EXHIBIT 10.36
"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."
CONVERTIBLE DEBENTURE
DUE SEPTEMBER 30, 2003
November 26, 2001
$1,000,000
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 One Million Dollars and 00/100
($1,000,000) WITHOUT INTEREST. 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) RESERVED
(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) [RESERVED]
(g) "COMMON SHARES" or "COMMON STOCK" means shares of the common
stock, $.01 par value, of the Company.
(h) "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.
(i) "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.
(j) "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.
(k) "CONVERSION NOTICE" has the meaning set forth in Section 3.2.
(l) "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.
(m) [RESERVED]
(n) "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.
(o) "DEBENTURE" means this Convertible Debenture of the Company or
such other convertible debentures or Debentures exchanged therefor as provided
in Section 2.1.
(p) RESERVED.
(q) "EVENT OF DEFAULT" has the meaning set forth in Section 6.1.
(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) RESERVED
(u) RESERVED
(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.
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 $.75 per share. The Holder shall not
have the right to convert any portion of this Debenture 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.
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, and (Y)
cash, as provided in Section 3.4, in respect of any fraction of a Share issuable
upon such conversion.
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 Convertible 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 (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, or like capital
adjustment affecting the Common Stock of the Company (each, an "Adjustment"),
the Conversion Price 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 Price immediately prior to the record date for
such Adjustment was $.75 per share, the adjusted Conversion Price 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 Adjustments to Conversion Price. For so long as this Debenture
is outstanding, if the Company issues and sells (A) Common Shares at a purchase
price that is lower than $.75 per share, (B) warrants or options with an
exercise price that is lower than $.75, or (C) convertible, exchangeable or
exercisable securities with a right to exchange at lower than $.75 per share on
the date of issuance of such convertible, exchangeable or
exercisable securities, then the Conversion Price shall be reduced to equal the
lowest of any such lower price. Notwithstanding the foregoing, the following
issuances of securities shall not be subject to this Section: 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 subsequent
to October 1, 2001 of up to an additional 850,000 shares of Common Stock (or
options or warrants to purchase same) issued to consultants or other persons
providing services to the Company. 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 in good faith 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.
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 delivered in accordance with Section
3.2 and this Agreement, 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 on this
Debenture as and when the same shall be due and payable and, such default shall
continue for five Business Days after the date such 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 Funding
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,
and in accordance with this Debenture 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 Funding 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 or the Funding 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
(h) 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; or
(i) the Company shall default (giving effect to any applicable grace
period) in the payment of principal as and when the same shall become due and
payable, under any indebtedness, individually or in the aggregate, of more than
$200,000.
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,Shall become immediately due and payable
without the necessity of any notice or declaration as aforesaid.
SECTION 6.3 RESERVED
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, 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 3.5 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 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:
---------------------------------
---------------------------------
---------------------------------
The undersigned owner of this 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: _______________________________________________________________________
_______________________________________________________________________