ORIGINAL ISSUE DISCOUNT VARIABLE RATE SELF-LIQUIDATING SENIOR SECURED CONVERTIBLE DEBENTURE DUE OCTOBER 1, 2009
EXHIBIT
B
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: June
___, 2008
Original
Conversion Price (subject to adjustment herein): $0.35
$_______________
ORIGINAL
ISSUE DISCOUNT
VARIABLE
RATE SELF-LIQUIDATING
SENIOR
SECURED CONVERTIBLE DEBENTURE
DUE
OCTOBER 1, 2009
THIS
ORIGINAL ISSUE DISCOUNT VARIABLE RATE SELF-LIQUIDATING SENIOR SECURED
CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued
Original Issue Discount Variable Rate Self-Liquidating Senior Secured
Convertible Debentures of Solomon Technologies, Inc., a Delaware corporation
(the “Company”),
having its principal place of business at ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
designated as its Original Issue Discount Variable Rate Self-Liquidating Senior
Secured Convertible Debenture due October 1, 2009 (this debenture, the
“Debenture”
and,
collectively with the other such series of debentures, the “Debentures”).
This
Debenture was issued for an original issue discount.
FOR
VALUE
RECEIVED, the Company promises to pay to ________ or its registered assigns
(the
“Holder”),
or
shall have paid pursuant to the terms hereunder, the principal sum of $_____
on
October 1, 2009 (the “Maturity
Date”)
or
such earlier date as this Debenture is required or permitted to be repaid as
provided hereunder, and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the
following additional provisions:
Section
1. Definitions.
For the
purposes hereof, in addition to the terms defined elsewhere in this Debenture,
(a) capitalized terms not otherwise defined herein shall have the meanings
set
forth in the Purchase Agreement and (b) the following terms shall have the
following meanings:
“Alternate
Consideration”
shall
have the meaning set forth in Section 5(e).
“Bankruptcy
Event”
means
any of the following events: (a) the Company or any Significant Subsidiary
(as
such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof, (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not dismissed
within 60 days after commencement, (c) the Company or any Significant Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered, (d) the Company or
any
Significant Subsidiary thereof suffers any appointment of any custodian or
the
like for it or any substantial part of its property that is not discharged
or
stayed within 60 calendar days after such appointment, (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the benefit of
creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts or (g) the Company or any Significant Subsidiary
thereof, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate
or
other action for the purpose of effecting any of the foregoing.
“Beneficial
Ownership Limitation”
shall
have the meaning set forth in Section 4(c).
“Business
Day”
means
any day except Saturday, Sunday, any day which shall be a federal legal holiday
in the United States or any day on which banking institutions in the State
of
New York are authorized or required by law or other governmental action to
close.
“Buy-In”
shall
have the meaning set forth in Section 4(d)(v).
“Change
of Control Transaction”
means
the occurrence after the date hereof of any of (i) an acquisition after the
date
hereof by an individual or legal entity or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Company, by
contract or otherwise) of in excess of 33% of the voting securities of the
Company (other than by means of conversion or exercise of the Debentures and
the
Securities issued together with the Debentures), or (ii) the Company merges
into
or consolidates with any other Person, or any Person merges into or consolidates
with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 66% of the
aggregate voting power of the
-
2 -
Company
or the successor entity of such transaction, or (iii) the Company sells or
transfers all or substantially all of its assets to another Person and the
stockholders of the Company immediately prior to such transaction own less
than
66% of the aggregate voting power of the acquiring entity immediately after
the
transaction, or (iv) a replacement at one time or within a three year period
of
more than one-half of the members of the 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.
“Conversion”
shall
have the meaning ascribed to such term in Section 4.
“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
Schedule”
means
the Conversion Schedule in the form of Schedule
1
attached
hereto.
“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).
“Equity
Conditions”
means,
during the period in question, (i) the Company shall have duly honored all
conversions and redemptions scheduled to occur or occurring by virtue of one
or
more Notices of Conversion of the Holder, if any, (ii) the Company shall have
paid all liquidated damages and other amounts owing to the Holder in respect
of
this Debenture, (iii)(a) there is an effective Registration Statement pursuant
to which the Holder is permitted to utilize the prospectus thereunder to resell
all of the shares of Common Stock issuable pursuant to the Transaction Documents
(and the Company believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future) or (b) all of the Conversion Shares
issuable pursuant to the Transaction Documents may be resold pursuant to Rule
144 without volume or manner-of-sale restrictions or current public information
requirements as determined by the counsel to the Company pursuant to a written
opinion letter to such effect, addressed and acceptable to the Transfer Agent
and the Holder, (iv) the Common Stock is trading on a Trading Market and all
of
the shares issuable pursuant to the Transaction Documents are listed or quoted
for trading on such Trading Market (and the Company believes, in good faith,
that trading of the Common Stock on a Trading Market will continue uninterrupted
for the foreseeable future), (v) there is a sufficient number of authorized
but
unissued and otherwise unreserved shares of Common Stock for the issuance of
all
of the shares issuable pursuant to the Transaction Documents, (vi) there is
no
existing Event of Default
-
3 -
or
no
existing event which, with the passage of time or the giving of notice, would
constitute an Event of Default, (vii) the issuance of the shares in question
(or, in the case of an Optional Redemption or Monthly Redemption, the shares
issuable upon conversion in full of the Optional Redemption Amount or Monthly
Redemption Amount) to the Holder would not violate the limitations set forth
in
Section 4(c) herein, (viii) there has been no public announcement of a pending
or proposed Fundamental Transaction or Change of Control Transaction that has
not been consummated, (ix) the Holder is not in possession of any information
provided by the Company that constitutes, or may constitute, material non-public
information and (x)
for
each Trading Day in a period of 30 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 (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.
“Fundamental
Transaction”
shall
have the meaning set forth in Section 5(e).
“Interest
Conversion Rate”
means
95% of the lesser of (a) the average of the VWAPs for the 5 consecutive Trading
Days ending on the Trading Day that is immediately prior to the applicable
Interest Payment Date or (b) the average of the VWAPs for the 5 consecutive
Trading Days ending on the Trading Day that is immediately prior to the date
the
applicable Interest Conversion Shares are issued and delivered if after the
Interest Payment Date.
“Interest
Conversion Shares”
shall
have the meaning set forth in Section 2(a).
“Interest
Notice Period”
shall
have the meaning set forth in Section 2(a).
“Interest
Payment Date”
shall
have the meaning set forth in Section 2(a).
“Interest
Period”
means,
initially, the period beginning on and including the Original Issue Date and
ending on and including June 30, 2008 and each successive period as follows:
the
period beginning on and including July 1 and ending on and including September
30; the period beginning on and including October 1 and ending on and including
December 31; the
period beginning on and including January 1 and ending on and including March
31; the period beginning on and including March 31 and ending on and including
June 30; and the period beginning on and including June 30 and ending on and
including September 30.
“Interest
Share Amount”
shall
have the meaning set forth in Section 2(a).
“Late
Fees”
shall
have the meaning set forth in Section 2(d).
-
4 -
“LIBOR”
means,
for each Interest Period (i) the six-month London Interbank Offered Rate for
deposits in U.S. dollars, as shown on the Trading Day immediately prior to
the
beginning of such Interest Period in The Wall Street Journal (Eastern Edition)
under the caption "Money Rates - London Interbank Offered Rates (LIBOR)"; or
(ii) if The Wall Street Journal does not publish such rate, the offered
one-month rate for deposits in U.S. dollars which appears on the Reuters Screen
LIBO Page as of 10:00 a.m., New York time, on the Trading Day immediately prior
to the beginning of such Interest Period, provided that if at least two rates
appear on the Reuters Screen LIBO Page on any such Trading Day, the "LIBOR"
for
such day shall be the arithmetic mean of such rates.
“Mandatory
Default Amount”
means
the sum of (i) the greater of (A) 130% of the outstanding principal amount
of
this Debenture, plus all accrued and unpaid interest hereon, or (B) the
outstanding principal amount of this Debenture, plus all accrued and unpaid
interest hereon, divided by the Conversion Price on the date the Mandatory
Default Amount is either (a) demanded (if demand or notice is required to create
an Event of Default) or otherwise due or (b) paid in full, whichever has a
lower
Conversion Price, multiplied by the VWAP on the date the Mandatory Default
Amount is either (x) demanded or otherwise due or (y) paid in full, whichever
has a higher VWAP, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of this Debenture. Notwithstanding anything herein to
the
contrary, if at the applicable time the Holder is able to and there are no
impediments to convert and immediately resell the Conversion Shares to the
public pursuant to a Registration Statement or under Rule 144, without (i)
the
requirement for the Company to be in compliance with the current public
information required under Rule 144 and (ii) volume or manner-of-sale
restrictions, the Mandatory Default Amount shall mean (y) the sum of 130% of
the
outstanding principal amount of this Debenture, plus all accrued and unpaid
interest hereon, and (z) all other amounts, costs, expenses and liquidated
damages due in respect of this Debenture.
“Monthly
Redemption”
means
the redemption of this Debenture pursuant to Section 6(a) hereof.
“Monthly
Redemption Amount”
means,
as to a Monthly Redemption, $______1,
plus
accrued but unpaid interest, liquidated damages and any other amounts then
owing
to the Holder in respect of this Debenture.
“Monthly
Redemption Date” means
the
1st of each month, commencing on January 1, 2009 and ending upon the full
redemption of this Debenture.
“Monthly
Redemption Notice”
shall
have the meaning set forth in Section 6(a) hereof.
“Monthly
Redemption Period”
shall
have the meaning set forth in Section 6(a) hereof.
| 1 |
1/10
of the original principal amount.
|
-
5 -
“Monthly
Redemption Price”
shall
have the meaning set forth in Section 6(a) hereof.
“Monthly
Redemption Share Amount”
shall
have the meaning set forth in Section 6(a) hereof.
“Notice
of Conversion”
shall
have the meaning set forth in Section 4(a).
“Optional
Redemption”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Amount”
means
the sum of (i) 115% of the principal amount of the Debenture then outstanding
and subject to redemption, (ii) accrued but unpaid interest on the redeemed
principal and (iii) all liquidated damages and other amounts due in respect
of
the principal amount being redeemed.
“Optional
Redemption Date”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Notice”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Notice Date”
shall
have the meaning set forth in Section 6(b).
“Original
Issue Date”
means
the date of the first issuance of this Debenture, regardless of any transfers
of
any portion of this Debenture and regardless of the number of instruments which
may be issued to evidence this Debenture.
“Permitted
Indebtedness”
means (a)
the
indebtedness evidenced by the Debentures, (b) the Indebtedness existing on
the
Original Issue Date and set forth on Schedule
3.1(aa)
attached
to the Purchase Agreement and any refinancing thereof, (b) lease obligations
and
purchase money indebtedness of up to $100,000, in the aggregate, incurred in
connection with the acquisition of capital assets and lease obligations with
respect to newly acquired or leased assets, and (c) indebtedness that (i) is
expressly subordinate to the Debentures pursuant to a written subordination
agreement with the Purchasers that is acceptable to each Purchaser in its sole
and absolute discretion and (ii) matures at a date later than the Maturity
Date.
“Permitted
Lien”
means
the individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being contested
in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Company) have been established
in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Company’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of
-
6 -
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) or (d) of the definition thereof; and
(d) Liens incurred in connection with Permitted Indebtedness under clause (b)
thereunder, provided that such Liens are not secured by assets of the Company
or
its Subsidiaries other than the assets so acquired or leased.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Pre-Redemption
Conversion Shares”
shall
have the meaning set forth in Section 6(a) hereof.
“Purchase
Agreement”
means
the Securities Purchase Agreement, dated as of June ___, 2008, among the Company
and the original Holders, as amended, modified or supplemented from time to
time
in accordance with its terms.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Share
Delivery Date”
shall
have the meaning set forth in Section 4(d).
“Subsidiary”
shall
have the meaning set forth in the Purchase Agreement.
“Trading
Day”
means
a
day on which the principal Trading Market is open for business.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the
New York Stock Exchange or the OTC Bulletin Board.
“Transaction
Documents”
shall
have the meaning set forth in the Purchase Agreement.
“VWAP”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted for trading as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)); (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if
-
7 -
prices
for the Common Stock are then reported in the “Pink Sheets” published by Pink
Sheets, LLC (or a similar organization or agency succeeding to its functions
of
reporting prices), the most recent bid price per share of the Common Stock
so
reported; or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith
by
the Holder and reasonably acceptable to the Company.
Section
2. Interest.
a) Payment
of Interest in Cash or Kind.
The
Company shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at a rate of interest per annum
equal to the higher of (a) 8.0% or (b) LIBOR during the applicable Interest
Period plus 2%, payable quarterly on January 1, April 1, July 1 and October
1,
beginning on the first such date after the Original Issue Date, on each Monthly
Redemption Date (as to that principal amount then being redeemed), on each
Optional Redemption Date (as to that principal amount then being redeemed),
on
each Conversion Date (as to that principal amount then being converted) and
on
the Maturity Date (each such date, an “Interest
Payment Date”)
(if
any Interest Payment Date is not a Business Day, then the applicable payment
shall be due on the next succeeding Business Day), in cash or, at the Company’s
option, in duly authorized, validly issued, fully paid and non-assessable shares
of Common Stock at the Interest Conversion Rate (the amount in U.S. dollars
to
be paid in shares, the “Interest
Share Amount”)
or a
combination thereof; provided,
however,
that
payment in shares of Common Stock may only occur if (i) all of the Equity
Conditions have been met (unless waived by the Holder in writing) during the
5
Trading Days immediately prior to the applicable Interest Payment Date (the
“Interest
Notice Period”)
and
through and including the date such shares of Common Stock are issued to the
Holder, (ii) the Company shall have given the Holder notice in accordance with
the notice requirements set forth below and (iii) as to such Interest Payment
Date, prior to such Interest Notice Period (but not more than 5 Trading Days
prior to the commencement of such Interest Notice Period), the Company shall
have delivered to the Holder’s account with The Depository Trust Company a
number of shares of Common Stock to be applied against such Interest Share
Amount equal to the quotient of (x) the applicable Interest Share Amount divided
by (y) the then Conversion Price (the “Interest
Conversion Shares”).
b) Company’s
Election to Pay Interest in Cash or Shares of Common Stock.
Subject
to the terms and conditions herein, the decision whether to pay interest
hereunder in cash, shares of Common Stock or a combination thereof shall be
at
the sole discretion of the Company. Prior to the commencement of any Interest
Notice Period, the Company shall deliver to the Holder a written notice of
its
election to pay interest hereunder on the applicable Interest Payment Date
either in cash, shares of Common Stock or a combination thereof and the Interest
Share Amount as to the applicable Interest Payment Date, provided that the
Company may indicate in such notice that the election contained in such notice
shall apply to future Interest Payment Dates until revised by a subsequent
notice. During any Interest Notice Period, the Company’s election (whether
specific to an Interest Payment Date or continuous) shall be irrevocable as
to
such Interest Payment
-
8 -
Date.
Subject to the aforementioned conditions, failure to timely deliver such written
notice to the Holder shall be deemed an election by the Company to pay the
interest on such Interest Payment Date in cash. At any time the Company delivers
a notice to the Holder of its election to pay the interest in shares of Common
Stock, the Company shall timely file a prospectus supplement pursuant to Rule
424 disclosing such election. The aggregate number of shares of Common Stock
otherwise issuable to the Holder on an Interest Payment Date shall be reduced
by
the number of Interest Conversion Shares previously issued to the Holder in
connection with such Interest Payment Date.
c) Interest
Calculations.
Interest shall be calculated on the basis of a 360-day year, consisting of
twelve 30 calendar day periods, and shall accrue daily commencing on the
Original Issue Date until payment in full of the outstanding principal, together
with all accrued and unpaid interest, liquidated damages and other amounts
which
may become due hereunder, has been made. Payment of interest in shares of Common
Stock (other than the Interest Conversion Shares issued prior to an Interest
Notice Period) shall otherwise occur pursuant to Section 4(d)(ii) herein and,
solely for purposes of the payment of interest in shares, the Interest Payment
Date shall be deemed the Conversion Date. Interest shall cease to accrue with
respect to any principal amount converted, provided that the Company actually
delivers the Conversion Shares within the time period required by Section
4(d)(ii) herein. Interest hereunder will be paid to the Person in whose name
this Debenture is registered on the records of the Company regarding
registration and transfers of this Debenture (the “Debenture
Register”).
Except as otherwise provided herein, if at any time the Company pays interest
partially in cash and partially in shares of Common Stock to the holders of
the
Debentures, then such payment of cash shall be distributed ratably among the
holders of the then-outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase
Agreement.
d) Late
Fee.
All
overdue accrued and unpaid interest to be paid hereunder shall entail a late
fee
at an interest rate equal to the lesser of 15% 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 actual payment in full. Notwithstanding anything to the
contrary contained herein, if on any Interest Payment Date the Company has
elected to pay accrued interest in the form of Common Stock but the Company
is
not permitted to pay accrued interest in Common Stock because it fails to
satisfy the conditions for payment in Common Stock set forth in Section 2(a)
herein, then, at
the
option of the Holder, the
Company shall pay the regularly scheduled interest payment in cash. If any
Interest Conversion Shares are issued to the Holder in connection with an
Interest Payment Date and are not applied against an Interest Share Amount,
then
the Holder shall promptly return such excess shares to the Company.
e) Prepayment.
Except
as otherwise set forth in this Debenture, the Company may not prepay any portion
of the principal amount of this Debenture without the prior written consent
of
the Holder.
-
9 -
Section
3. Registration
of Transfers and Exchanges.
a) Different
Denominations.
This
Debenture is exchangeable for an equal aggregate principal amount of Debentures
of different authorized denominations, as requested by the Holder surrendering
the same. No service charge will be payable for such registration of transfer
or
exchange.
b) Investment
Representations.
This
Debenture has been issued subject to certain investment representations of
the
original Holder set forth in the Purchase Agreement and may be transferred
or
exchanged only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
c) Reliance
on Debenture Register.
Prior
to due presentment for transfer to the Company of this Debenture, the Company
and any agent of the Company may treat the Person in whose name this Debenture
is duly registered on the Debenture Register as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether
or
not this Debenture is overdue, and neither the Company nor any such agent shall
be affected by notice to the contrary.
Section
4. Conversion.
a) Voluntary
Conversion.
At any
time after the Original Issue Date until this Debenture is no longer
outstanding, this Debenture shall be convertible, in whole or in part, into
shares of Common Stock at the option of the Holder, at any time and from time
to
time (subject to the conversion limitations set forth in Section 4(c)
hereof). The Holder shall effect conversions by delivering to the Company a
Notice of Conversion, the form of which is attached hereto as Annex
A
(a
“Notice
of Conversion”),
specifying therein the principal amount of this Debenture to be converted and
the date on which such conversion shall be effected (such date, the
“Conversion
Date”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion is deemed delivered hereunder.
To effect conversions hereunder, the Holder shall not be required to physically
surrender this Debenture to the Company unless the entire principal amount
of
this Debenture, plus all accrued and unpaid interest thereon, has been so
converted. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture in an amount equal to the
applicable conversion. The Holder and the Company shall maintain records showing
the principal amount(s) converted and the date of such conversion(s). The
Company shall deliver an objection to any Notice of Conversion within 1 Business
Day of delivery of such Notice of Conversion. In the event of any dispute or
discrepancy, the records of the Company shall be controlling and determinative
in the absence of manifest error; provided,
however,
in the
event of a dispute the Company shall deliver Conversion Shares to the extent
that no dispute exists and in the event that the Company is later proved to
be
in error the Holder shall have the right to seek all remedies hereunder
retroactive to the Conversion Date. The
Holder, and any assignee by acceptance of this Debenture, acknowledge and agree
that, by reason of the provisions of this
-
10 -
paragraph,
following conversion of a portion of this Debenture, the unpaid and unconverted
principal amount of this Debenture may be less than the amount stated on the
face hereof.
b) Conversion
Price.
The
conversion price in effect on any Conversion Date shall be equal to $0.35
subject
to adjustment herein (the “Conversion
Price”).
c) ▇▇▇▇▇▇’s
Restriction on Conversion.
The
Company shall not effect any conversion of this Debenture, and a Holder shall
not have the right to convert any portion of this Debenture, to the extent
that
after giving effect to the conversion set forth on the applicable Notice of
Conversion, the Holder (together with the Holder’s Affiliates, and any other
person or entity acting as a group together with the Holder or any of the
Holder’s Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Debenture with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which are issuable
upon (A) conversion of the remaining, unconverted principal amount of this
Debenture beneficially owned by the Holder or any of its Affiliates and (B)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without limitation,
any
other Debentures or the Certificate of Designation) beneficially owned by the
Holder or any of its Affiliates. Except as set forth in the preceding sentence,
for purposes of this Section 4(c)(ii), beneficial ownership shall be calculated
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. To the extent that the limitation contained
in this Section 4(c)(ii) applies, the determination of whether this Debenture
is
convertible (in relation to other securities owned by the Holder together with
any Affiliates) and of which principal amount of this Debenture is convertible
shall be in the sole discretion of the Holder, and the submission of a Notice
of
Conversion shall be deemed to be the Holder’s determination of whether this
Debenture may be converted (in relation to other securities owned by the Holder
together with any Affiliates) and which principal amount of this Debenture
is
convertible, in each case subject to the Beneficial Ownership Limitation. To
ensure compliance with this restriction, the Holder will be deemed to represent
to the Company each time it delivers a Notice of Conversion that such Notice
of
Conversion has not violated the restrictions set forth in this paragraph and
the
Company shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of
the
Exchange Act and the rules and regulations promulgated thereunder. For purposes
of this Section 4(c)(ii), in determining the number of outstanding shares of
Common Stock, the 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 periodic or annual report, as the case may be; (B) a more recent public
announcement by the Company; or (C) a more recent notice by the Company or
the
Company’s transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of
-
11 -
a
Holder,
the Company shall within two Trading Days confirm orally and in writing to
the
Holder the number of shares of Common Stock then outstanding. In any case,
the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
this Debenture, by the Holder or its Affiliates since the date as of which
such
number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation”
shall
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon
conversion of this Debenture held by the Holder. The Holder, upon not less
than
61 days’ prior notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 4(c)(ii), provided that the
Beneficial Ownership Limitation in no event exceeds 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 Beneficial Ownership Limitation provisions of this Section
4(c)(ii) shall continue to apply. Any such increase or decrease will not be
effective until the 61st day after such notice is delivered to the Company.
The
Beneficial Ownership Limitation provisions of this paragraph shall be construed
and implemented in a manner otherwise than in strict conformity with the terms
of this Section 4(c)(ii) to correct this paragraph (or any portion hereof)
which
may be defective or inconsistent with the intended Beneficial Ownership
Limitation contained herein or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The limitations contained
in this paragraph shall apply to a successor holder of this
Debenture.
d) Mechanics
of Conversion.
i. Conversion
Shares Issuable Upon Conversion of Principal Amount.
The
number of Conversion Shares issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the Conversion
Price.
ii. Delivery
of Certificate Upon Conversion.
Not
later than three Trading Days after each Conversion Date (the “Share
Delivery Date”),
the
Company shall deliver, or cause to be delivered, to the Holder (A) a certificate
or certificates representing the Conversion Shares which, on or after the
earlier of (i) the six month anniversary of the Original Issue Date or (ii)
the
Effective Date, shall be free of restrictive legends and trading restrictions
(other than those which may then be required by the Purchase Agreement)
representing the number of Conversion Shares being acquired upon the conversion
of this Debenture (including, if the Company has given continuous notice
pursuant to Section 2(b) for payment of interest in shares of Common Stock
at
least 5 Trading Days prior to the date on which the Notice of Conversion is
delivered to the Company, shares of Common Stock representing the payment of
accrued interest otherwise determined pursuant to Section 2(a) but assuming
that
the Interest Notice Period
-
12 -
is
the 5
Trading Days period immediately prior to the date on which the Notice of
Conversion is delivered to the Company and excluding for such issuance the
condition that the Company deliver Interest Conversion Shares as to such
interest payment) and (B) a Company check or wire transfer of immediately
available funds in the amount of accrued and unpaid interest (if the Company
has
elected or is required to pay accrued interest in cash). On or after the earlier
of (i) the six month anniversary of the Original Issue Date or (ii) 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 2nd
Trading
Day immediately following the Shares Delivery Date, the Holder shall be entitled
to elect by written notice to the Company at any time on or before its receipt
of such certificate or certificates, to rescind such Conversion, in which event
the Company shall promptly return to the Holder any original Debenture delivered
to the Company and the Holder shall promptly return to the Company the Common
Stock certificates representing the principal amount of this Debenture
unsuccessfully tendered for conversion to the Company.
iv. Obligation
Absolute; Partial Liquidated Damages.
The
Company’s obligations to issue and deliver the Conversion Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation
to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares; provided,
however,
that
such delivery shall not operate as a waiver by the Company of any such action
the Company may have against the Holder. In the event the Holder of this
Debenture shall elect to convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on any claim that the Holder
or anyone associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless an injunction from
a
court, on notice to Holder, restraining and or enjoining conversion of all
or
part of this Debenture shall have been sought and obtained, and the Company
posts a surety bond for the benefit of the Holder in the amount of 150% of
the
outstanding principal amount of this Debenture, which is subject to the
injunction, which bond shall remain in effect until the
-
13 -
completion
of arbitration/litigation of the underlying dispute and the proceeds of which
shall be payable to such Holder to the extent it obtains judgment. In the
absence of such injunction, the Company shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion. If the Company fails
for
any reason to deliver to the Holder such certificate or certificates pursuant
to
Section 4(d)(ii) by the fifth Trading Day after the Conversion Date, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
for each $1000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after the 2nd
Trading
Day immediately following the Shares Delivery Date until such certificates
are
delivered. Nothing herein shall limit a Holder’s right to pursue actual damages
or declare an Event of Default pursuant to Section 8 hereof for the Company’s
failure to deliver Conversion Shares within the period specified herein and
such
Holder shall have the right to pursue all remedies available to it hereunder,
at
law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief. The exercise of any such rights shall not prohibit
the
Holder from seeking to enforce damages pursuant to any other Section hereof
or
under applicable law.
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
2nd
Trading
Day immediately following the Share Delivery Date pursuant to Section 4(d)(ii),
and if after such Share Delivery Date the Holder is required by its brokerage
firm to purchase (in an open market transaction or otherwise), or the Holder’s
brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Conversion Shares which the Holder
was entitled to receive upon the conversion relating to such Share Delivery
Date
(a “Buy-In”),
then
the Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number
of
shares of Common Stock that such Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue
(if
surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely complied
with
its delivery requirements under Section 4(d)(ii). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this Debenture with respect
to
which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such
-
14 -
purchase
obligation was a total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts payable to
the
Holder in respect of the Buy-In and, upon request of the Company, evidence
of
the amount of such loss. Nothing herein shall limit a Holder’s right to pursue
any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to the Company’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of this Debenture as
required pursuant to the terms hereof.
vi. Reservation
of Shares Issuable Upon Conversion.
The
Company covenants that it will at all times reserve and keep available out
of
its authorized and unissued shares of Common Stock for the sole purpose of
issuance upon conversion of this Debenture and payment of interest on this
Debenture, each as herein provided, free from preemptive rights or any other
actual contingent purchase rights of Persons other than the Holder (and the
other holders of the Debentures), not less than such aggregate number of shares
of the Common Stock as shall (subject to the terms and conditions set forth
in
the Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the outstanding principal
amount of this Debenture and payment of interest hereunder. The Company
covenants that all shares of Common Stock that shall be so issuable shall,
upon
issue, be duly authorized, validly issued, fully paid and nonassessable and,
if
a Registration Statement is then effective under the Securities Act, shall
be
registered for public sale in accordance with such Registration
Statement.
vii. Fractional
Shares.
Upon a
conversion hereunder the Company shall not be required to issue stock
certificates representing fractions of shares of Common Stock, but shall instead
round the fraction to the nearest whole share.
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.
-
15 -
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) [INTENTIONALLY
DELETED].
c) [INTENTIONALLY
DELETED].
d) [INTENTIONALLY
DELETED]
e) Fundamental
Transaction.
If, at
any time while this Debenture is outstanding, (A) the Company effects any merger
or consolidation of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one transaction
or
a series of related transactions, (C) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “Fundamental
Transaction”),
then,
upon any subsequent conversion of this Debenture, the Holder shall have the
right to receive, for each Conversion Share that would have been issuable upon
such conversion immediately prior to the occurrence of such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of 1 share of Common Stock (the “Alternate
Consideration”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based on
the
amount of Alternate Consideration issuable in respect of 1 share of Common
Stock
in such Fundamental Transaction, and the Company shall apportion the Conversion
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the
-
16 -
Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration
it
receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder’s right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section
5(e)
and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
f) Calculations.
All
calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section
5,
the number of shares of Common Stock deemed to be issued and outstanding as
of a
given date shall be the sum of the number of shares of Common Stock (excluding
any treasury shares of the Company) issued and outstanding.
g) Notice
to the Holder.
i. Adjustment
to Conversion Price.
Whenever the Conversion Price is adjusted pursuant to any provision of this
Section 5, the Company shall promptly mail to each Holder a notice setting
forth
the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment and basic terms of the dilutive security.
If the Company enters into a Variable Rate Transaction, despite the prohibition
thereon in the Purchase Agreement, the Company shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible conversion
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
-
17 -
Debenture,
and shall cause to be delivered
to the Holder at its last address as it shall appear upon the Debenture
Register, at least 10 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
10-day period commencing on the date of such notice through the effective date
of the event triggering such notice.
Section
6. Redemption.
a) Monthly
Redemption.
On each
Monthly Redemption Date, the Company shall redeem the Monthly Redemption Amount
(such redemption, the “Monthly
Redemption”).
The
Monthly Redemption Amount payable on each Monthly Redemption Date shall be
paid
in cash; provided,
however,
as to
any Monthly Redemption and upon 12 Trading Days’ prior written irrevocable
notice (the “Monthly
Redemption Notice”),
in
lieu of a cash redemption payment the Company may elect to pay all or part
of a
Monthly Redemption Amount in Conversion Shares (such amount in U.S. dollars
to
be paid on a Monthly Redemption Date in Conversion Shares, the “Monthly
Redemption Share Amount”)
based
on a conversion price equal to 80% of the average of the VWAPs for the 10
consecutive Trading Days ending on the Trading Day that is immediately prior
to
the applicable Monthly Redemption Date (subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting the
Common Stock during such 10 Trading Day period) (the price calculated during
the
10 Trading Day period immediately prior to the Monthly Redemption Date, the
“Monthly
Redemption Price”
and
such 10 Trading Day period, the “Monthly
Redemption Period”);
provided,
further,
that
the Company may not pay the Monthly Redemption Amount in Conversion Shares
unless (y) from the date the Holder receives the duly delivered Monthly
Redemption Notice through and until the date such Monthly Redemption is paid
in
full, the Equity Conditions have been satisfied, unless waived in writing by
the
Holder, and (z) as to such Monthly Redemption, prior to such Monthly Redemption
Period (but not more than 5 Trading Days prior to the commencement of the
Monthly Redemption Period), the Company shall have delivered to the Holder’s
account with The Depository Trust Company (the date of such delivery, the
“Pre-Redemption
Conversion Shares Delivery Date”)
a
number of shares of Common Stock to be applied against such Monthly Redemption
Share Amount equal to the applicable Monthly Redemption Share
Amount
-
18 -
divided
by 80% of the average of the VWAPs for the 10 consecutive Trading Days
immediately preceding the Pre-Redemption Conversion Shares Delivery Date (the
“Pre-Redemption
Conversion Shares”); provided,
however,
with
respect to clause (y) of this sentence, the Holder has agreed to waive
subsections (ii), (iii), (vi), (x) of the definition of “Equity Conditions”,
provided that
(a)
the Conversion Shares may be sold by the Holder without volume or manner
restrictions and counsel to the Company has provided the Holder with an opinion
addressed to the transfer agent to such effect and acceptable to the transfer
agent, (b) no Event of Default restricts in any way the Holder’s ability to
immediately resell the Conversion Shares, and (c) the aggregate trading volume
of the Common Stock on the Trading Market for the 12 consecutive Trading Days
immediately prior to the applicable Monthly Redemption Date exceeds
$150,000.
The
Holder may convert, pursuant to Section 4(a), any principal amount of this
Debenture subject to a Monthly Redemption at any time prior to the date that
the
Monthly Redemption Amount, plus accrued but unpaid interest, liquidated damages
and any other amounts then owing to the Holder are due and paid in full. Unless
otherwise indicated by the Holder in the applicable Notice of Conversion, any
principal amount of this Debenture converted during the applicable Monthly
Redemption Period until the date the Monthly Redemption Amount is paid in full
shall be first applied to the principal amount subject to the Monthly Redemption
Amount payable in cash and then to the Monthly Redemption Amount payable in
Conversion Shares. Any principal amount of this Debenture converted during
the
applicable Monthly Conversion Period in excess of the Monthly Redemption Amount
shall be applied against the last principal amount of this Debenture scheduled
to be redeemed hereunder, in reverse time order from the Maturity Date;
provided,
however,
if any
such conversion is applied against such Monthly Redemption Amount, the
Pre-Redemption Conversion Shares, if any were issued in connection with such
Monthly Redemption or were not already applied to such conversions, shall be
first applied against such conversion. The Company covenants and agrees that
it
will honor all Notices of Conversion tendered up until such amounts are paid
in
full. The Company’s determination to pay a Monthly Redemption in cash, shares of
Common Stock or a combination thereof shall be applied ratably to all of the
holders of the then outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase
Agreement. At any time the Company delivers a notice to the Holder of its
election to pay the Monthly Redemption Amount in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 disclosing
such
election.
b) Optional
Redemption at Election of Company.
Subject
to the provisions of this Section 6, at any time after the Effective Date,
the
Company may deliver a notice to the Holder (an “Optional
Redemption Notice”
and
the
date such notice is deemed delivered hereunder, the “Optional
Redemption Notice Date”)
of its
irrevocable election to redeem some or all of the then outstanding principal
amount of this Debenture for cash in an amount equal to the Optional Redemption
Amount on the 12th
Trading
Day following the Optional Redemption Notice Date (such date, the “Optional
Redemption Date”
and
such redemption, the “Optional
Redemption”).
The
Optional Redemption Amount is payable in full on the Optional Redemption Date.
The Company may only
-
19 -
effect
an
Optional Redemption if each of the Equity Conditions shall have been met on
each
Trading Day during the period commencing on the Optional Redemption Notice
Date
through to the Optional Redemption Date and
through and including the date payment of the Optional Redemption Amount is
actually made.
If any
of the Equity Conditions shall cease to be satisfied at any time during the
12
Trading Day period, then the Holder may elect to nullify the Optional Redemption
Notice by notice to the Company within 3 Trading Days after the first day on
which any such Equity Condition has not been met (provided that if, by a
provision of the Transaction Documents, the Company is obligated to notify
the
Holder of the non-existence of an Equity Condition, such notice period shall
be
extended to the third Trading Day after proper notice from the Company) in
which
case the Optional Redemption Notice shall be null and void, ab initio.
The
Company covenants and agrees that it will honor all Notices of Conversion
tendered from the time of delivery of the Optional Redemption Notice through
the
date all amounts owing thereon are paid in full.
c) Redemption
Procedure.
The
payment of cash or, in the case of a Monthly Redemption, the issuance of Common
Stock if applicable, shall be payable on the Monthly Redemption Date or Optional
Redemption Date, as the case may be. In the case of a Monthly Redemption, in
the
event that the number of Pre-Redemption Conversion Shares exceeds the number
of
Conversion Shares required to be issued on the Monthly Redemption Date as set
forth in Section 6(a), within 3 Trading Days the Holder shall either (i) return
such excess Pre-Redemption Conversion Shares to the Company for cancellation
or
(ii) convert an additional principal amount of this Debenture at the Conversion
Price to be applied against such excess Pre-Redemption Conversion Shares. If
any
portion of the payment pursuant to a Monthly Redemption or Optional Redemption
shall not be paid by the Company by the applicable due date, interest shall
accrue thereon at an interest rate equal to the lesser of 15% per annum or
the
maximum rate permitted by applicable law until such amount is paid in full.
Notwithstanding anything herein contained to the contrary, if any portion of
the
Optional Redemption Amount or Monthly Redemption Amount, as applicable, remains
unpaid after such date, the Holder may elect, by written notice to the Company
given at any time thereafter accompanied by any payments of cash or Common
Stock
therefore paid by the Company in respect of such redemption, to invalidate
such Optional Redemption or Monthly Redemption, ab initio.
Notwithstanding anything to the contrary in this Section 6, the Company’s
determination to redeem in cash or its elections under Section 6(a) shall be
applied ratably among the Holders of Debentures.
The
Holder may elect to convert the outstanding principal amount of the Debenture
subject to redemptions under Sections 6(a) or 6(b) pursuant to Section 4 at
any
time prior to actual payment in cash for any redemption under this Section
6 by
the delivery of a Notice of Conversion to the Company.
Section
7. Negative
Covenants.
As long
as any portion of this Debenture remains outstanding, the Company shall not,
and
shall not permit any of its Subsidiaries to, directly or indirectly, except
with
the prior written consent of the Agent (as defined in the Security
Agreement):
-
20 -
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;
b) other
than Permitted Liens, enter into, create, incur, assume or suffer to exist
any
Liens of any kind, on or with respect to any of its property or assets now
owned
or hereafter acquired or any interest therein or any income or profits
therefrom;
c) amend
its
charter documents, including, without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;
d) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis
number
of shares of its Common Stock or Common Stock Equivalents other than as to
(a)
the Conversion Shares or shares of Preferred Stock as permitted or required
under the Transaction Documents and (b) repurchases of Common Stock or Common
Stock Equivalents of departing officers and directors of the Company, provided
that such repurchases shall not exceed an aggregate of $100,000 for all officers
and directors during the term of this Debenture;
e) pay
cash
dividends or distributions on any equity securities of the Company;
f) enter
into any transaction with any Affiliate of the Company which would be required
to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or
g) enter
into any agreement with respect to any of the foregoing.
Section
8. Events
of Default.
a) “Event
of Default”
means,
wherever used herein, any of the following events (whatever the reason for
such
event and whether such event shall be voluntary or involuntary or effected
by
operation of law or pursuant to any judgment, decree or order of any court,
or
any order, rule or regulation of any administrative or governmental
body):
i. any
default in the payment of (A) the principal amount of any Debenture or (B)
interest, liquidated damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default under clause
(B) above, is not cured within 3 Trading Days;
-
21 -
ii. the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (xi) below) which failure is not cured,
if
possible to cure, within the earlier to occur
of
(A)
5
Trading
Days after notice of such failure sent by the Holder or by any other
Holder
and (B)
10 Trading Days after the Company has become or should have become aware of
such
failure;
iii. a
default
or event of default (subject to any grace or cure period provided in the
applicable agreement, document or instrument) shall occur under (A) any of
the
Transaction Documents or (B) any other material agreement, lease, document
or
instrument to which the Company or any Subsidiary is obligated (and not covered
by clause (vi) below);
iv. any
representation
or warranty made in this Debenture, any other Transaction Documents, any written
statement pursuant hereto or thereto or any other report, financial statement
or
certificate made or delivered to the Holder or any other Holder shall
be
untrue or incorrect in any material respect as of the date when made or deemed
made;
v. the
Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w)
of Regulation S-X) shall be subject to a Bankruptcy Event;
vi. the
Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which
there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that (a) involves an
obligation greater than $150,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;
vii. the
Common Stock shall not be eligible for listing or quotation for trading on
a
Trading Market and shall not be eligible to resume listing or quotation for
trading thereon within five Trading Days;
viii. the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or in excess of 40% of
its
assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);
-
22 -
ix. the
Company shall fail for any reason to deliver certificates to a Holder prior
to
the seventh Trading Day after a Conversion Date pursuant to Section 4(d) or
the
Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof;
x. any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any Subsidiary or any of their respective property or
other
assets for more than $50,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar days;
or
xi. if
a
proper Disclosure Request has been made pursuant to Section 4.6(b) of the
Purchase Agreement and the Company fails to either (i) make public disclosure
of
the information that is the subject of such Disclosure Request in a manner
consistent with Rule 101(e) of Regulation FD or (ii) provide such Purchaser
with
a written statement that the Company does not believe that such information
is
material nonpublic information or that it was delivered pursuant to the prior
request or consent of such Purchaser, in either case within 5 business days
of
its receipt of such Disclosure Request.
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 15% per annum or the
maximum rate permitted under applicable law. Upon the payment in full of the
Mandatory Default Amount, the Holder shall promptly surrender this Debenture
to
or as directed by the Company. In connection with such acceleration described
herein, the Holder need not provide, and the Company hereby waives, any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all
of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such acceleration may be rescinded and annulled by ▇▇▇▇▇▇ at
any
time prior to payment hereunder and the Holder shall have all rights as a holder
of the Debenture until such time, if any, as the Holder receives full payment
pursuant to this Section 8(b). No such rescission or annulment shall affect
any
subsequent Event of Default or impair any right consequent thereon.
Section
9. Miscellaneous.
a) Notices.
Any and
all notices or other communications or deliveries to be provided by the Holder
hereunder, including, without limitation, any Notice of
-
23 -
Conversion,
shall be in writing and delivered personally, by facsimile, or sent by a
nationally recognized overnight courier service, addressed to the Company,
at
the address set forth above, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇,
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. or
such
other facsimile number or address as the Company may specify for such purpose
by
notice to the Holder delivered in accordance with this Section 9(a). Any and
all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, or sent
by
a nationally recognized overnight courier service addressed to each Holder
at
the facsimile number or address of the Holder appearing on the books of the
Company, or if no such facsimile number or address appears, at the principal
place of business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date
of
transmission, if such notice or communication is delivered via facsimile at
the
facsimile number specified on the signature page 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 on the signature page between 5:30 p.m. (New York City time) and
11:59
p.m. (New York City time) on any date, (iii) the second Business Day following
the date of mailing, if sent by nationally recognized overnight courier service
or (iv) upon actual receipt by the party to whom such notice is required to
be
given.
b) Absolute
Obligation.
Except
as expressly provided herein, no provision of this Debenture shall alter or
impair the obligation of the Company, which is absolute and unconditional,
to
pay the principal of, liquidated damages and accrued interest, as applicable,
on
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct debt obligation of the Company. This
Debenture ranks pari passu
with all
other Debentures now or hereafter issued under the terms set forth
herein.
c) Lost
or Mutilated Debenture.
If this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and substitution for and upon cancellation
of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the principal amount of this Debenture
so mutilated, lost, stolen or destroyed, but only upon receipt of evidence
of
such loss, theft or destruction of such Debenture, and of the ownership hereof,
reasonably satisfactory to the Company.
d) Governing
Law; Arbitration.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York. Any controversy or claim arising out of or
related to this Debenture or the breach thereof, shall be settled by binding
arbitration in New York, New York in accordance with the Expedited Procedures
(Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration
Association (“AAA”).
A
proceeding shall be commenced upon written demand by the Company or Holder
to
the other. The arbitrator(s) shall enter a judgment by default against any
party, which fails or refuses to appear in any properly noticed arbitration
proceeding. The proceeding shall be conducted by one (1)
arbitrator,
-
24 -
unless
the amount alleged to be in dispute exceeds two hundred fifty thousand dollars
($250,000), in which case three (3) arbitrators shall preside. The arbitrator(s)
will be chosen by the parties from a list provided by the AAA, and if the
parties are unable to agree within ten (10) days, the AAA shall select the
arbitrator(s). The arbitrators must be experts in securities law and financial
transactions. The arbitrators shall assess costs and expenses of the
arbitration, including all attorneys’ and experts’ fees, as the arbitrators
believe is appropriate in light of the merits of the parties’ respective
positions in the issues in dispute. Each party submits irrevocably to the
jurisdiction of any state court sitting in New York, New York or to the United
States District Court sitting in New York, New York for purposes of enforcement
of any discovery order, judgment or award in connection with such arbitration.
The award of the arbitrator(s) shall be final and binding upon the parties
and
may be enforced in any court having jurisdiction. The arbitration shall be
held
in such place as set by the arbitrator(s) in accordance with Rule 55. With
respect to any arbitration proceeding in accordance with this section, the
prevailing party’s reasonable attorney’s fees and expenses shall be borne by the
non-prevailing party.
Although
the parties, as expressed above, agree that all claims, including claims that
are equitable in nature, for example specific performance, shall initially
be
prosecuted in the binding arbitration procedure outlined above, if the
arbitration panel dismisses or otherwise fails to entertain any or all of the
equitable claims asserted by reason of the fact that it lacks jurisdiction,
power and/or authority to consider such claims and/or direct the remedy
requested, then, in only that event, will the parties have the right to initiate
litigation respecting such equitable claims or remedies. The forum for such
equitable relief shall be in either a state or federal court sitting in New
York, New York. Each party waives any right to a trial by jury, assuming such
right exists in an equitable proceeding, and irrevocably submits to the
jurisdiction of said New York court. New York law shall govern both the
proceeding as well as the interpretation and construction of this Agreement
and
the transaction as a whole.
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
-
25 -
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 9(i) shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
of this Debenture.
j) Secured
Obligation.
The
obligations of the Company under this Debenture are secured by all assets of
the
Company and certain of the Subsidiaries pursuant to the Security Agreement,
dated as of August 30, 2007, between the Company, certain of the Subsidiaries
of
the Company and the Secured Parties (as defined therein).
*********************
-
26 -
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.
|
SOLOMON
TECHNOLOGIES, INC.
|
|
By:
__________________________________________
Name:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
Title:
President
|
-
27 -
ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the Original Issue Discount
Variable Rate Self-Liquidating Senior Secured Convertible Debenture due October
1, 2009 of Solomon Technologies, Inc., a Delaware corporation (the “Company”),
into
shares of common stock, par value $0.001 per share (the “Common
Stock”),
of
the Company according to the conditions hereof, as of the date written below.
If
shares of Common Stock are to be issued in the name of a person other than
the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to
the
holder for any conversion, except for such transfer taxes, if any.
By
the
delivery of this Notice of Conversion the undersigned represents and warrants
to
the Company that its ownership of the Common Stock does not exceed the amounts
specified under Section 4 of this Debenture, as determined in accordance with
Section 13(d) of the Exchange Act.
The
undersigned agrees to comply with the prospectus delivery requirements under
the
applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion
calculations:
Date
to
Effect Conversion:
Principal
Amount of Debenture to be Converted:
Payment
of Interest in Common Stock __ yes __ no
If
yes,
$_____ of Interest Accrued on Account of Conversion at Issue.
Number
of
shares of Common Stock to be issued:
Signature:
Name:
Address
for Delivery of Common Stock Certificates:
Or
DWAC
Instructions:
-
28 -
Schedule
1
CONVERSION
SCHEDULE
The
Original Issue Discount Variable Rate Self-Liquidating Senior Secured
Convertible Debentures due on October 1, 2009 in the aggregate principal amount
of $______ are issued by Solomon Technologies, 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
|
|
|
|||
-
29
-