EXHIBIT 10.35
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND ARE
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
RESTATED 5% CONVERTIBLE DEBENTURE
DUE SEPTEMBER 30, 2003
November 26, 2001
$539,625.93
NO. ___________________
SAC Technologies, Inc., a Minnesota corporation with principal executive
offices located at SAC Technologies, Inc., 1285 Corporate Center Drive, Suite
175, Eagan, Minnesota 55121, the ("Company"), for value received, hereby
promises to pay to the Holder (as defined below), or order, on September 30,
2003 (the "Maturity Date") the principal sum of Five Hundred Thirty-Nine
Thousand Six Hundred Twenty-Five and 93/100($539,625.93) and to pay interest
thereon from the date of original issuance (or the most recent interest payment
date to which interest has been paid), quarterly in arrears, commencing August
31, 2002 and thereafter on each February 28, May 31, August 31 and November 30
of each year, at the rate of 5% per annum (the "Debenture Interest Rate"), until
the principal of this Debenture has been paid in full or duly and irrevocably
provided for by conversion or as otherwise permitted herein. The interest so
payable and duly and punctually provided for on any interest payment date shall
be paid to the Person in whose name this Debenture is registered at the close of
business on the 15th day next preceding the applicable interest payment date and
all interest payable on the principal amount of this Debenture shall be
calculated on the basis of 360-day year for the actual number of days elapsed.
The Company shall have the right to prepay, in whole or in part, the then
outstanding principal amount due hereunder.
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used in
this Debenture have the following respective meanings:
(a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in Section
3.1(c).
(b) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(c) "APPLICABLE DISCOUNT" shall mean 78%.
(d) "BUSINESS DAY" means a day other than Saturday, Sunday or any day
on which banks located in the state of New York are authorized or obligated to
close.
(e) "CAPITAL SHARES" means the Common Shares and any other shares of
any other class or series of common stock, whether now or hereafter authorized
and however designated, which have the right to participate in the distribution
of earnings and assets (upon dissolution, liquidation or winding-up) of the
Company.
(f) "COMMON SHARES" or "COMMON STOCK" means shares of the common
stock, $.01 par value, of the Company.
(g) "COMMON STOCK ISSUED AT CONVERSION" when used with reference to
the securities issuable upon conversion of this Debenture, means all Common
Shares now or hereafter Outstanding and securities of any other class or series
into which the Debenture hereafter shall have been changed or substituted,
whether now or hereafter created and however designated.
(h) "COMPANY" means SAC Technologies, Inc., a Minnesota corporation,
and any successor or resulting corporation by way of merger, consolidation, sale
or exchange of all or substantially all of the Company's assets, or otherwise.
(i) "CONVERSION DATE" means any day on which all or any portion of the
principal amount of this Debenture is converted in accordance with the
provisions hereof.
(j) "CONVERSION NOTICE" has the meaning set forth in Section 3.2.
(k) "CONVERSION PRICE" on any date of determination means the
applicable price for the conversion of this Debenture into Common Shares on such
day as set forth in Section 3.1.
RESERVED
(m) "CURRENT MARKET PRICE" on any date of determination means the
closing bid price of a Common Share on such day as reported by Bloomberg LP for
the Principal Market.
(n) "DEBENTURE" means this 5% Convertible Debenture of the Company or
such other convertible debentures or Debentures exchanged therefor as provided
in Section 2.1.
(o) "DEFAULT INTEREST RATE" shall be equal to the Debenture Interest
Rate plus an additional 4% per annum.
(p) "EVENT OF DEFAULT" has the meaning set forth in Section 6.1.
(q) "EXCHANGE AGREEMENT" shall mean the Series B Convertible Preferred
and 5% Convertible Debenture Exchange Agreement of even date herewith.
(r) "HOLDER" means The Shaar Fund Ltd., any successor thereto, or any
Person to whom this Debenture is subsequently transferred in accordance with the
provisions hereof.
(s) "MARKET DISRUPTION EVENT" means any event that results in a
material suspension or limitation of trading of Common Shares on NASDAQ.
(t) "MARKET PRICE" per Common Share means the average of the closing
bid prices of the Common Shares as reported by Bloomberg LP for the Principal
Market during the Valuation Period.
(u) "MAXIMUM RATE" has the meaning set forth in Section 6.3.
(v) "OUTSTANDING" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding warrants, options or rights to subscribe for or purchase shares
outstanding scrip or any certificates representing fractional interests in such
Shares; PROVIDED, HOWEVER, that any such Shares directly or indirectly owned or
held by or for the account of the Company or any Subsidiary of the Company shall
not be deemed "Outstanding" for purposes hereof.
(w) "PERSON" means an individual, a corporation, a partnership, an
association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(x) "Principal Market" shall mean the market or exchange whichever is
at the time the principal trading exchange or market for the Common Stock.
(y) "REGISTRATION RIGHTS AGREEMENT" means that certain registration
rights agreement dated November 26,2001, between the Company and The Shaar Fund
Ltd.
(z) "SEC" means the United States Securities and Exchange Commission.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC thereunder, all as in effect at the
time.
(bb) "SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Company.
(cc) "TRADING DAY" means any day on which purchases and sales of
securities authorized for quotation on NASDAQ are reported thereon and on which
no Market Disruption Event has occurred.
(dd) "VALUATION EVENT" has the meaning set forth in Section 3.1.
(ee) "VALUATION PERIOD" means the five Trading Day period immediately
preceding the relevant Conversion Date.
All references to "cash" or "$" herein means currency of the United
States of America.
ARTICLE 2
EXCHANGES AND TRANSFER
SECTION 2.1 Exchange and Registration of Transfer of Debentures. Subject to
compliance with applicable securities laws, the Holder may, at its option,
surrender this Debenture at the principal executive offices of the Company and
receive in exchange therefor a Debenture or Debentures, each in the denomination
of $10,000 or integral multiples of $1,000 in excess thereof, dated as of the
date of this Debenture, and, subject to Section 4.2, payable to such Person or
order as may be designated by such Holder. The aggregate principal amount of the
Debenture or Debentures exchanged in accordance with this Section 2.1 shall
equal the aggregate unpaid principal amount of this Debenture as of the date of
such surrender; PROVIDED, HOWEVER, that upon any exchange pursuant to this
Section 2.1 there shall be filed with the Company the name and address for all
purposes hereof of the Holder or Holders of the Debenture or Debentures
delivered in such exchange. This Debenture, when presented for registration of
transfer or for exchange or conversion, shall (if so required by the Company) be
duly endorsed, or be accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company duly executed, by the Holder duly
authorized in writing.
SECTION 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Debenture and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security reasonably satisfactory to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Debenture, the Company shall make, issue and deliver, in
lieu of such lost, stolen, destroyed or mutilated Debenture, a new Debenture or
Debentures of like tenor and unpaid principal amount dated as of the date
hereof. This Debenture shall be held and owned upon the express condition that
the provisions of this Section 2.2 are exclusive with respect to the replacement
of a mutilated, destroyed, lost or stolen Debenture and shall preclude any and
all other rights and remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the Person in
whose name this Debenture shall be registered upon the registry books of the
Company to be, and may treat it as, the absolute owner of this Debenture
(whether or not this Debenture shall be overdue) for the purpose of receiving
payment of or on account of the principal amount of this Debenture, for the
conversion of this Debenture and for all other purposes, and the Company shall
not be affected by any notice to the contrary. All such payments and such
conversion shall be valid and effectual to satisfy and discharge the liability
upon this Debenture to the extent of the sum or sums so paid or the conversion
so made.
ARTICLE 3
CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Price. At the option of the Holder, this
Debenture may be converted, either in whole or in part, up to the full principal
amount hereof (in increments of not less than $10,000 principal amount) into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share), at any time, at a price equal to the lesser of (a) the Current Market
Price multiplied by the Applicable Discount, or (b) $.75 per share. The Holder
shall not have the right to convert any portion of this Debenture or interest
thereon to the extent that the issuance to the Holder of Common Shares upon such
conversion would result in the Holder being deemed the "beneficial owner" of
4.99% or more of the then outstanding Common Shares within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934, as amended. At the Holder's
option, the amount of accrued and unpaid interest as of the Conversion Date
shall not be subject to conversion but instead may be paid in cash as of the
next interest payment date; if the Holder elects to convert the amount of
accrued and unpaid interest at the Conversion Date into Common Stock, the Common
Stock issued to the Holder shall be valued at the Conversion Price.
Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during any Valuation Period, a new Valuation Period shall
begin on the Trading Day immediately following the occurrence of such Valuation
Event and end on the Conversion Date; provided that if a Valuation Event occurs
on the fifth day of any Valuation Period, then the Conversion Price shall be the
Current Market Price of the Common Shares on such day; and provided, further,
that the Holder may, in its discretion, postpone such Conversion Date to a
Trading Day which is no more than five Trading Days after the occurrence of the
latest Valuation Event. In the event that the Holder deems the Valuation Period
to be other than the five Trading Days immediately prior to the Conversion Date,
the Holder shall give written notice of such fact to the Company at the time of
conversion.
For purposes of this Section 3.1, a "VALUATION EVENT" shall mean an event in
which the Company at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
(b) pays a dividend in its Capital Shares or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 3.1(a) and 3.1(b)
above, at a price per share less, or for other consideration lower, than the
Current Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect including, without limitation, issuances of Additional
Capital Shares reserved pursuant to the Company's 1996 Stock Option Plan or 1999
Option Plan, as in effect on the date hereof, and issuances under presently
outstanding warrants, options or convertible securities, and up to 350,000
additional shares of Common Stock or options or warrants to purchase same issued
to consultants or employees of the Company;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares at any time thereafter may be issuable shall be less
than the Current Market Price on the date of such issuance;
(e) issues any securities convertible into or exchangeable or
exercisable for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible, exchangeable or exercisable securities shall be less
than the Current Market Price in effect on the date of such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Company's assets (other than under the circumstances provided for in
the foregoing Sections 3.1(a) through 3.1(e)), PROVIDED, in each case, that such
distribution described in this Section 3.1(f) does not constitute an Event of
Default; or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Sections 3.1(a)
through 3.1(f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a material adverse effect upon
the rights of the Holder at the time of a conversion of this Debenture.
SECTION 3.2 Exercise of Conversion Privilege. (a) Conversion of this
Debenture may be exercised, in whole or in part, by the Holder by telecopying an
executed and completed notice of conversion in the form annexed hereto as Annex
I (the "Conversion Notice") to the Company. Each date on which a Conversion
Notice is telecopied to and received by the Company in accordance with the
provisions of this Section 3.2 shall constitute a Conversion Date. The
Conversion Notice shall state the name or names (with addresses) of the persons
who are to become the holders of the Common Stock issued upon such conversion.
Upon receipt of the telecopied Conversion Notice, the Company shall within three
Business Days of receipt of the Conversion Notice (i) issue the Common Stock
effective as of the Conversion Date in accordance with the provisions of this
Article 3, and (ii) cause to be mailed for delivery by overnight courier to the
Holder (X) a certificate or certificate(s) representing the number of Common
Shares to which the Holder is entitled by virtue of such conversion, (Y) cash,
as provided in Section 3.4, in respect of any fraction of a Share issuable upon
such conversion and (Z) cash in the amount of accrued and unpaid interest as of
the Conversion Date, if any, to the extent payable in cash.
Conversion shall be deemed to have been effected at the time stated in
the Conversion Notice and at such time the rights of the Holder of this
Debenture, as such, shall cease to the extent of such conversion, and the Person
and Persons in whose name or names the Common Stock Issued at Conversion shall
be issuable shall be deemed to have become the holder or holders of record of
the Common Shares represented thereby. The Conversion Notice shall constitute a
contract between the Holder and the Company, whereby the Holder shall be deemed
to subscribe for the number of Common Shares which it will be entitled to
receive upon such conversion and, in payment and satisfaction of such
subscription (and for any cash adjustment to which it is entitled pursuant to
Section 3.4), and to release the Company from all liability thereon. No cash
payment aggregating less than $1.50 shall be required to be given unless
specifically requested by the Holder.
(b) The Company understands that a delay in the issuance of the Shares
of Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond seven (7) business days from
Delivery Date:
Late Payment For Each $10,000
of Debenture
No. Business Days Late Being Converted
-------------------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000+$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Holder, in the event that the Company fails for
any reason to effect delivery of such shares of Common Stock within five (5)
business days after the Delivery Date, the Holder will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of Conversion.
(c) Except as set forth in Section 3.1 hereof, at any time after the date
of this Debenture, (i) the Company challenges, disputes or denies the right of
the Holder hereof to effect the conversion of this Debenture into Common Shares
or otherwise dishonors or rejects any Conversion Notice delivered in accordance
with this Section 3.2 and this Agreement or (ii) any third party who is not and
has never been an Affiliate of the Holder commences any lawsuit or proceeding or
otherwise asserts any claim before any court or public or governmental authority
which seeks to challenge, deny, enjoin, limit, modify, delay or dispute the
right of the Holder hereof to effect the conversion of this Debenture into
Common Shares, then the Holder shall have the right, by written notice to the
Company, to require the Company to promptly redeem this Debenture for cash at a
redemption price equal to 122% of the principal amount hereof together with all
accrued and unpaid interest thereon (the "Mandatory Purchase Amount"). Under any
of the circumstances set forth above, the Company shall be responsible for the
payment of all costs and expenses of the Holder, including reasonable legal fees
and expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the Holder).
SECTION 3.3 [This Section Reserved]
SECTION 3.4 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of this
Debenture. Instead of any fractional Common Shares which otherwise would be
issuable upon conversion of this Debenture, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction.
No cash payment of less than $1.50 shall be required to be given unless
specifically requested by the Holder.
SECTION 3.5 Reclassification, Consolidation, Merger or Mandatory Share
Exchange.
A. In case of any stock split or reverse stock split, stock dividend,
reclassification of the Common Stock, recapitalization, merger or consolidation,
or like capital adjustment affecting the Common Stock of the Company (each, an
"Adjustment"), the Conversion Rate in effect at the time of the effective date
for such Adjustment shall be proportionally adjusted so that the Holder of this
Debenture converted after such date shall be entitled to receive the aggregate
number and kind of shares which, if this Debenture had been converted by such
Holder immediately prior to such date, the Holder would have owned upon such
conversion and been entitled to received upon such Adjustment (and for such
purposes the Holder shall, to the extent relevant, be deemed to have converted
this Debenture immediately prior to the record date or the effective date, as
the case may, for the Adjustment). For example, if the Company declares a 2:1
stock dividend or stock split and the Conversion Rate immediately prior to the
record date for such Adjustment was $.75 per share, the adjusted Conversion Rate
immediately after the Adjustment would be $.375 per share. Such adjustment may
be made successively if there is more than one
Adjustment. In all other respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so as to give effect, as
nearly as may be, to the purposes hereof. A rights offering to stockholders
shall be deemed a stock dividend to the extent of the bargain purchase element
of the rights. The provisions of this Section 3.5 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
B. If, for any reason, prior to the conversion of this Debenture in
full, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets in a
transaction (the "Spin Off") in which the Company does not receive compensation
for such business, operations or assets, but causes securities of another entity
(the "Spin Off Securities") to be issued to security holders of the Company,
then the Company shall cause (i) to be reserved Spin Off Securities equal to the
number thereof which would have been issued to the Holder had all of the
Holder's unconverted Debentures outstanding on the record date (the "Record
Date") for determining the amount and number of Spin Off Securities to be issued
to security holders of the Company (the "Outstanding Debentures") been converted
as of the close of business on the trading day immediately before the Record
Date (the "Reserved Spin Off Shares"), and (ii) to be issued to the Holder on
the conversion of all or any of the Outstanding Debentures, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by
(y) a fraction, of which (I) the numerator is the amount of the Outstanding
Debentures then being converted, and (II) the denominator is the amount of the
Outstanding Debentures. Whenever the Conversion Price shall be adjusted as
provided herein, the Company shall forthwith file, at the principal office of
the Company, a statement showing in detail the facts requiring such adjustment
and the Conversion Price that shall be in effect after such adjustment, and the
Company shall also cause a copy of such statement to be sent by mail, first
class postage prepaid, to each other party hereto, at its address appearing on
the Company's records. Each such statement shall be signed by the Company's
independent public accountants, if applicable.
SECTION 3.6 Conversion Price Adjustments. The Conversion Price shall be
subject to adjustment from time to time as follows:
(i) Common Stock Issued at Less Than the Conversion Price. If the
Corporation shall issue any Common Stock other than Excluded Stock (as
hereinafter defined) without consideration or for a consideration per share
less than the Conversion Price in effect immediately prior to such
issuance, the Conversion Price in effect immediately prior to each such
issuance shall immediately (except as provided below) be reduced to the
price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue (calculated on a fully-
diluted basis assuming the exercise or conversion of all then exercisable
or convertible options, warrants, purchase rights and other convertible
securities) plus the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of additional
shares of Common Stock so issued would purchase at the Conversion Price;
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue (calculated on a fully-diluted
basis assuming the exercise or conversion of all then exercisable or
convertible options, warrants, purchase rights and other convertible
securities) plus the number of such additional shares of Common Stock so
issued.
For the purposes of any adjustment of the Conversion Price pursuant to
clause (i), the following provisions shall be applicable:
(A) Cash. In the case of the issuance of Common Stock for cash,
the amount of the consideration received by the Corporation shall be
deemed to be the amount of the cash proceeds received by the
Corporation for such Common Stock before deducting therefrom any
discounts, commissions, taxes or other expenses allowed, paid or
incurred by the Corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.
(B) Consideration Other Than Cash. In the case of the issuance of
Common Stock (otherwise than upon the conversion of shares of capital
stock or other securities of the Corporation) for a consideration in
whole or in part other than cash, including securities acquired in
exchange therefor (other than securities by their terms so
exchangeable), the consideration other than cash shall be deemed to be
the fair value thereof as determined by the Board of Directors,
irrespective of any accounting treatment; provided that such fair
value as determined by the Board of Directors shall not exceed the
aggregate Current Market Price of the shares of Common Stock being
issued as of the date the Board of Directors authorizes the issuance
of such shares.
(C) Options and Convertible Securities. In the case of the
issuance of (i) options, warrants or other rights to purchase or
acquire Common Stock (whether or not at the time exercisable), (ii)
securities by their terms convertible into or exchangeable for Common
Stock (whether or not at the time so convertible or exchangeable) or
options, warrants or rights to purchase such convertible or
exchangeable securities (whether or not at the time exercisable):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other
rights to purchase or acquire Common Stock shall be deemed to
have been issued at the time such options, warrants or rights
were issued and for a consideration equal to the consideration
(determined in the manner provided in subclauses (A) and (B)
above), if any, received by the Corporation upon the issuance of
such options, warrants or rights plus the minimum purchase price
provided in such options, warrants or rights for the Common Stock
covered thereby;
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of
options, warrants or other rights to purchase or
acquire such convertible or exchangeable securities and the
subsequent conversion or exchange thereof, shall be deemed to
have been issued at the time such securities were issued or such
options, warrants or rights were issued and for a consideration
equal to the consideration, if any, received by the Corporation
for any such securities and related options, warrants or rights
(excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration (determined
in the manner provided in subclauses (A) and (B) above), if any,
to be received by the Corporation upon the conversion or exchange
of such securities, or upon the exercise of any related options,
warrants or rights to purchase or acquire such convertible or
exchangeable securities and the subsequent conversion or exchange
thereof;
(3) On any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or rights
or conversion or exchange of such convertible or exchangeable
securities or any change in the consideration to be received by
the Corporation upon such exercise, conversion or exchange,
including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price as then in
effect shall forthwith be readjusted to such Conversion Price as
would have been obtained had an adjustment been made upon the
issuance of such options, warrants or rights not exercised prior
to such change, or of such convertible or exchangeable securities
not converted or exchanged prior to such change, upon the basis
of such change;
(4) On the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert or
exchange such convertible or exchangeable securities, if the
Conversion Price shall have been adjusted upon the issuance
thereof, the Conversion Price shall forthwith be readjusted to
such Conversion Price as would have been obtained had an
adjustment been made upon the issuance of such options, warrants,
rights or such convertible or exchangeable securities on the
basis of the issuance of only the number of shares of Common
Stock actually issued upon the exercise of such options, warrants
or rights, or upon the conversion or exchange of such convertible
or exchangeable securities; and
(5) If the Conversion Price shall have been adjusted upon
the issuance of any such options, warrants, rights or convertible
or exchangeable securities, no further adjustment of the
Conversion Price shall be made for the actual issuance of Common
Stock upon the exercise, conversion or exchange thereof;
(provided, however, that no increase in the Conversion Price
shall be made pursuant to subclauses (1) and (2) of this
subclause (C)).
(ii) Excluded Stock. "Excluded Stock" shall mean issuances
pursuant to options, warrants, other convertible securities or other
obligations outstanding or in existence as of the date hereof;
issuances pursuant to any of the Company's option plans existing on
the date hereof; issuances for which adjustment is made pursuant to
other provisions hereof; and issuances of up to an additional 850,000
shares of Common Stock, options or warrants to purchase same issued
subsequent to October 1, 2001, to consultants or other persons
providing services to the Company.
(iii) [RESERVED]
(iv) Other Distributions. In case the Corporation shall fix a
record date for the making of a distribution to all holders of shares
of its Common Stock (A) of shares of any class other than its Common
Stock or (B) of evidence of indebtedness of the Corporation or any
Subsidiary or (C) of assets (excluding cash dividends or
distributions, and dividends of distributions referred to in
subparagraph(iii) above, or (D) of rights or warrants (excluding those
referred to in subparagraph)(i) above), in each such case the
Conversion Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (1) an
amount equal to the difference resulting from (A) the number or shares
of Common Stock outstanding on such record date multiplied by the
Conversion Price per share on such record date, less (B) the fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive) of said shares or evidences of
indebtedness or assets or rights or warrants to be so distributed, by
(2) the number of shares of Common Stock outstanding on such record
date. Such adjustment shall be made successively whenever such a
record date is fixed. In the event that such distribution is not so
made, the Conversion Price then in effect shall be readjusted,
effective as of the date when the Board of Directors determines not to
distribute such shares, evidence of indebtedness, assets, rights or
warrants, as the case may be, to the Conversion Price which would then
be in effect if such record date had not been fixed.
(vi) Rounding of Calculations; Minimum Adjustment. All
calculations under this subparagraph (f) shall be made to the nearest
cent or to the nearest one hundredth (1/100th) of a share, as the case
may be. Any provision of this paragraph to the contrary
notwithstanding, no adjustment in the Conversion Price shall be made
if the amount of such adjustment would be less than $0.05, but any
such amount shall be carried forward and an adjustment with respect
thereto shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $0.05 or more.
(vii) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this paragraph
shall require that an adjustment shall become effective immediately
after a record date for an event, the Corporation may defer until the
occurrence of such event (A) issuing to the holder of any Convertible
Debenture converted after such record date and before the occurrence
of such event
the additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the
shares of Common Stock issuable upon such conversion before giving
effect to such adjustment and (B) paying to such holder any amount of
cash in lieu of a fractional share of Common Stock pursuant to
subparagraph (e) of this Section ; provided that the Corporation upon
request shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
(g) Statement Regarding Adjustments. Whenever the Conversion Price
shall be adjusted as provided herein, the Corporation shall forthwith file at
the principal office of the Corporation, a statement showing in detail the facts
requiring such adjustment and the Conversion Price that shall be in effect after
such adjustment, and the Corporation shall also cause a copy of such statement
to be sent by mail, first class postage prepaid, to each holder of Convertible
Debentures at its address appearing on the Corporation's records. Each such
statement shall be signed by the Corporation's independent public accountants,
if applicable. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
subparagraph (i).
(h) Notice to Holders. In the event the Corporation shall propose to
take any action of the type described in clause (i) (but only if the action of
the type described in clause (i) would result in an adjustment in the Conversion
Price), (iii), (iv), or (v) of subparagraph (f), the Corporation shall give
notice to each holder of Convertible Debentures, in the manner set forth in
subparagraph (h), which notice shall specify the record date, if any, with
respect to any such action and the approximate date on which such action is to
take place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Conversion
Price and the number, kind or class of shares or other securities or property
which shall be deliverable upon conversion of ConvertibleDebentures. In the case
of any action which would require the fixing of a record date, such notice shall
be given at least ten (10) days prior to the date so fixed, and in case of all
other action, such notice shall be given at least fifteen (1) days prior to the
taking of such proposed action. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.
(j) Costs. The Corporation shall pay all documentary, stamp, transfer
or other transactional taxes attributable to the issuance or delivery of shares
of Common Stock upon conversion of any Convertible Debentures; provided that the
Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the Convertible
Debenture in respect of which such shares are being issued.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Debenture. This Debenture constitutes a legal, valid
and binding obligation of the Company, enforceable in accordance with its terms
subject, as to enforceability, to general principles of equity and to principles
of bankruptcy, insolvency, reorganization and other similar laws of general
applicability relating to or affecting creditors' rights and remedies generally.
SECTION 4.2 Restrictions on Transfer. This Debenture, and any Common
Shares issuable according to the terms hereof, have not been registered under
the Securities Act. This Debenture and any Common Shares issued upon conversion
may not be offered or sold, directly or indirectly, except pursuant to an
effective registration statement under the Act, or pursuant to an available
exemption therefrom.
ARTICLE 5
COVENANTS
The Company covenants and agrees that so long as this Debenture shall be
outstanding:
SECTION 5.1 Conversion. The Company shall not later than five Business Days
after its receipt of the Conversion Notice, issue and deliver to the Holder the
requisite shares of common stock issuable upon conversion, according to the
terms hereof.
SECTION 5.2 Notice of Default. If any one or more events occur which
constitute or which, with notice, lapse of time, or both, would constitute an
Event of Default, the Company shall forthwith give notice to the Holder,
specifying the nature and status of the Event of Default or other event or of
such demand or action, as the case may be.
SECTION 5.3 Insurance. The Company shall carry and maintain in full force
and effect at all times with insurers that are financially sound and reputable
such insurance in such amounts as is customary in the industry of the Company.
SECTION 5.4 Payment of Obligations. Prior to conversion of the entire
principal amount of this Debenture, the Company shall pay, extend, or discharge
at or before maturity, all its respective material obligations and liabilities,
including, without limitation, tax liabilities, except where the same may be
contested in good faith by appropriate proceedings.
SECTION 5.5 Compliance with Laws. The Company shall comply with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities, except for such noncompliance which would not have a
material adverse effect on the business, properties, prospects, condition
(financial or otherwise) or results of operations of the Company.
SECTION 5.6 Inspection of Property, Books and Records. The Company shall
keep proper books of record and account in which full, true and correct entries
shall be made of all material dealings and transactions in relation to its
business and activities and shall permit representatives of the Holder at the
Holder's expense to visit and inspect any of its respective properties, to
examine and make abstracts from any of its respective books and records, not
reasonably deemed confidential by the Company, and to discuss its respective
affairs, finances and accounts with its respective officers and independent
public accountants, all at such reasonable times and as often as may reasonably
be desired.
SECTION 5.7 Not declare or pay any dividends , redeem any equity securities
of the Company or authorize or make any other distribution on any class of
equity securities of the Company except for the payment of dividends on the
Series B Preferred Stock.
SECTION 5.8 The Board of Directors shall promptly after the execution
hereof, (x) adopt proper resolutions authorizing an increase in number of
authorized shares of Common Stock to 60,000,000 shares, (y) recommend to and
otherwise use its best efforts to promptly and duly obtain shareholder approval
to carry out such resolutions (and hold a special meeting of the shareholders no
later than February 15, 2002) and (z) within 5 Business Days of obtaining such
shareholder authorization, file an appropriate amendment to the Company's
articles of incorporation to evidence such increase.
ARTICLE 6
REMEDIES
SECTION 6.1 Events of Default. "Event of Default" wherever used herein
means any one of the following events:
(a) the Company shall default in the payment of principal of or
interest on this Debenture as and when the same shall be due and payable and, in
the case of an interest payment default, such default shall continue for five
Business Days after the date such interest payment was due, or the Company shall
fail to perform or observe any other covenant, agreement, term, provision,
undertaking or commitment under this Debenture, or the Exchange Agreement, and
such default shall continue for a period of ten Business Days after the receipt
by the Company of written notice that the Company is in default hereunder; or
(b) The Company fails to issue shares of Common Stock to the Holder or
to cause its Transfer Agent to issue shares of Common Stock upon exercise by the
Holder of the conversion rights of the Holder in accordance with the terms of
this Debenture, fails to transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder upon conversion of
this Debenture and when required by this Debenture, and such transfer is
otherwise lawful, or fails to remove any restrictive legend or to cause its
Transfer Agent to transfer on any certificate or any shares of Common Stock
issued to the Holder upon conversion of this Debenture as and when required by
this Debenture, the Agreement or the Registration Rights Agreement and such
legend removal is otherwise lawful, and any such failure shall continue uncured
for five (5) business days.
(c) any of the representations or warranties made by the Company
herein, the Exchange Agreement, the Registration Rights Agreement or in any
certificate or financial or other written statements heretofore or hereafter
furnished by or on behalf of the Company in connection with the execution and
delivery of this Debenture, the Exchange Agreement or the Registration Rights
Agreement shall be false or misleading in any material respect on the Closing
Date; or
(d) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under the United
States Bankruptcy Code of 1978, as amended (the "Bankruptcy Code"), or any other
applicable Federal or state law, or appointing a receiver, liquidator, assignee,
trustee or sequestrator (or other similar official) of the Company or of any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs, and any such decree or order continues and is unstayed and in
effect for a period of 60 calendar days; or
(e) the institution by the Company or any Subsidiary of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
Bankruptcy Code or any other applicable federal or state law, or the consent by
it to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Company or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as and when they become due, or the
taking of corporate action by the Company in furtherance of any such action; or
(f) a final judgment or final judgments for the payment of money shall
have been entered by any court or courts of competent jurisdiction against the
Company and remains undischarged for a period (during which execution shall be
effectively stayed) of 90 days, provided that the aggregate amount of all such
judgments at any time outstanding (to the extent not paid or to be paid, as
evidenced by a written communication to that effect from the applicable insurer,
by insurance) exceeds $200,000 : or
(g) it becomes unlawful for the Company to perform or comply with its
obligations under this Debenture or the Exchange Agreement; or
(h) the Company shall default (giving effect to any applicable grace
period) in the payment of principal or interest as and when the same shall
become due and payable, under any indebtedness, individually or in the
aggregate, of more than $200,000 ; or
(i) the Common Shares shall be delisted from the Principal Market or
suspended from trading on the Principal Market, and shall not be reinstated,
relisted or such suspension lifted, as the case may be, within ten (10) days.
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. If an Event
of Default occurs and is continuing, then and in every such case any Holder may
rescind the Conversion Notice and obtain payment for the entire outstanding
principal amount of the Debenture which remains unconverted, by a notice in
writing to the Company, and upon any such declaration the entire principal
amount of this Debenture shall become immediately due and payable by virtue of
such rescission; provided, however, in the case of any Event of Default
described in paragraphs (c), (d) or (f) above, the entire then outstanding
principal amount of this Debenture, together with all accrued and unpaid
interest thereon, automatically shall become immediately due and payable without
the necessity of any notice or declaration as aforesaid.
SECTION 6.3 Default Interest Rate. (a) If any portion of the principal of
or interest on the Debenture shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise) such principal of and interest on the
Debenture which is due and owing but not paid shall, without limiting the
Holder's rights under this Debenture, bear interest at the Default Interest Rate
until paid in full or otherwise converted as set forth herein.
SECTION 6.4 Remedies Not Waived. No course of dealing between the Company
and the Holder or any delay in exercising any rights hereunder shall operate as
a waiver by the Holder.
SECTION 6.5 Waiver. No recourse shall be had for the payment of the
principal of, or the interest on, this Debenture, or for any claim based hereon,
or otherwise in respect hereof, against any incorporator, shareholder, officer
or director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Notice of Certain Events. In the case of the occurrence of any
event described in Sections 3.1, 3.5 or 3.6 of this Debenture, the Company shall
cause to be mailed to the Holder of this Debenture at its last address as it
appears in the Company's security registry, at least 20 days prior to the
applicable record, effective or expiration date hereinafter specified (or, if
such 20 days notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
issuance or granting of rights, options or warrants, or if a record is not to be
taken, the date as of which the holders of record of Common Stock to be entitled
to such dividend, distribution, issuance or granting of rights, options or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of Common Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale transfer, dissolution, liquidation or winding-up.
SECTION 7.2 Register. (a) The Company shall keep at its principal office a
register in which the Company shall provide for the registration of this
Debenture. Upon any transfer of this Debenture in accordance with Article 2 and
4 hereof, the Company shall register such transfer on the Debenture register.
(b) The Company may deem the person in whose name this Debenture shall
be registered upon the registry books of the Company to be, and may treat it as,
the absolute owner of this Debenture (whether or not this Debenture shall be
overdue) for the purpose of receiving payment of interest on or principal of
this Debenture, for the conversion of this Debenture and for all other purposes,
and the Company shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effective to satisfy and
discharge the liability upon this Debenture to the extent of the sum or sums so
paid or the conversion or conversions so made.
SECTION 7.3 Withholding. To the extent required by applicable law, the
Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction
over the Company from any payments made pursuant to this Debenture.
SECTION 7.4 Governing Law. THIS DEBENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO CONFLICTS OF LAWS PRINCIPLES). WITH RESPECT TO ANY SUIT, ACTION OR
PROCEEDINGS RELATING TO THIS DEBENTURE, THE COMPANY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK AND HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. SUBJECT TO APPLICABLE LAW, THE COMPANY AGREES THAT FINAL
JUDGMENT AGAINST IT IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS DEBENTURE SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION WITHIN OR OUTSIDE THE UNITED STATES BY SUIT ON THE JUDGMENT, A
CERTIFIED COPY OF WHICH JUDGMENT SHALL BE CONCLUSIVE EVIDENCE THEREOF AND THE
AMOUNT OF ITS INDEBTEDNESS, OR BY SUCH OTHER MEANS PROVIDED BY LAW.
SECTION 7.5 Jury Trial Waiver. The Company and Purchaser hereby waive a
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other in respect of any matter arising out of or in
connection with the Transaction Documents.
SECTION 7.6 Headings. The headings of the Articles and Sections of this
Debenture are inserted for convenience only and do not constitute a part of this
Debenture.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
by its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Debenture.
SAC TECHNOLOGIES, INC.
By:
-----------------------------------
Name:
Title:
Attest
By:
-----------------------------------
Name:
Title:
INITIAL
HOLDER
THE SHAAR FUND, LTD.
By: INTER CARIBBEAN SERVICES LTD.
By:
-----------------------------------
Name:
Title:
ANNEX I
[FORM OF CONVERSION NOTICE]
TO:
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---------------------------------
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The undersigned owner of this 5% Convertible Debenture due September
30, 2003 issued by SAC Technologies, Inc. (the "Debenture") hereby irrevocably
exercises its option to convert $_____ principal amount of the Debenture into
shares of the common stock, $.01 par value, of SAC Technologies, Inc. ("Common
Stock"), in accordance with the terms of the Debenture. The undersigned hereby
instructs the Company to convert the portion of the Debenture specified above
into Shares of Common Stock Issued at Conversion in accordance with the
provisions of Article 3 of the Debenture. The undersigned directs that the
Common Stock issuable and certificates therefor deliverable upon conversion, the
Debenture recertificated in the principal amount, if any, not being surrendered
for conversion hereby, together with any check in payment for fractional Common
Stock, be issued in the name of and delivered to the undersigned unless a
different name has been indicated below. All capitalized terms used and not
defined herein have the respective meanings assigned to them in the Debenture.
By delivering this conversion notice, the undersigned owner represents
and warrants that it does not now, nor after giving effect to this conversion
notice will it, beneficially own in excess of 4.99% of the outstanding shares of
Common Stock of the Company within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended.
Date ___________________________________________________________________
Signature ______________________________________________________________________
[Name]
Address: _______________________________________________________________________
_______________________________________________________________________