the event that the date for the payment of any amount payable
under this Debenture falls due on a Saturday, Sunday or public holiday under the
laws of the State of New York, the time for payment of such amount shall be
extended to the next succeeding business day and interest shall continue to
accrue on any principal amount so effected until the payment thereof on such
extended due date.
2. PREPAYMENT
The principal of this Debenture is subject to prepayment, together
with accrued interest, in accordance with Section 10 of this Debenture. Subject
to redemption, the aggregate principal amount of this Debenture plus accrued but
unpaid interest thereon shall be paid no later than August [ ], 2006.
3. COVENANTS OF THE COMPANY
The Covenants of the Company set forth in the Agreement are
incorporated herein as if set forth at length.
4. EVENTS OF DEFAULT.
If any of the following events (each an "EVENT OF DEFAULT") occurs:
(a) The dissolution of Company or any vote in favor thereof by the
board of directors and shareholders of Company; or
(b) Company makes an assignment for the benefit of creditors, or files
with a court of competent jurisdiction an application for appointment of a
receiver or similar official with respect to it or any substantial part of its
assets, or Company files a petition seeking relief under any provision of the
Federal Bankruptcy Code or any other federal or state statute now or hereafter
in effect affording relief to debtors, or any such application or petition is
filed against Company, which application or petition is not dismissed or
withdrawn within sixty (60) days from the date of its filing; or
(c) Company fails to pay the principal amount, interest or any other
amount payable under, this Debenture as and when the same becomes due and
payable; or
(d) Company admits in writing its inability to pay its debts as they
mature; or
(e) A proceeding is commenced to foreclose a security interest or lien
in any property or assets of Company as a result of a default in the payment or
performance of any debt (in excess of $50,000 and secured by such property or
assets) of Company or of any subsidiary of Company; or
(f) A proceeding or involuntary case shall be commenced, without the
application or consent of the Company or any Subsidiary thereof, in any court of
competent jurisdiction (i) under the Federal Bankruptcy Code, (ii) seeking
liquidation, reorganization, dissolution, winding up or composition or
readjustment of its debts under any other bankruptcy, insolvency, moratorium,
reorganization or other similar law of any jurisdiction, or (iii) seeking the
appointment of a trustee, receiver or similar official for it or for all or any
substantial part of its assets, and any such proceeding or case shall continue
undismissed, or unstayed and in effect, for a period of ninety (90) days; or
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(g) A final judgment for the payment of money in excess of $100,000 is
entered against Company by a court of competent jurisdiction, and such judgment
is not discharged (nor the discharge thereof duly provided for) in accordance
with its terms, nor a stay of execution thereof procured, within sixty (60) days
after the date such judgment is entered, and, within such period (or such longer
period during which execution of such judgment is effectively stayed), an appeal
therefrom has not been prosecuted and the execution thereof caused to be stayed
during such appeal; or
(h) An attachment or garnishment is levied against the assets or
properties of Company or any subsidiary of Company involving an amount in excess
of $100,000 and such levy is not vacated, bonded or otherwise terminated within
sixty (60) days after the date of its effectiveness; or
(i) Company defaults in the due observance or performance of any
covenant, condition or agreement on the part of Company to be observed or
performed pursuant to the terms of this Debenture or any of the Transaction
Agreements and such default continues uncured for a period of thirty (30) days;
or
(j) The Company or any Subsidiary thereof defaults in the payment when
due of the principal of, interest on, or any other liability on account of, any
indebtedness of the Company or such Subsidiary having an unpaid principal amount
in excess of $100,000, which causes the maturity of such indebtedness to be
accelerated or permits the holder or holders of such indebtedness to declare the
same to be due prior to the stated maturity thereof, and such default has not
been cured within sixty (60) days after the occurrence of such default;
provided, however, that it shall not be deemed an Event of Default under this
Section 4 if the reason for the Company or any Subsidiary to make such payment
when due is due to the fact that such payment or indebtedness is being disputed
in good faith by the Company or such Subsidiary; or
(k) Any representation, warranty or statement of fact made by the
Company in the Transaction Agreements, or in any certificate or audited
financial statement delivered by the Company to the Holder at any time proves to
be false or misleading in any material respect when made or deemed made by the
Company; or
(l) The Company or any of its Subsidiaries sells all or substantially
all of its assets or merges or is consolidated with another corporation in which
the Company or such Subsidiary, as the case may be, is not the surviving
corporation, and the Debentures have not been expressly assumed by the surviving
entity;
then, upon the occurrence of any such Event of Default and at any time
thereafter, the principal amount, all accrued but unpaid interest on, and all
other amounts payable under this Debenture may be declared, and upon such
declaration shall become, immediately due and payable without presentment,
demand, protest, or other notice of any kind, all of which are expressly waived.
As used in this Debenture, "Accelerated Maturity Date" means any date prior to
the Maturity Date on which the principal of and any accrued and unpaid interest
on this Debenture is declared to be, or becomes, due pursuant to this Section 4.
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5. SUITS FOR ENFORCEMENT AND REMEDIES. If any one or more Events of
Default shall occur and be continuing, the Holder may proceed to (i) protect and
enforce Holder's rights either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant, condition or agreement
contained in this Debenture or in any agreement or document referred to herein
or in aid of the exercise of any power granted in this Debenture or in any
agreement or document referred to herein, (ii) enforce the payment of this
Debenture, or (iii) enforce any other legal or equitable right of the holder of
this Debenture. No right or remedy herein or in any other agreement or
instrument conferred upon the Holder of this Debenture is intended to be
exclusive of any other right or remedy, and each and every such right or remedy
shall be cumulative and shall be in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
6. SENIORITY
Notwithstanding anything herein contained to the contrary, the
Indebtedness evidenced by this Debenture shall be unsecured and senior in
priority to the payment of principal and interest on all existing or future
indebtedness. Each Holder, by accepting the same, agrees to and shall be bound
by such provisions.
7. CONVERSION
(a) At any time, if this Debenture is then outstanding, the Holder
shall have the right, in its sole discretion, to convert all or any part, but in
not less than $10,000 increments except for the final conversion which may be
for the remainder of the then outstanding principal amount of this Debenture,
with the accrued interest hereon (a "CONVERSION") into such number of fully paid
and non-assessable shares Common Stock of the Company (the "DEBENTURE SHARES")
at the conversion price determined in accordance herewith (the "CONVERSION
PRICE").
(b) The number of Debenture Shares to be delivered by the Company
pursuant to a Conversion shall be determined by dividing (i) the sum of (x) the
aggregate principal amount of the Debenture to be converted plus (y) all accrued
and unpaid Interest thereon by (ii) the Conversion Price in effect on the
applicable Conversion Date. The initial Conversion Price shall be equal to a
twenty percent (20%) discount of the average closing bid price (calculated to
the nearest $.0001) of the Company's Common Stock for the ten (10) consecutive
trading dates (the "Average Closing Price") immediately preceding and including
the second trading day immediately prior to the closing date (the "CLOSING
DATE"), but in no event less than $.30 per share (the "CONVERSION FLOOR
AMOUNT"). The Conversion Price shall be subject to adjustment, however, in
accordance with the provisions of this Section.
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(c) In order for the Holder to voluntarily convert this Debenture into
Debenture Shares, the Holder shall send to the Company by facsimile
transmission, at any time prior to 6:00 p.m., eastern time, on the Business Day
on which such Holder wishes to effect such Conversion (the "Conversion Date"),
(i) a notice of conversion, in substantially the form of Exhibit A hereto (a
"Notice"), stating the aggregate principal amount of the Debenture to be
converted, the amount of Interest accrued (but remaining unpaid) thereon, and a
calculation of the number of shares of Common Stock issuable upon such
Conversion and (ii) a copy of this Debenture. The Holder shall send the original
of the Notice and the Debenture to the Company or its counsel not later than the
close of business on the first Business Day following the Conversion Date. The
Company shall, no later than the close of business on the first Business Day
following the date on which the Company receives the Notice by facsimile
transmission issue and deliver to the Company's Transfer Agent irrevocable
instructions to issue and deliver or cause to be delivered to such Holder the
number of Debenture Shares determined pursuant to paragraph 7(b) above, within
two Business Days thereafter by either express mail or hand delivery. As of the
Conversion Date, this Debenture shall be deemed to have been converted into
Debenture Shares, which shall be deemed to be outstanding of record, and all
rights with respect to this Debenture (as to the portion converted) will
terminate, except for the right of the Holder hereof to receive certificates for
the number of Debenture Shares into which the Debenture has been converted,
unless delivery of the Debenture Shares is not timely made. In the event
delivery of the Debenture Shares is not timely made, the Holder may, upon
written notice to the Company, either elect a Buy-In as set forth in subsection
7(d) below, or regain on the date of such notice the rights of such Holder under
the Debenture and retain all of such ▇▇▇▇▇▇'s rights and remedies with respect
to the Company's failure to deliver such Debenture Shares.
(d) In addition to any other rights available to a Holder, if the
Company fails to deliver to the Holder a certificate representing Debenture
Shares by the third Trading Day after the date on which delivery of such
certificate is required by this Debenture, and if after such third Trading Day
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder on or after the
Conversion Date of the Debenture Shares that the Holder anticipated receiving
from the Company (a "BUY-IN"), then the Company shall, within three Trading Days
after the Holder's request and in the Holder's discretion, either (i) pay cash
to the Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
"BUY-IN PRICE"), at which point the Company's obligation to deliver such
certificate (and to issue such Common Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing such Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Price on the date of the event
giving rise to the Company's obligation to deliver such certificate.
Notwithstanding the foregoing, the Company shall have no liability under this
subsection (d) for the Buy-In Price if it has compiled with the requirements of
subsection (c) above and notwithstanding it using its best efforts to have its
transfer agent deliver the Debenture Shares to the Holders within three trading
days of the Holder's request such Debenture Shares are not delivered on a timely
basis.
A Conversion shall in no way limit or alter the Company's obligation to
pay any accrued but unpaid Interest hereunder or to pay Interest on any
principal hereunder outstanding after a Conversion. No fractional shares shall
be issued upon conversion of all of this Debenture. Any fractional share
interests equal to less than one-half share shall be disregarded, and fractional
share interests equal to one-half or more of a share shall be rounded up to a
full share.
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8. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall be
subject to adjustment from time to time as provided in this Section 8. In the
event that any adjustment of the Conversion Price required herein results in a
fraction of a cent, the Conversion Price shall be rounded up or down to the
nearest cent.
(a) Subdivision or Combination of Common Stock. If the Company, at any
time after the Closing Date (as defined in the Agreement), subdivides (by any
stock split, stock dividend, recapitalization, reorganization, reclassification
or otherwise) the outstanding shares of Common Stock into a greater number of
shares, then after the date of record for effecting such subdivision, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the Closing Date,
combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the outstanding shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting such
combination, the Conversion Price in effect immediately prior to such
combination will be proportionally increased.
(b) Distributions. If the Company shall declare or make any
distribution of cash or any other assets (or rights to acquire such assets) to
holders of Common Stock in respect of such Common Stock, as a partial
liquidating dividend or otherwise, including without limitation any dividend or
distribution to the Company's stockholders in shares (or rights to acquire
shares) of capital stock of a subsidiary (a "Distribution"), the Company shall
deliver written notice of such Distribution (a "Distribution Notice") to each
Holder at least thirty (30) days prior to the earlier to occur of (i) the record
date for determining stockholders entitled to such Distribution (the "Record
Date") and (ii) the date on which such Distribution is made (the "Distribution
Date"). The earlier to occur of the Record Date and the Distribution Date is
referred to herein as the "Determination Date". In the Distribution Notice to a
Holder, the Company must indicate whether the Company has elected (A) to deliver
to such Holder, at the same time that it makes such Distribution to its
stockholders, the same amount and type of assets being distributed in such
Distribution as though the Holder were a holder on the Determination Date
therefor of a number of shares of Common Stock into which the Debentures held by
such Holder are convertible as of such Determination Date (such number of shares
to be determined at the Conversion Price then in effect and without giving
effect to any limitations on such conversion) or (B) to reduce the Conversion
Price as of the Determination Date therefor by an amount equal to the fair
market value of the assets to be distributed divided by the number of shares of
Common Stock as to which such Distribution is to be made, such fair market value
to be reasonably determined in good faith by the independent members of the
Company's Board of Directors. If the Company does not notify the Holders of its
election pursuant to the preceding sentence within two (2) Business Days
following the date on which the Company publicly announces a Distribution, the
Company shall be deemed to have elected clause (A) of the preceding sentence.
(c) Dilutive Issuances.
(i) Adjustment Upon Dilutive Issuance. If, at any time after
the Closing Date and for a period of twelve months following the Closing Date,
the Company issues or sells any shares of Common Stock or any equity or equity
equivalent securities (including any equity, debt or other instrument that is at
any time over the life thereof convertible into or exchangeable for Common Stock
or other securities which are so convertible or exchangeable) (collectively,
"Common Stock Equivalents") for a per share consideration less than the
Conversion Price on the date of such issuance or sale (a "Dilutive Issuance") as
adjusted hereunder (if the holder of the Common Stock or Common Stock Equivalent
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 is issued in connection
with such issuance, be entitled to receive shares of Common Stock at a price per
share which is less than the Conversion Price, such issuance shall be deemed to
have occurred for less than the Conversion Price), then the Conversion Price
shall be adjusted so as to equal the value of the consideration received or
receivable by the Company (on a per share basis) for the additional shares of
Common Stock or Common Stock Equivalents so issued, sold or deemed issued or
sold in such Dilutive Issuance. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued.
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(ii) Effect On Conversion Price Of Certain Events. For
purposes of determining the adjusted Conversion Price under subparagraph (i) of
this paragraph (c), the following will be applicable:
(A) Issuance of Common Stock Equivalents. If the Company
issues or sells any Common Stock Equivalents, whether or not
immediately convertible, exercisable or exchangeable, and the price per
share for which Common Stock is issuable upon such conversion, exercise
or exchange is less than the Conversion Price in effect on the date of
issuance or sale of such Common Stock Equivalents, then the maximum
total number of shares of Common Stock issuable upon the conversion,
exercise or exchange of all such Common Stock Equivalents shall, as of
the date of the issuance or sale of such Common Stock Equivalents, be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share.
(B) Change in Conversion Rate. If, following an adjustment to
the Conversion Price upon the issuance of Common Stock Equivalents
pursuant to a Dilutive Issuance, there is a change at any time in (y)
the amount of additional consideration, if any, payable to the Company
upon the conversion, exercise or exchange of any Common Stock
Equivalents; or (z) the rate at which any Common Stock Equivalents are
convertible into or exercisable or exchangeable for Common Stock (in
each such case, other than under or by reason of provisions designed to
protect against dilution), then in any such case, the Conversion Price
in effect at the time of such change shall be readjusted to the
Conversion Price which would have been in effect at such time had such
Common Stock Equivalents still outstanding provided for such changed
additional consideration or changed conversion, exercise or exchange
rate, as the case may be, at the time initially issued or sold.
(C) Calculation of Consideration Received. If any Common Stock
or Common Stock Equivalents are issued or sold for cash, the
consideration received therefor will be the amount received by the
Company therefor. In case any Common Stock or Common Stock Equivalents
are issued or sold for a consideration part or all of which shall be
other than cash, including in the case of a strategic or similar
arrangement in which the other entity will provide services to the
Company, purchase services from the Company or otherwise provide
intangible consideration to the Company, the amount of the
consideration other than cash received by the Company (including the
net present
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value of the consideration other than cash expected by the Company for
the provided or purchased services) shall be the fair market value of
such consideration, except where such consideration consists of
publicly traded securities, in which case the amount of consideration
received by the Company will be the Market Price thereof on the date of
receipt. The term "Market Price" means, as of a particular date, the
average of the high and low price of the Common Stock for the ten (10)
consecutive Trading Days occurring immediately prior to (but not
including) any given date, as reported on the Principal Market. In case
any Common Stock or Common Stock Equivalents are issued in connection
with any merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of
the non-surviving corporation as is attributable to such Common Stock
or Common Stock Equivalents. The independent members of the Company's
Board of Directors shall calculate reasonably and in good faith, using
standard commercial valuation methods appropriate for valuing such
assets, the fair market value of any consideration other than cash or
securities.
(D) Issuances Without Consideration Pursuant to Existing
Securities. If the Company issues (or becomes obligated to issue)
shares of Common Stock pursuant to any anti-dilution or similar
adjustments (other than as a result of stock splits, stock dividends
and the like) contained in any Common Stock Equivalents outstanding as
of the date hereof, then all shares of Common Stock so issued shall be
deemed to have been issued for no consideration.
(iii) Exceptions To Adjustment Of Conversion Price.
Notwithstanding the foregoing, no adjustment to the Conversion Price shall be
made pursuant to this paragraph (c) upon the issuance of any Excluded
Securities. For purposes hereof, "Excluded Securities" means (A) securities
purchased under the Agreement; (B) securities issued upon conversion of the
Debentures or exercise of the Warrants; (C) shares of Common Stock issuable or
issued to (x) employees or directors from time to time either directly or upon
the exercise of options, in such case granted or to be granted in the discretion
of the Board of Directors, as approved by the independent members of the Board,
pursuant to one or more stock option plans or stock purchase plans in effect as
of the Closing Date or subsequently approved by the independent members of the
Board of Directors and by the Company's stockholders, or (y) to consultants or
vendors, either directly or pursuant to warrants to purchase Common Stock that
are outstanding on the date hereof or up to 100,000 shares of Common Stock, in
the aggregate, issued hereafter, provided such issuances are approved by the
Board of Directors or by the Company's stockholders; and (D) shares of Common
Stock issued in connection with any Common Stock Equivalents outstanding on the
date hereof.
(iv) Notice Of Adjustments. Upon the occurrence of an
adjustment to the Conversion Price pursuant to this paragraph (c) or any change
in the number or type of stock, securities and/or other property issuable upon
conversion of the Debentures, the Company, at its expense, shall promptly
compute such adjustment or readjustment or change and prepare and furnish to
each Holder a notice (an "Adjustment Notice") setting forth such adjustment or
readjustment or change and showing in detail the facts upon which such
adjustment or readjustment or change is based and shall, on or before the time
that it delivers an Adjustment Notice, publicly disclose the contents thereof.
The failure of the Company to deliver an Adjustment Notice shall not affect the
validity of any such adjustment.
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(d) Adjustments; Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 8,
each Holder shall, upon conversion of such Holder's Debentures, become entitled
to receive securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 8.
(e) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of the Debentures, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Agreement) be issuable (taking into account the
adjustments and restrictions of Section 8) upon the conversion of the
outstanding principal amount of the Debentures. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and, if the
Registration Statement has been declared effective under the Securities Act,
registered for public sale in accordance with such Registration Statement.
9. CONVERSION LIMITATIONS.
In no event shall a Holder be permitted to convert any Debentures to
the extent that, upon the Conversion of such Debentures, the number of shares of
Common Stock beneficially owned by such Holder (other than shares of Common
Stock issuable upon conversion of such Debentures or which would otherwise be
deemed beneficially owned except for being subject to a limitation on conversion
or exercise analogous to the limitation contained in this Section 9), when added
to the number of shares of Common Stock issuable upon the Conversion of such
Debentures, would exceed 4.99% of the number of shares of Common Stock then
issued and outstanding. As used herein, beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules thereunder.
To the extent that the limitation contained in this paragraph applies (and
without limiting any rights the Company may otherwise have), the Company may
rely on the Holder's determination of whether Debentures are convertible
pursuant to the terms hereof, the Company having no obligation whatsoever to
verify or confirm the accuracy of such determination, and the submission of a
Conversion Notice by the Holder shall be deemed to be the Holder's
representation that the Debentures specified therein are convertible pursuant to
the terms hereof. Nothing contained herein shall be deemed to restrict the right
of a Holder to convert Debentures at such time as the Conversion thereof will
not violate the provisions of this paragraph. The limitation contained in this
paragraph shall cease to apply to a Holder upon sixty-one (61) days' prior
written notice from such Holder to the Company.
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10. REDEMPTION
(a) The Debentures shall be subject to redemption, at the
Company's option at a redemption price equal to 125% of the principal amount,
plus accrued interest thereon at any time commencing six months after the
Effective Date of the Registration Statement. If the Company chooses to exercise
its right to redeem all or any portion of the Debentures, notice of such
redemption (the "Redemption Notice") shall be given by the Company to the
Holders of the Debentures to be redeemed as hereinafter set forth. The Company
covenants and agrees that it will honor all Conversion Notices tendered through
the third business day preceding the Redemption Date. The redemption payment
shall be made in cash on date fixed for redemption in the Company's notice of
redemption, as described below (the "Redemption Date"). The redemption payment
is due in full on the Redemption Date.
(b) The Company may only effect an redemption if from the
date of the Redemption Notice through to the Redemption Date, each of the
following shall be true: (i) the Company shall have duly honored all conversions
and redemptions scheduled to occur or occurring by virtue of one or more
Conversion Notices prior to the Redemption Date, (ii) no Event of Default has
occurred and is continuing; (iii) the Registration Statement is currently
available to the Holders and not subject to any stop order suspending the
effectiveness of the Registration Statement; and (iv) no public announcement of
a pending or proposed change of control transaction has occurred that has not
been consummated. If any of the foregoing conditions shall cease to be satisfied
at any time during the required period, then the Holder may elect to nullify the
Redemption Notice in which case the Redemption Notice shall be null and void, ab
initio.
(c) The Redemption. Notice shall be sent to the Holders of
the Debentures to be redeemed by certified or registered mail, return receipt
requested, to the registered Holders thereof at the respective addresses that
appear on the books of the Company. Each such Redemption Notice shall: (i)
specify the Redemption Date; (ii) state the place where payment of the
redemption price is to be made; (iii) state that payment of the Debentures to be
redeemed will be made at such place upon presentation and surrender of such
Debentures; (iv) state that interest accrued to the date fixed for redemption
will be paid as specified in said notice and that from and after said date
interest thereon will cease to accrue; (v) state that the right to convert the
principal and interest of the Debentures so to be redeemed will terminate at the
close of business on the third business day preceding the Redemption Date; and
(vi) state the conversion price and the number of shares of Common Stock
issuable upon conversion.
11. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE
If there shall occur any (i) reorganization, recapitalization,
reclassification, consolidation, merger, business combination, tender offer,
share exchange or similar event involving the Company in which the Common Stock
of the Company is converted into or exchanged for securities, cash or other
property of the Company or another entity or (ii) sales or other disposition by
the Company of all or substantially all of its assets (collectively, a
"TRANSACTION"), then, as a condition of such Transaction, the Company will give
each Holder at least twenty (20) Trading Days' written notice prior to the
earlier of (I) the closing or
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effectiveness of such Transaction and (II) the record date for the receipt of
such shares of stock or securities or other assets, and each Holder shall be
permitted to convert the Debentures held by such Holder in whole or in part, but
in not less than $10,000 increments, at any time prior to the record date for
the receipt of such consideration and lawful and adequate provision shall be
made whereby the Holder of this Debenture shall have the right to acquire and
receive upon the conversion of this Debenture, such shares of stock, securities
or assets as would have been issuable or payable (as part of the Transaction)
with respect to or in exchange for such number of outstanding shares of the
Company's Common Stock as would have been received upon conversion of this
Debenture immediately before such Transaction. If and to the extent that a
Holder retains any Debentures following such record date, the Company will cause
the surviving or, in the event of a sale of assets, purchasing entity, as a
condition precedent to such Transaction, to assume the obligations of the
Company with respect to the Debentures, with such adjustments to the Conversion
Price and the securities covered hereby as may be necessary in order to preserve
the economic benefits of the Debentures to such Holder.
In addition, the Company hereby covenants and agrees that immediately
after such Transaction, the Company shall not be in default in the performance
or observance of any of the terms, covenants and conditions of this Debenture.
12. RESTRICTION ON TRANSFER
This Debenture has been acquired for investment, and this Debenture has
not been registered under the securities laws of the United States of America or
any state thereof. Accordingly, no interest in this Debenture may be offered for
sale, sold or transferred in the absence of registration and qualification of
this Debenture, under applicable federal and state securities laws or an opinion
of counsel of Holder reasonably satisfactory to the Company that such
registration and qualification are not required.
13. WAIVER
The Company and all endorsers of this Debenture hereby waive
presentment, demand, notice of nonpayment, protest and all other demands and
notices, including without limitation notice of intent to accelerate or of
acceleration in connection with the delivery, acceptance, performance, default,
or enforcement of this Debenture, assent to any and all extensions or
postponements of the time of payment or any other indulgence, to any
substitution, exchange, or release of collateral, and/or to the addition or
release of any other party or person primarily or secondarily liable, and
generally waive all suretyship defenses and defenses in the nature thereof.
14. FEES AND EXPENSES
The Company will pay all costs and expenses of collection, including
reasonable attorneys' fees and court costs, incurred or paid by the Holder
hereof in enforcing this Debenture or the obligations evidenced hereby, to the
maximum extent permitted by law.
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15. GOVERNING LAW; JURISDICTION
This Debenture shall be deemed to be a contract made under the laws of
the State of New York, without giving effect to the conflicts of laws principles
thereof, and shall for all purposes be construed under and governed by the laws
of said jurisdiction.
THE COMPANY AND THE HOLDER EACH (I) AGREES THAT ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS DEBENTURE SHALL BE INSTITUTED
EXCLUSIVELY IN THE APPROPRIATE STATE COURT COUNTY OF NEW YORK, NEW YORK OR IN
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, (II)
WAIVES ANY OBJECTION WHICH THE COMPANY MAY HAVE NOW OR HEREAFTER BASED UPON
FORUM NON CONVENIENS OR TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND
(III) IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE STATE COURT, COUNTY OF NEW
YORK, NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK IN ANY SUCH SUIT, ACTION OR PROCEEDING.
16. MISCELLANEOUS
16.1 The headings of the various paragraphs of this Debenture are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Debenture.
16.2 The Company may deem and treat the registered Holder hereof as the
absolute owner of this Debenture (whether or not this Debenture shall be overdue
and notwithstanding any notice of ownership or writing hereon made by anyone
other than the Company, for the purpose of receiving payment hereof or thereof
or on account hereof and for all other purposes) and the Company shall not be
affected by notice to the contrary.
16.3 The obligations to make the payments provided for in this
Debenture are absolute and unconditional and not subject to any defense,
set-off, counterclaim, rescission, recoupment or adjustment whatsoever. No
provision of this Debenture shall alter or impair the obligations of the Company
hereby.
16.4 No forbearance, indulgence, delay or failure to exercise any right
or remedy with respect to this Debenture shall operate as a waiver or as an
acquiescence in any Default, nor shall any single or partial exercise of any
right or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy.
16.5 This Debenture is one of a series of Debentures issued by the
Company in the Offering and may be amended by the written consent of the Company
and holders of at least a majority of the aggregate principal amount of the
Debentures then outstanding. Notwithstanding the foregoing, no extension of the
maturity of the Debentures, waiver of an Event of Default, reduction in the
interest rate, modification in the terms of payment of the principal of or
interest on the Debentures, or reduction of the percentage required for
modification will be effective against any Debentureholder without his consent.
This Debenture may not be discharged (other than by payment), except by a
writing duly executed by the Company and Holder.
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16.6 All notices required to be given to any of the parties hereunder
shall be in writing and shall be deemed to have been sufficiently given for all
purposes when presented personally to such party, sent by telecopier (with the
original timely mailed), or sent by registered, certified or express mail,
return receipt requested, to such party at its address set forth below:
If to the Company, to:
China Mobility Solutions, Inc.
▇▇▇-▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇.▇. Canada V6C 1H2
Attn: ▇▇▇▇-▇▇▇▇ (▇▇▇▇▇▇) ▇▇, President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Holder, to:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
or hereafter given to the other party hereto pursuant to the provisions of this
Debenture.
16.7 The Company may not delegate its obligations under this Debenture
and such attempted delegations shall be null and void. The Holder may not
assign, pledge or otherwise transfer this Debenture without the prior written
consent of the Company (which consent shall not be unreasonably withheld except
in such instance where the proposed assignee or transferee is a direct or
indirect competitor or owns any interest in any business that competes, directly
or indirectly, with the Company). This Debenture inures to the benefit of Payee,
its successors and its assignee of this Debenture and binds the Company, and its
successors and assigns, and the terms "Payee" and "the Company" whenever
occurring herein shall be deemed and construed to include such respective
successors and assigns. Any assignment or transfer made in violation of this
Section 16.7 shall be void ab initio.
16.8 Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Debenture, and, in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Debenture, if mutilated,
the Company will make and deliver a new Debenture of like date and tenor, in
lieu hereof.
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Remainder of page intentionally left blank. Signature page follows.
-15-
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed as a sealed instrument.
Attest: CHINA MOBILITY SOLUTIONS, INC.
By:
-----------------------------------
▇▇▇▇-▇▇▇▇ (▇▇▇▇▇▇) Du
President, Director and Principal
Accounting Officer
[Corporate Seal]
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EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert this Debenture into shares of common
stock ("Common Stock") of CHINA MOBILITY SOLUTIONS, INC. according to the terms
and conditions of the Debenture as of the date written below. Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Debenture.
Date of Conversion:
---------------------------------
Principal Amount of Debenture and
accrued Interest to be Converted:
-------------------
Applicable Conversion Price:
------------------------
Number of Shares of
Common Stock to be Issued:
--------------------------
Name of Holder:
-------------------------------------
Address:
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
Signature:
------------------------------------------
Name:
Title:
Holder Requests Delivery to be made: (check one)
-----------------------------------
|_| By Delivery of Physical Certificates to the Above Address
|_| Through Depository Trust Corporation
(Account ___________________________)