THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES. THESE SECURITIES MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS SUCH SECURITIES
ARE REGISTERED UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS
OR SUCH SECURITIES ARE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE 1933 ACT
OR ANY APPLICABLE STATE SECURITIES LAW AND THE COMPANY WILL BE
PROVIDED WITH OPINION OF COUNSEL IN A FORM REASONABLY ACCEPTABLE TO
THE COMPANY OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.
WITHOUT COMPLIANCE WITH ALL APPLICABLE CANADIAN SECURITIES
LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED IN CANADA OR TO OR
FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL SEPTEMBER 11, 2007.
THINKPATH INC.
CONVERTIBLE DEBENTURE
MAY 10, 2007
No. ___ US$400,000
This Convertible Debenture (the "DEBENTURE") is issued on May 10, 2007
(the "CLOSING DATE") by ThinkPath Inc., an Ontario, Canada corporation (the
"COMPANY"), to Trafalgar Capital Specialized Investment Fund, Luxembourg
(together with its permitted successors and assigns, the "HOLDER") pursuant to
exemptions from registration under the Securities Act of 1933, as amended, and
applicable state securities laws.
ARTICLE I.
SECTION 1.01 PRINCIPAL AND INTEREST. For value received, the Company
hereby promises to pay to the order of the Holder on May 10, 2009 (the
"Repayment Date") in lawful money of the United States of America and in
immediately available funds the principal sum of Four Hundred Thousand U.S.
Dollars (US$400,000) together with interest on the unpaid principal of this
Debenture at the rate of twelve percent (12%) per annum compounded monthly, to
the extent unpaid, from the date hereof until paid. Interest shall be computed
on the basis of a 365-day year and the actual days elapsed and the Holder shall
deduct two (2) interest payments at each Closing (as defined in the Securities
Purchase Agreement) on the then outstanding balance. At the Holder's option, the
entire principal amount and all accrued interest shall be either (a) paid to the
Holder on the second (2nd) year anniversary from the date hereof or (b)
converted in accordance with Section 1.02 herein provided, however, that in no
event shall the Holder be entitled to convert this Debenture for a number of
common shares of the Company ("Common Shares") in excess of that number of
Common Shares which, upon giving effect to such conversion, would cause the
aggregate number of Common Shares beneficially owned by the Holder and its
affiliates to exceed 4.99% of the outstanding shares of the Common Shares
following such conversion.
SECTION 1.02 OPTIONAL CONVERSION. The Holder is entitled, at its
option, to convert, and sell on the same day or at any subsequent time, at any
time and from time to time, until payment in full of this Debenture, all or any
part of the principal amount of the Debenture, plus accrued interest, into
Common Shares at the price per share (the "CONVERSION PRICE") equal to ninety
percent (90%) of the Volume Weighted Average Price ("VWAP") as quoted by
Bloomberg L.P. for the ten (10) trading days immediately preceding the
Conversion Date (as defined herein). As used herein, "PRINCIPAL MARKET" shall
mean The National Association of Securities Dealers Inc.'s Over-The-Counter
Bulletin Board, Nasdaq Capital Market, Nasdaq Global Market or American Stock
Exchange. If the Common Shares are not traded on a Principal Market, the VWAP
shall mean, the reported VWAP for the Common Shares, as furnished by the
National Association of Securities Dealers, Inc., for the applicable periods. No
fraction of shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded to the nearest
whole share. To convert this Debenture, the Holder hereof shall deliver written
notice thereof, substantially in the form of Exhibit "A" to this Debenture, with
appropriate insertions (the "CONVERSION NOTICE"), to the Company at its address
as set forth herein. The date upon which the conversion shall be effective (the
"CONVERSION DATE") shall be deemed to be the date set forth in the Conversion
Notice.
This Debenture may not be converted unless an exemption is available
from the registration requirements under the United States Securities Act of
1933, as amended (the "U.S. Securities Act"), and the securities laws of all
applicable states, and the Company has received an opinion of counsel or other
evidence to such effect reasonably satisfactory to it; PROVIDED, HOWEVER, that a
holder who purchased this Debenture in the Company's private placement of such
securities will not be required to deliver an opinion of counsel in connection
with the conversion of this Debenture. Upon conversion of this Debenture, the
certificate representing the Conversion Shares will bear a legend restricting
transfer without registration under the U.S. Securities Act and applicable state
securities laws unless an exemption from registration is available and will
contain any other restrictions required by applicable United States federal or
state securities laws. Further, without compliance with all applicable Canadian
securities legislation, this Debenture and any securities received upon
conversion of this Debenture, may not be sold, transferred, hypothecated or
otherwise traded in Canada or to or for the benefit of a Canadian resident until
September 11, 2007.
SECTION 1.03 RESERVATION OF COMMON SHARES. The Company shall reserve
and keep available out of its authorized but unissued Common Shares, solely for
the purpose of effecting the conversion of this Debenture, such number of Common
Shares as shall from time to time be sufficient to effect such conversion, based
upon the Conversion Price. If at any time the Company does not have a sufficient
number of Conversion Shares authorized and available, then the Company shall
call and hold a special meeting of its shareholders within thirty (30) days of
that time for the sole purpose of increasing the number of authorized Common
Shares.
-2-
SECTION 1.04 RIGHT OF REDEMPTION. The Company at its option shall have
the right to redeem, with three (3) business days advance written notice (the
"REDEMPTION NOTICE"), a portion or all outstanding convertible debenture. The
redemption price shall be one hundred fifteen percent (115%) of the amount
redeemed including accrued interest (the "Redemption Amount"). The Company shall
deliver to the Holder the Redemption Amount on the third (3rd) business day
after the Redemption Notice.
SECTION 1.05 MANDATORY REDEMPTION. Following the twelve month
anniversary of the First Closing (as defined in the Securities Purchase
Agreement), the Company shall redeem this Debenture using a straight line
amortization at a rate of five percent per month of the outstanding principal
balance on this and all outstanding Debentures, adjusted for the Redemption
Premium, plus any accrued interest. The Company may make such redemptions in
cash or registered shares of the Company's Common Shares.
SECTION 1.06 INTEREST PAYMENTS. The interest so payable will accrue in
favor of the person in whose name this Debenture is registered. At the time such
interest is payable, the Holder, in its sole discretion, may elect to receive
the interest in cash (via wire transfer or certified funds) or in the form of
Common Shares. In the event of default, as described in Article III Section 3.01
hereunder, the Holder may elect that the interest be paid in cash (via wire
transfer or certified funds) or in the form of Common Shares. If paid in the
form of Common Shares, the amount of stock to be issued will be calculated as
follows: the value of the stock shall be the Conversion Price on: (i) the date
the interest payment is due; or (ii) if the interest payment is not made when
due, the date the interest payment is made. A number of Common Shares with a
value equal to the amount of interest due shall be issued. No fractional shares
will be issued; therefore, in the event that the value of the Common Shares per
share does not equal the total interest due, the Company will pay the balance in
cash.
SECTION 1.07 PAYING AGENT AND REGISTRAR. Initially, the Company will
act as paying agent and registrar. The Company may change any paying agent,
registrar, or Company-registrar by giving the Holder not less than ten (10)
business days' written notice of its election to do so, specifying the name,
address, telephone number and facsimile number of the paying agent or registrar.
The Company may act in any such capacity.
SECTION 1.08 [RESERVED]
Section 1.09 CURRENCY EXCHANGE RATE PROTECTIONS.
(a) "Closing Date Exchange Rate", as to each Closing Date,
means the Euro to US dollar spot exchange rate as quoted in the London
edition of the Financial Times on such Closing Date.
(b) "Repayment Exchange Rate" means in relation to each date
of a Conversion Notice or date of a Redemption Notice, the Euro to US
dollar spot exchange rate as quoted by in the London edition of the
Financial Times on such date.
-3-
(c) If on the date of any Conversion Notice or Redemption
Notice, the Repayment Exchange Rate is less than the corresponding
Closing Date Exchange Rate for such Convertible Debenture, then the
number of Shares to be issued shall be increased by the same percentage
as results from dividing the Closing Date Exchange Rate by the relevant
Repayment Exchange Rate. By way of example, if the number of Shares to
be issued in respect of a particular Conversion Notice or Redemption
Notice would, but for this Section 1.09, be 1,000 and if the Closing
Date Exchange Rate is 1.80 and the relevant Repayment Exchange Rate is
1.75, then 1,029 Shares will be issued in relation to that Conversion
Notice or Redemption Notice, as the case may be.
(d) If on the Repayment Date or any Interest Repayment Date,
the Cash Payment Date Exchange Rate, as defined below is less than the
Closing Date Exchange Rate then the amount of cash required to satisfy
the amounts due at such time shall be increased by the same percentage
as results from dividing the Closing Date Exchange Rate by the relevant
Cash Payment Date Exchange Rate. "Cash Payment Date Exchange Rate"
means in relation to each Repayment Date or Interest Repayment Date the
Euro to US dollar spot exchange rate as quoted in the London edition of
the Financial Times on such date. By way of example, if the amount of
cash required to repay all amounts due on such date would, but for this
Section 1.09, be $1,000 and if the Closing Date Exchange Rate is 1.80
and the relevant Repayment Date Exchange Rate is 1.75 then the amount
of cash from the Cash Payment required to repay all amounts due on such
date will be $1,028.57.
ARTICLE II.
SECTION 2.01 AMENDMENTS AND WAIVER OF DEFAULT. The Debenture may not be
amended. Notwithstanding the above, without the consent of the Holder, the
Debenture may be amended to cure any ambiguity, defect or inconsistency, or to
provide for assumption of the Company obligations to the Holder.
ARTICLE III.
SECTION 3.01 EVENTS OF DEFAULT. An Event of Default is defined as
follows: (a) failure by the Company to pay amounts due hereunder within fifteen
(15) days of the date of maturity of this Debenture; (b) failure by the Company
to comply with the terms of the Irrevocable Transfer Agent Instructions attached
to the Securities Purchase Agreement; (c) failure by the Company for ten (10)
days after notice to it to comply with any of its other agreements in the
Debenture; (d) events of bankruptcy or insolvency; (e) a breach by the Company
of its obligations under the Securities Purchase Agreement which is not cured by
the Company within ten (10) days after receipt of written notice thereof. Upon
the occurrence of an Event of Default, the Holder may, in its sole discretion,
accelerate full repayment of all debentures outstanding and accrued interest
thereon or may, notwithstanding any limitations contained in this Debenture
and/or the Securities Purchase Agreement, convert all debentures outstanding and
accrued interest thereon into Common Shares pursuant to Section 1.02 herein.
-4-
SECTION 3.02 FAILURE TO ISSUE UNRESTRICTED COMMON SHARES. As indicated
in Article III Section 3.01, a breach by the Company of its obligations under
the Securities Purchase Agreement shall be deemed an Event of Default, which if
not cured within ten (10) days, shall entitle the Holder to accelerate full
repayment of all debentures outstanding and accrued interest thereon or,
notwithstanding any limitations contained in this Debenture and/or the
Securities Purchase Agreement, to convert all debentures outstanding and accrued
interest thereon into Common Shares pursuant to Section 1.02 herein. The Company
acknowledges that failure to honor a Notice of Conversion shall cause
irreparable harm to the Holder.
ARTICLE IV.
SECTION 4.01 RIGHTS AND TERMS OF CONVERSION. Subject to the terms
hereof, this Debenture, in whole or in part, may be converted at any time
following the Closing Date, into Common Shares at a price equal to the
Conversion Price as described in Section 1.02 above.
SECTION 4.02 RE-ISSUANCE OF DEBENTURE. When the Holder elects to
convert a part of the Debenture, then the Company shall reissue a new Debenture
in the same form as this Debenture to reflect the reduced original principal
amount.
SECTION 4.03 TERMINATION OF CONVERSION RIGHTS. The Holder's right to
convert the Debenture into the Common Shares in accordance with this Debenture
shall terminate on the date that is the third (3rd) year anniversary from the
date hereof and this Debenture shall be automatically converted on that date in
accordance with the formula set forth in Section 1.02 hereof, and the
appropriate Common Shares and amount of interest shall be issued to the Holder.
ARTICLE V.
SECTION 5.01 ANTI-DILUTION. In the event that the Company shall at any
time subdivide the outstanding Common Shares, or shall issue a stock dividend on
the outstanding Common Shares, the Conversion Price in effect immediately prior
to such subdivision or the issuance of such dividend shall be proportionately
decreased, and in the event that the Company shall at any time combine the
outstanding Common Shares, the Conversion Price in effect immediately prior to
such combination shall be proportionately increased, effective at the close of
business on the date of such subdivision, dividend or combination as the case
may be.
SECTION 5.02 CONSENT OF HOLDER TO SELL CAPITAL STOCK OR GRANT SECURITY
INTERESTS. Except for the Securities Purchase Agreement dated the date hereof
between the Company and Trafalgar Capital Specialized Investment Fund,
Luxembourg, so long as any of the principal of or interest on this Debenture
remains unpaid and unconverted, the Company shall not, without the prior consent
of the Holder, issue or sell (i) any Common Shares or Preferred Stock without
consideration or for a consideration per share less than its fair market value
determined immediately prior to its issuance, (ii) issue or sell any Preferred
Stock, warrant, option, right, contract, call, or other security or instrument
granting the holder thereof the right to acquire Common Shares without
consideration or for a consideration per share less than such Common Shares'
fair market value determined immediately prior to its issuance, (iii) other than
as in effect on the Closing Date, enter into any security instrument granting
the holder a security interest in any of the assets of the Company, or (iv) file
any registration statement on Form S-8 related to anything other than shares
underlying an employee benefit plan that have been or will be awarded to
employees and/or directors of the Company and its subsidiaries.
-5-
ARTICLE VI.
SECTION 6.01 NOTICE. Notices regarding this Debenture shall be sent to
the parties at the following addresses, unless a party notifies the other
parties, in writing, of a change of address:
If to the Company, to: ThinkPath Inc.
55 University Avenue, Suite 505
Toronto, Ontario Canada M5J 2H7
Attn: Mr. Declan French, CEO
Telephone:
Facsimile:
With a copy to: Gersten Savage LLP
600 Lexington Avenue - 9th Floor
New York, NY 10022
Attn: Arthur S. Marcus, Esq.
Telephone: 212 752-9700
Facsimile: 212 980-5192
If to the Holder: Trafalgar Capital Specialized
Investment Fund, Luxembourg
8-10 Rue Mathias Hardt
BP 3023
Luxembourg L-1030
Facsimile:
011-44-207-405-0161
and
001-786-323-1651
With a copy to: James G. Dodrill II, P.A.
5800 Hamilton Way
Boca Raton, FL 33496
Attention: James Dodrill, Esq.
Telephone: (561) 862-0529
Facsimile: (561) 892-7787
SECTION 6.02 GOVERNING LAW. This Debenture shall be deemed to be made
under and shall be construed in accordance with the laws of the State of Florida
without giving effect to the principals of conflict of laws thereof. Each of the
parties consents to the jurisdiction of the U.S. District Court sitting in the
District of the State of Florida or the state courts of the State of Florida
sitting in Broward County, Florida in connection with any dispute arising under
this Debenture and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on FORUM NON CONVENIENS to the bringing
of any such proceeding in such jurisdictions.
-6-
SECTION 6.03 SEVERABILITY. The invalidity of any of the provisions of
this Debenture shall not invalidate or otherwise affect any of the other
provisions of this Debenture, which shall remain in full force and effect.
SECTION 6.04 ENTIRE AGREEMENT AND AMENDMENTS. This Debenture represents
the entire agreement between the parties hereto with respect to the subject
matter hereof and there are no representations, warranties or commitments,
except as set forth herein. This Debenture may be amended only by an instrument
in writing executed by the parties hereto.
SECTION 6.05 COUNTERPARTS. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
Company as executed this Debenture as of the date first written above.
THINKPATH INC.
By:
Name:
Title:
-7-
EXHIBIT "A"
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE HOLDER IN ORDER TO CONVERT THE DEBENTURE)
TO:
The undersigned hereby irrevocably elects to convert US$ ______________
of the principal amount of the above Debenture into Common Shares of THINKPATH
INC., according to the conditions stated therein, as of the Conversion Date
written below.
CONVERSION DATE:
-------------------------------------------
APPLICABLE CONVERSION PRICE:
-------------------------------------------
SIGNATURE:
-------------------------------------------
NAME:
-------------------------------------------
ADDRESS:
-------------------------------------------
AMOUNT TO BE CONVERTED: US$
----------------------------------------
AMOUNT OF DEBENTURE UNCONVERTED: US$
----------------------------------------
CONVERSION PRICE PER SHARE: US$
----------------------------------------
NUMBER OF COMMON SHARES
TO BE ISSUED:
-------------------------------------------
PLEASE ISSUE THE COMMON SHARES
IN THE FOLLOWING NAME
AND TO THE FOLLOWING ADDRESS:
-------------------------------------------
ISSUE TO:
-------------------------------------------
AUTHORIZED SIGNATURE:
-------------------------------------------
NAME:
-------------------------------------------
TITLE:
-------------------------------------------
PHONE NUMBER:
-------------------------------------------
BROKER DTC PARTICIPANT CODE:
-------------------------------------------
ACCOUNT NUMBER:
-------------------------------------------
A-1
The undersigned represents, warrants and certifies as follows (only one
of the following must be checked):
A.|_| The undersigned holder (a) purchased these Debentures directly
from the Company pursuant to a written purchase agreement for the
purchase of such securities, and (b) is converting these Debentures
for its own account and not on behalf of any other person; OR
B.|_| The undersigned holder has delivered to the Company a written opinion
of counsel of recognized standing or such other evidence in form and
substance satisfactory to the Company to the effect that an exemption
from the registration requirements of the United States Securities
Act of 1933, as amended (the "U.S. Securities Act"), and applicable
state securities laws is available for the issuance of the Conversion
Shares.
The undersigned holder understands that the certificate representing the
Conversion Shares will bear a legend restricting transfer without registration
under the U.S. Securities Act and applicable state securities laws unless an
exemption from registration is available and will contain any other restrictions
required by applicable United States federal or state securities laws or
Canadian securities laws. With respect to Box A above, the undersigned holder
agrees to provide any additional information that the Company may reasonably
request to establish that an exemption or exclusion from registration under the
U.S. Securities Act is available for the issuance of the Conversion Shares.
Unless Box B above is checked, certificates representing Conversion Shares will
not be registered or delivered to an address in the United States.
If Box B is checked, any opinion tendered or other evidence delivered must be in
form and substance reasonably satisfactory to the Company. Holders planning to
deliver such documentation in connection with the conversion of a Debenture
should contact the Company in advance to determine whether such documentation
will be acceptable to the Company.
A-2