8% SENIOR SECURED CONVERTIBLE DEBENTURE DUE THE MATURITY DATE
Exhibit
10.2
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: December 7, 2007
Original
Conversion Price (subject to adjustment herein): $0.15
$
7,000,000
8%
SENIOR SECURED CONVERTIBLE DEBENTURE
DUE
THE MATURITY DATE
THIS
DEBENTURE is one of a series of duly authorized and validly issued 8% Senior
Secured Convertible Debentures of Foldera, Inc., a Nevada corporation, (the
“Company”),
having its principal place of business at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇, designated as its 8% Senior Secured Convertible
Debenture due the Maturity Date (this debenture, the “Debenture”
and,
collectively with the other debentures of such series, the “Debentures”).
FOR
VALUE
RECEIVED, the Company promises to pay to Vision Opportunity Master Fund, Ltd.
or
its registered assigns (the “Holder”),
or
shall have paid pursuant to the terms hereunder, the principal sum of $7,000,000
(or such lesser amount as has been loaned) on the Maturity Date (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).
1
“Bankruptcy
Event”
means
any of the following events: (a) the Company or any Significant Subsidiary
(as
such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not dismissed
within 60 days after commencement; (c) the Company or any Significant Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company or
any
Significant Subsidiary thereof suffers any appointment of any custodian or
the
like for it or any substantial part of its property that is not discharged
or
stayed within 60 calendar days after such appointment; (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the benefit of
creditors; (f) the Company or any Significant Subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any Significant Subsidiary
thereof, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate
or
other action for the purpose of effecting any of the foregoing.
“Base
Conversion Price”
shall
have the meaning set forth in Section 5(b).
“Business
Day”
means
any day except any Saturday, any 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
otherwise by Vision or its Affiliates), or (ii) the Company merges into or
consolidates with any other Person, or any Person merges into or consolidates
with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 66%
of the
aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers all or substantially all
of
its assets to another Person and the stockholders of the Company immediately
prior to such transaction own less than 66%
of the
aggregate voting power of the acquiring entity immediately after the
transaction, or (iv) a replacement at one time or within a three-year period
of
more than one-half of the members of the Company’s board of directors which is
not approved by a majority of those individuals who are members of the board
of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), or (v) the execution and consummation by the
Company of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth in clauses (i) through (iv)
above.
2
“Conversion
Date”
shall
have the meaning set forth in Section 4(a).
“Conversion
Price”
shall
have the meaning set forth in Section 4(b).
“Conversion
Shares”
means,
collectively, the shares of Common Stock issuable upon conversion of this
Debenture in accordance with the terms hereof.
“Debenture
Register”
shall
have the meaning set forth in Section 2(d).
“Dilutive
Issuance”
shall
have the meaning set forth in Section 5(b).
“Dilutive
Issuance Notice”
shall
have the meaning set forth in Section 5(b).
“Draw
Down”
shall
have the meaning set forth in Section 2(a).
“Draw
Down Maximum”
shall
have the meaning set forth in Section 2(a).
“Draw
Down Period”
shall
have the meaning set forth in Section 2(a).
“Draw
Down Request”
shall
have the meaning set forth in Section 2(a).
“Effectiveness
Period”
shall
have the meaning set forth in the Registration Rights Agreement.
“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 due and owing to the Holder in respect of this Debenture, (iii)
there is an effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the shares
issuable pursuant to the Transaction Documents (and the Company believes, in
good faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iv) the Common Stock is trading on a Trading Market and
all of the shares issuable pursuant to the Transaction Documents are listed
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 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 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 and active
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 20 consecutive Trading Days prior
to
the applicable date in question, the daily trading volume for the Common Stock
on the principal Trading Market exceeds $50,000 (subject to adjustment for
forward and reverse stock splits and the like) per Trading Day.
3
“Event
of Default”
shall
have the meaning set forth in Section 8.
“Forced
Conversion”
shall
have the meaning set forth in Section 6.
“Forced
Conversion Date”
shall
have the meaning set forth in Section 6.
“Forced
Conversion Notice”
shall
have the meaning set forth in Section 6.
“Forced
Conversion Notice Date”
shall
have the meaning set forth in Section 6.
“Fundamental
Transaction”
shall
have the meaning set forth in Section 5(e).
“Late
Fees”
shall
have the meaning set forth in Section 2(d).
“Mandatory
Default Amount”
means
the sum of (i) the greater of (A) 115% of the outstanding principal amount
of
this Debenture, plus 100% of 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.
“Maturity
Date”
shall
mean the earlier of (i) 2 years from the last Draw Down or (ii) November 1,
2010.
4
“New
York Courts”
shall
have the meaning set forth in Section 9(d).
“Notice
of Conversion”
shall
have the meaning set forth in Section 4(a).
“Optional
Redemption”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Amount”
means
the sum of (i) 120% of the then outstanding principal amount of the Debenture,
(ii) accrued but unpaid interest and (iii) all liquidated damages and other
amounts due in respect of the Debenture.
“Optional
Redemption Date”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Notice”
shall
have the meaning set forth in Section 6(b).
“Optional
Redemption Notice Date”
shall
have the meaning set forth in Section 6(b).
“Original
Issue Date”
means
the date of the first issuance of the Debentures, regardless of any transfers
of
any Debenture and regardless of the number of instruments which may be issued
to
evidence such Debentures.
“Permitted
Indebtedness”
means
(a) the indebtedness evidenced by the Debentures and (b) indebtedness of up
to
$100,000 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 91st
day
following the Maturity Date, and (c) lease obligations and purchase money
Indebtedness of up to $500,000 in the aggregate.
“Permitted
Lien”
means
the individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being contested
in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Company) have been established
in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Company’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of the
Company and its consolidated Subsidiaries or (y) are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the property
or
asset subject to such Lien; (c) Liens incurred in connection with Permitted
Indebtedness under clauses (a) and (b) thereunder; and (d) Liens incurred in
connection with Permitted Indebtedness under clause (c) thereunder, provided
that such Liens are not secured by assets of the Company or its Subsidiaries
other than the assets so acquired or leased.
5
“Purchase
Agreement”
means
the Securities Purchase Agreement, dated as of December 5, 2007, among the
Company and the original Holders, as amended, modified or supplemented from
time
to time in accordance with its terms.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated as of the date of the Purchase
Agreement, among the Company and the original Holders, as amended, modified
or
supplemented from time to time in accordance with its terms.
“Registration
Statement”
means
a
registration statement that registers the resale of all Conversion Shares of
the
Holder, names the Holder as a “selling stockholder” therein, and meets the
requirements of the Registration Rights Agreement.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Share
Delivery Date”
shall
have the meaning set forth in Section 4(d).
“Subsidiary”
shall
have the meaning set forth in the Purchase Agreement.
“Threshold
Period”
shall
have the meaning set forth in Section 6.
“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.
Section
2. Draw
Downs and Interest.
a) Draw
Downs.
On the
Closing Date, the Holder shall loan the Company $1,000,000, in the aggregate
with the other Holders. On January 1, 2008, and on the 1st
day of
each month thereafter, at the Company’s sole option and upon 3 Business Days’
prior written notice from the Company (such notice, each a “Draw
Down Request”),
the
Company may request (i) on January 1, 2008 an additional $1,000,000, and (ii)
on
the first day of each month thereafter through and including November 1, 2008
an
additional $500,000, draw down of the aggregate principal amount from the
Holders (each a “Draw
Down”)
up to
a total of $7,000,000 (such aggregate amount, the “Draw
Down Maximum”)
and
each such Draw Down shall be as set forth on Annex
B,
attached hereto, which Vision shall be authorized to complete and rely upon
at
any time upon each Draw Down; provided,
however,
the
Company may only issue a Draw Down Request if, at the time of such Draw Down
Request, there are no Events of Default then existing and, if an Event of
Default is then existing, the Holder may reject such Draw Down Request. The
Holder shall have 3 Business Days’ from receipt of the Draw Down Request to
decide, in its sole and absolute discretion, whether to fund the Draw down,
and
shall communicate such decision to the Company no later than the 4th
Business
Day after such Draw Down Request. If the Holder determines to fund the Draw
Down
Request, it shall so fund within 5 Business Days of the Draw Down Request (the
“Draw Down Date”). The Company shall issue a Warrant per Section 2.2(c) of the
Purchase Agreement upon such funding. The Holder may, upon 5 Business Days’
prior written notice to the Company, accelerate the Draw Down Periods and
advance up to the Holder’s pro-rata share of the Draw Down Maximum to the
Company at any time prior to the six months prior to the Maturity Date. Together
with each Draw Down Request, the Company shall provide the Holder with a
certificate from either its chief executive officer or chief financial officer
certifying that (1) the representations and warranties of the Company in the
Purchase Agreement are true and correct in all material respects as of the
date
of such Draw Down Request and (2) there are no Events of Default (or events
which, with the passage of time or the giving of notice, would become Events
of
Default) then existing as of such Draw Down Request and Draw Down.
6
b) Payment
of Interest in Cash.
The
Company shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 8% per annum,
payable quarterly on January 1, April 1, July 1 and October 1, beginning on
the
first such date after the Original Issue Date, 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.
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. Interest shall cease to accrue with
respect to any principal amount converted, provided that, the Company actually
delivers the Conversion Shares within the time period required by Section
4(d)(ii) herein. Interest hereunder will be paid to the Person in whose name
this Debenture is registered on the records of the Company regarding
registration and transfers of this Debenture (the “Debenture
Register”).
d) Late
Fee.
All
overdue accrued and unpaid interest to be paid hereunder shall entail a late
fee
at an interest rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law (“Late
Fees”)
which
shall accrue daily from the date such interest is due hereunder through and
including the date of actual payment in full.
7
e) Prepayment.
Except
as otherwise set forth in this Debenture, the Company may not prepay any portion
of the principal amount of this Debenture without the prior written consent
of
the Holder.
Section
3. Registration
of Transfers and Exchanges.
a) Different
Denominations.
This
Debenture is exchangeable for an equal aggregate principal amount of Debentures
of different authorized denominations, as requested by the Holder surrendering
the same. No service charge will be payable for such registration of
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, the principal amount of 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 may deliver an objection to any Notice of Conversion within 2 Business
Days of delivery of such Notice of Conversion. In the event of any dispute
or
discrepancy, the records of the Holder shall be controlling and determinative
in
the absence of manifest error. The
Holder, and any assignee by acceptance of this Debenture, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of
a
portion of this Debenture, the unpaid and unconverted principal amount of this
Debenture may be less than the amount stated on the face
hereof.
8
b) Conversion
Price.
The
conversion price per share of Common Stock in effect on any Conversion Date
shall be equal to $0.15,
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 Warrants) 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), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. To the extent that the limitation
contained in this Section 4(c) applies, the determination of whether this
Debenture is convertible (in relation to other securities owned by 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), 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 the 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 (or such lesser number of days as shall
remain prior to the Maturity Date), may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 4(c). Any such increase or
decrease will not be effective until the 61st
day
after such notice is delivered to the Company (or such lesser number of days
as
shall remain prior to the Maturity Date). The
provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 4(c) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation.
The
limitations contained in this paragraph shall apply to a successor holder of
this
Debenture.
9
d) Mechanics
of Conversion.
i. Conversion
Shares Issuable Upon Conversion of Principal Amount.
The
number of Conversion Shares issuable upon a conversion hereunder shall, subject
to Section 4(c) above, be determined by the quotient obtained by dividing (x)
the outstanding principal amount of this Debenture to be converted by (y) the
Conversion Price.
ii. Delivery
of Certificate Upon Conversion.
Not
later than three Trading Days after each Conversion Date (the “Share
Delivery Date”),
the
Company shall deliver, or cause to be delivered, to the Holder (A) a certificate
or certificates representing the Conversion Shares which, on or after the
Effective Date, shall be free of restrictive legends and trading restrictions
(other than those which may then be required by the Purchase Agreement)
representing the number of Conversion Shares being acquired upon the conversion
of this Debenture and (B) a good check in the amount of accrued and unpaid
interest on the principal amount converted. On or after the Effective Date,
the
Company shall use its commercially 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.
10
iii. Failure
to Deliver Certificates.
If in
the case of any Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the third Trading Day
after the Conversion Date, the Holder shall be entitled to elect by written
notice to the Company at any time on or before its receipt of such certificate
or certificates, to rescind such 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 received by the Holder after rescission 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. In the absence
of
such injunction, the Company shall issue Conversion Shares or, if applicable,
cash, upon a properly noticed conversion. If the Company fails for any reason
to
deliver to the Holder such certificate or certificates pursuant to Section
4(d)(ii) by the third Trading Day after the Conversion Date, the Company shall
pay to the Holder, in cash, as liquidated damages and not as a penalty, for
each
$1,000 of principal amount being converted, $5.00 per Trading Day (increasing
to
$10.00 per Trading Day on the fifth (5th)
Trading
Day after such liquidated damages begin to accrue) for each Trading Day after
such third (3rd)
Trading
Day until such certificates are delivered. Nothing herein shall limit a Holder’s
right to pursue actual damages in lieu of such liquidated 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 the 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.
11
v. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion.
In
addition to any other rights available to the Holder, if the Company fails
for
any reason to deliver to the Holder such certificate or certificates by the
Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share
Delivery Date the Holder is required by its brokerage firm to purchase (in
an
open market transaction or otherwise), or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the
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 the Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue
(if
surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely complied
with
its delivery requirements under Section 4(d)(ii). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this Debenture with respect
to
which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In
and, upon request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock
upon
conversion of this Debenture as required pursuant to the terms hereof. In the
event the Company makes payment in respect of a Buy-In, the Company shall not
be
required to pay such Holder liquidated damages under Section 4(d)(iv) in respect
of the certificates resulting in such Buy-In.
12
vi. Reservation
of Shares Issuable Upon Conversion.
The
Company covenants that it will at all times reserve and keep available out
of
its authorized and unissued shares of Common Stock for the sole purpose of
issuance upon conversion of this Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of Persons
other than the Holder (and the other holders of the Debentures), not less than
such aggregate number of shares of the Common Stock as shall (subject to the
terms and conditions set forth in the Purchase Agreement) be issuable (taking
into account the adjustments of Section 5) upon the conversion of the
outstanding principal amount of this Debenture. The Company covenants that
all
shares of Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and nonassessable and, if the
Registration Statement is then effective under the Securities Act, shall be
registered for public sale in accordance with such Registration
Statement.
vii. Fractional
Shares.
No
fractional shares or scrip representing fractional shares shall be issued upon
the conversion of this Debenture. As to any fraction of a share which the Holder
would otherwise be entitled to purchase upon such conversion, the Company shall
at its election, either pay a cash adjustment in respect of such final fraction
in an amount equal to such fraction multiplied by the Conversion Price or round
up to the next 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 and the Company shall not be required to issue
or deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax
or
shall have established to the satisfaction of the Company that such tax has
been
paid.
Section
5. Certain
Adjustments.
a) Stock
Dividends and Stock Splits.
If the
Company, at any time while this Debenture is outstanding: (A) pays a stock
dividend or otherwise makes a distribution or distributions payable in shares
of
Common Stock on shares of Common Stock or any Common Stock Equivalents (which,
for avoidance of doubt, shall not include any shares of Common Stock issuable
by
the Company upon conversion of the Debentures); (B) subdivides outstanding
shares of Common Stock into a larger number of shares; (C) combines (including
by way of a reverse stock split) outstanding shares of Common Stock into a
smaller number of shares; or (D) issues, in the event of a reclassification
of
shares of the Common Stock, any shares of capital stock of the Company, then
the
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding any treasury shares of the
Company) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after
such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
13
b) Subsequent
Equity Sales.
If, at
any time while this Debenture is outstanding, the Company or any Subsidiary,
as
applicable, sells or grants any option to purchase or sells or grants any right
to reprice, or otherwise disposes of or issues (or announces any sale, grant
or
any option to purchase or other disposition), any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock at an
effective price per share that is lower than the then Conversion Price (such
lower price, the “Base
Conversion Price”
and
such issuances, collectively, a “Dilutive
Issuance”)
(if
the holder of the Common Stock or Common Stock Equivalents so issued shall
at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than the Conversion Price, such issuance shall, unless
adjustment is made hereunder by reason of the event underlying such price
adjustment, be deemed to have occurred for less than the Conversion Price on
such date of the Dilutive Issuance), then
the Conversion Price shall be reduced to equal the Base Conversion
Price.
Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued. Notwithstanding
the foregoing, no adjustment will be made under this Section 5(b) in respect
of
an Exempt Issuance.
If the
Company enters into a Variable Rate Transaction, despite the prohibition set
forth 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. The Company shall notify
the Holder in writing, no later than 2 Business Days following the issuance
of
any Common Stock or Common Stock Equivalents subject to this Section 5(b),
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“Dilutive
Issuance Notice”).
For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
Dilutive Issuance, the Holder is entitled to receive a number of Conversion
Shares based upon the Base Conversion Price on or after the date of such
Dilutive Issuance, regardless of whether the Holder accurately refers to the
Base Conversion Price in the Notice of Conversion.
14
c) Subsequent
Rights Offerings.
If the
Company, at any time while this Debenture is outstanding, shall issue rights,
options or warrants to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share that is lower than the VWAP on the record date referenced below,
then
the Conversion Price shall be multiplied by a fraction of which the denominator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
delivery to the Company in full of all consideration payable upon exercise
of
such rights, options or warrants) would purchase at such VWAP. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
d) Pro
Rata Distributions.
If the
Company, at any time while this Debenture is outstanding, distributes to all
holders of Common Stock (and not to the Holders) evidences of its indebtedness
or assets (including cash and cash dividends) or rights or warrants to subscribe
for or purchase any security (other than the Common Stock, which shall be
subject to Section 5(b)), then in each such case the Conversion Price shall
be
adjusted by multiplying such Conversion Price in effect immediately prior to
the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the numerator shall be
such
VWAP on such record date less the then fair market value at such record date
of
the portion of such assets or evidence of indebtedness so distributed applicable
to 1 outstanding share of the Common Stock as determined by the Board of
Directors of the Company in good faith. In either case the adjustments shall
be
described in a statement delivered to the Holder describing the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to 1 share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after
the
record date mentioned above.
e) Fundamental
Transaction.
If, at
any time while this Debenture is outstanding, (A) the Company effects any merger
or consolidation of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one transaction
or
a series of related transactions, (C) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “Fundamental
Transaction”),
then,
upon any subsequent conversion of this Debenture, the Holder shall have the
right to receive, for each Conversion Share that would have been issuable upon
such conversion immediately prior to the occurrence of such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of 1 share of Common Stock (the “Alternate
Consideration”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based on
the
amount of Alternate Consideration issuable in respect of 1 share of Common
Stock
in such Fundamental Transaction, and the Company shall apportion the Conversion
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration.
If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall
be
given the same choice as to the Alternate Consideration it receives upon any
conversion of this Debenture following such Fundamental Transaction. To the
extent necessary to effectuate the foregoing provisions, any successor to the
Company or surviving entity in such Fundamental Transaction shall issue to
the
Holder a new debenture consistent with the foregoing provisions and evidencing
the Holder’s right to convert such debenture into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply
with the provisions of this Section 5(e) and insuring that this Debenture (or
any such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
15
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 deliver 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.
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, or any compulsory share exchange
whereby the Common Stock is converted into other securities, cash or property
or
(E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation
or
winding up of the affairs of the Company, then, in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of this Debenture, and shall cause to be delivered
to the Holder at its last address as it shall appear upon the Debenture
Register, at least twenty (20) calendar days prior to the applicable record
or
effective date hereinafter specified, a notice stating (x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day period commencing on the date of such notice through the effective date
of the event triggering such notice.
16
Section
6. Forced
Conversion, Optional Redemption.
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a)
|
Forced
Conversion.
Notwithstanding anything herein to the contrary, if after the Effective
Date, the VWAP for each of any 20 consecutive Trading Days, which
period
shall have commenced only after the Effective Date (such period,
the
“Threshold
Period”),
exceeds $0.50 (subject to adjustment for reverse and forward stock
splits,
stock dividends, stock combinations and other similar transactions
of the
Common Stock that occur after the Original Issue Date), the Company
may,
within 2 Trading Days after the end of any such Threshold Period,
deliver
a written notice to the Holder (a “Forced
Conversion Notice”
and the date such notice is delivered to the Holder, the “Forced
Conversion Notice Date”)
to require and cause the Holder to convert all or part of the then
outstanding principal amount of this Debenture, it being agreed that
the
“Conversion
Date”
for purposes of Section 4 shall be deemed to occur on the third Trading
Day following the Forced Conversion Notice Date (such third Trading
Day,
the “Forced
Conversion Date”).
The Company may not deliver a Forced Conversion Notice, and any Forced
Conversion Notice delivered by the Company shall not be effective,
unless
all of the Equity Conditions are met (unless waived in writing by
the
Holder) on the Trading Day occurring during the applicable Threshold
Period through and including the later of the Forced Conversion Date
and
the Trading Day after the date such Conversion Shares pursuant to
such
conversion are delivered to the Holder. Any Forced Conversion shall
be
applied ratably to all Holders based on their initial purchases of
Debentures pursuant to the Purchase Agreement, provided that any
voluntary
conversions by a Holder shall be applied against the Holder’s pro rata
allocation, thereby decreasing the aggregate amount forcibly converted
hereunder if only a portion of this Debenture is forcibly converted.
For
purposes of clarification, a Forced Conversion shall be subject to
all of
the provisions of Section 4, including, without limitation, the provision
requiring payment of accrued but unpaid interest and liquidated damages
and limitations on conversions.
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17
|
b)
|
Optional
Redemption.
Subject to the provisions of this Section 6, at any time after the
18-month anniversary of the Effective Date, the Company may deliver
a
notice to the Holder (an “Optional
Redemption Notice”
and the date such notice is deemed delivered hereunder, the “Optional
Redemption Notice Date”)
of its irrevocable election to redeem some or all of the then outstanding
principal amount of this Debenture for cash in an amount equal to
the
Optional Redemption Amount on the 20th
Trading Day following the Optional Redemption Notice Date (such date,
the
“Optional
Redemption Date”
and such redemption, the “Optional
Redemption”).
The Optional Redemption Amount is payable in full on the Optional
Redemption Date. The Company may only effect an Optional Redemption
if
each of the Equity Conditions shall have been met (unless waived
in
writing by the Holder) 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 in full.
If any of the Equity Conditions shall cease to be satisfied at any
time
during the 20 Trading Day period, then the Holder may elect to nullify
the
Optional Redemption Notice by notice to the Company within 3 Trading
Days
after the first day on which any such Equity Condition has not been
met
(provided that if, by a provision of the Transaction Documents, the
Company is obligated to notify the Holder of the non-existence of
an
Equity Condition, such notice period shall be extended to the third
Trading Day after proper notice from the Company) in which case the
Optional Redemption Notice shall be null and void, ab initio.
The Company covenants and agrees that it will honor all Notices of
Conversion tendered from the time of delivery of the Optional Redemption
Notice through the date all amounts owing thereon are due and paid
in
full.
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c)
|
Redemption
Procedure.
The payment pursuant to an Optional Redemption shall be payable on
the
Optional Redemption Date. If any portion of the payment pursuant
to an
Optional Redemption shall not be paid by the Company by the applicable
due
date, interest shall accrue thereon at an interest rate equal to
the
lesser of 18% per annum or the maximum rate permitted by applicable
law
until such amount is paid in full. Notwithstanding anything herein
contained to the contrary, if any portion of the Optional Redemption
Amount remains unpaid after such date, the Holder may elect, by written
notice to the Company given at any time thereafter, to invalidate
such Optional Redemption, ab initio.
Notwithstanding anything to the contrary in this Section 6, the Company’s
determination to redeem shall be applied ratably among the Holders
of
Debentures.
The Holder may elect to convert the outstanding principal amount
of the
Debenture pursuant to Section 4 prior to actual payment in cash for
any
redemption under this Section 6 by the delivery of a Notice of Conversion
to the Company.
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18
Section
7. Negative
Covenants.
As long
as any portion of this Debenture remains outstanding, unless the holders of
at
least a majority in principal amount of the then outstanding Debentures shall
have otherwise given prior written consent, the Company shall not, and shall
not
permit any of its subsidiaries (whether or not a Subsidiary on the Original
Issue Date) to, directly or indirectly:
a) other
than Permitted Indebtedness, except with the prior written consent of the Agent
(as defined in the Security Agreement), 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 of indebtedness for borrowed
money;
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, its articles of incorporation
and bylaws, in any manner that materially and adversely affects any rights
of
the Holder;
d) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis
number
of shares of its Common Stock or Common Stock Equivalents other than as to
(a)
the Conversion Shares or Warrant Shares as permitted or required under the
Transaction Documents 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) repay,
repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness,
other than the Debentures if on a pro-rata basis, other than regularly scheduled
principal and interest payments as such terms are in effect as of the Original
Issue Date;
19
f) pay
cash
dividends or distributions on any equity securities of the Company;
g) 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
h) 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 10 Trading Days following written
notice;
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)
20
Trading
Days after notice of such failure sent by the Holder or by any other
Holder
and (B)
20 Trading Days after the Company has become, or should reasonably 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 within the earlier to occur of (i) 20 Trading Days after
notice of such default sent by the Holder or by any other Holder and (ii) 20
Trading Days after the Company shall become, or should reasonably have become,
aware of such failure, 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);
20
iv. any
representation
or warranty made in this Debenture, any other Transaction Documents, any written
statement pursuant hereto or thereto or any other report, financial statement
or
certificate made or delivered to the Holder or any other Holder shall
be
untrue or incorrect in any material respect as of the date when made or deemed
made;
v. the
Company or any Significant Subsidiary shall be subject to a Bankruptcy
Event;
vi. the
Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which
there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that (a) involves an
obligation greater than $100,000, 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 ten Trading Days;
viii. the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or in excess of
33%
of its
assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);
ix. the
Initial Registration Statement (as defined in the Registration Rights Agreement)
shall not have been declared effective by the Commission on or prior to the
360th
calendar
day after the final Draw Down;
x. if,
during the Effectiveness Period (as defined in the Registration Rights
Agreement), either (a) the effectiveness of the Registration Statement lapses
for any reason or (b) the Holder shall not be permitted to resell Registrable
Securities (as defined in the Registration Rights Agreement) under the
Registration Statement for a period of more than 20 consecutive Trading Days
or
30 non-consecutive Trading Days during any 12 month period; provided,
however,
that if
the Company
is negotiating a merger, consolidation, acquisition or sale of all or
substantially all of its assets or a
similar
transaction and, in the written opinion of counsel to the Company, the
Registration Statement would be required to be amended to include information
concerning such pending transaction(s) or the parties thereto which information
is not available or may not be publicly disclosed at the time, the Company
shall
be permitted an additional 20 consecutive Trading Days during any 12 month
period pursuant to this Section 8(a)(x);
21
xi. 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;
xii. any
Person shall materially breach any agreement delivered to the initial Holders
pursuant to Section 2.2(a)(vi) of the Purchase Agreement;
xiii. any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any subsidiary or any of their respective property or
other
assets for an uninsured amount of more than $100,000, and such judgment, writ
or
similar final process shall remain unvacated, unbonded or unstayed for a period
of 45 calendar days; or
xiv. (A)
the
Company shall not report net revenue of at least $250,000 for the 6 months
ended
June 30, 2008; or
(B)
the
Company shall not report net revenue of at least $600,000 for the 9 months
ended
September 30, 2008; or
(C)
the
Company shall not report net revenue of at least $2,500,000 for the 12 months
ended December 21, 2008; or
(D)
the
Company shall not report net revenue of at least $2,000,000 for any fiscal
quarter commencing with the quarter ending March 31, 2009;
in
each
case as shown on the Company’s Quarterly Reports on Form 10-Q or QSB or Annual
Report on Form 10-K or KSB. If any such periodic report is not filed with the
Securities and Exchange Commission within 30 days of when due, the Company
shall
presumptively be deemed in default of this provision; provided,
however,
that
(a) if the Holder shall decline to fund Draw Downs in excess of an aggregate
of
$3,500,000 following request therefor by the Company, then this clause (xiv)
shall be of no further force and effect and (b) if the Holder shall fund Draw
Downs (including the Draw Down at Closing) of at least $3,500,000 in the
aggregate but shall decline to fund Draw Downs of the maximum $7,000,000
following request therefor by the Company, then each date set forth in
subclauses A, B, C and D above shall be extended by 6 months. For further
clarity, if the Company does not request Draw Downs amounting to either of
such
amounts, then this clause (xiv) shall remain in full force and
effect.
22
b) Remedies
Upon Event of Default.
If any
Event of Default occurs and is continuing, 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 10 days after the occurrence of any Event of Default that results
in
the
eventual
acceleration of this Debenture, the interest rate on this Debenture shall accrue
at an interest rate equal to the lesser of 18% per annum or the maximum rate
permitted under applicable law. Upon the payment in full of the Mandatory
Default Amount, the Holder shall promptly surrender this Debenture to or as
directed by the Company. In connection with such acceleration described herein,
the Holder need not provide, and the Company hereby waives, any presentment,
demand, protest or other notice of any kind (other than notice of ▇▇▇▇▇▇’s
election to accelerate), 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 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, or such other facsimile number or address as the Company may
specify for such purpose by notice to the Holder delivered in accordance with
this Section 9. Any and all notices or other communications or deliveries to
be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, or sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile number or address of 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 in this Section 9
prior to 5:30 p.m. (New York City time), (ii) the date immediately following
the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section 9 between 5:30 p.m. (New
York
City time) and 11:59 p.m. (New York City time) on any date, (iii) the second
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom
such
notice is required to be given.
23
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 indemnification therefor
reasonably satisfactory to the Company, and of the ownership hereof, reasonably
satisfactory to the Company.
d) Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Debenture shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflict of laws thereof. Each party agrees that all legal
proceedings concerning the interpretation, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”).
Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action
or
proceeding, any claim that it is not personally subject to the jurisdiction
of
such New York Courts, or such New York Courts are improper or inconvenient
venue
for such proceeding. Each party hereby irrevocably waives personal service
of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in
effect for notices to it under this Debenture and agrees that such service
shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
and
all right to trial by jury in any legal proceeding arising out of or relating
to
this Debenture or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Debenture,
then the prevailing party in such action or proceeding shall be reimbursed
by
the other party for its attorneys fees and other costs and expenses incurred
in
the investigation, preparation and prosecution of such action or
proceeding.
24
e) Waiver.
Any
waiver by the Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not
be
considered a waiver or deprive that party of the right thereafter to insist
upon
strict adherence to that term or any other term of this Debenture. Any waiver
by
the Company or the Holder must be in writing.
f) Severability.
If any
provision of this Debenture is invalid, illegal or unenforceable, the balance
of
this Debenture shall remain in effect, and if any provision is inapplicable
to
any Person or circumstance, it shall nevertheless remain applicable to all
other
Persons and circumstances. If it shall be found that any interest or other
amount deemed interest due hereunder violates the applicable law governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under applicable law.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law
which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of
any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impede 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.
25
j) Secured
Obligation.
The
obligations of the Company under this Debenture are secured by all assets of
the
Company and each Subsidiary pursuant to the Security Agreement, dated as of
December 7, 2007 between the Company, 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.
| |
|
|
| By: | ||
|
Name:
Title:
|
||
|
Facsimile
No. for delivery of Notices: (▇▇▇)
▇▇▇-▇▇▇▇
|
||
27
ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the 8% Senior Secured
Convertible Debenture due the Maturity Date of Foldera, Inc., a Nevada
corporation (the “Company”),
into
shares of common stock (the “Common
Stock”)
of the
Company according to the conditions hereof, as of the date written below. If
shares of Common Stock are to be issued in the name of a person other than
the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to
the
holder for any conversion, except for such transfer taxes, if any.
By
the
delivery of this Notice of Conversion the undersigned represents and warrants
to
the Company that its ownership of the Common Stock does not exceed the amounts
specified under Section 4 of this Debenture, as determined in accordance with
Section 13(d) of the Exchange Act.
The
undersigned agrees to comply with the prospectus delivery requirements under
the
applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
|
Conversion
calculations:
|
||
|
Date
to Effect Conversion:
|
||
|
Principal
Amount of Debenture to be Converted:
|
||
|
Number
of shares of Common Stock to be issued:
|
||
|
Signature:
|
||
|
Name:
|
||
|
Address
for Delivery of Common Stock Certificates:
|
||
|
Or
|
||
|
DWAC
Instructions:
|
||
|
Broker
No: _________________
Account
No: _______________
|
28
Schedule
1
CONVERSION
SCHEDULE
The
8%
Senior Secured Convertible Debentures due on the Maturity Date in the aggregate
principal amount of $7,000,000 are issued by Foldera, Inc., a Nevada
corporation. This Conversion Schedule reflects conversions made under Section
4
of the above referenced Debenture.
Dated:
______________, ____
|
Date
of Conversion
(or
for first entry, Original Issue Date)
|
Amount
of Conversion
|
Aggregate
Principal Amount Remaining Subsequent to Conversion
(or
original Principal Amount)
|
Company
Attest
|
|||
|
|
||||||
29
ANNEX
B
DRAW
DOWNS
|
Date
of Draw Down
(or
for first entry, Original Issue Date)
|
Amount
of Draw Down
|
Aggregate
Principal Amount Drawn Down
|
Company
Attest
|
|||
|
|
||||||
30