Exhibit 4.8
THIS DEBENTURE, AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF
(COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR HAVE THEY BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY U.S. STATE OR TERRITORY. THIS
DEBENTURE IS BEING OFFERED AND SOLD PURSUANT TO , AMONG OTHER EXEMPTIONS FROM
REGISTRATION, EITHER A SECTION 4(2) EXEMPTION UNDER REGULATION D (REGULATION
"D"), AS WELL AS A SAFE HARBOR FROM REGISTRATION UNDER REGULATIONS S
("REGULATION S"). THE SECURITIES ARE "RESTRICTED SECURITIES" AND MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES OR TO A U.S. PERSON (AS DEFINED IN
REGULATION S) UNLESS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, OR PURSUANT TO REGULATION S, OR PURSUANT TO OTHER AVAILABLE EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF THE ACT. A HOLDER OF ANY OF THE SECURITIES
ISSUED PURSUANT TO REGULATION S MAY NOT ENGAGE IN ANY HEDGING TRANSACTION WITH
REGARD TO SUCH SECURITIES UNLESS IN COMPLIANCE WITH THE ACT.
10% CONVERTIBLE SUBORDINATED DEBENTURE
DUE DECEMBER 11, 2002
$50,000 No. 1
iExalt, Inc., a Nevada corporation (the "Company"), for value
received, hereby promises to pay to the order of Thomson Kernaghan & Co., Ltd.,
an Ontario (Canada) corporation, as agent (the "Agent"), or its registered
assigns, the principal sum of fifty thousand $50,000 in U.S. Legal Tender (as
defined herein) on December 11, 2002 (the "Maturity Date"), and to pay Interest
(as defined herein) on this Debenture (as defined herein) in accordance with the
provisions of this Debenture in U.S. Legal Tender to the Registered Holder (as
defined herein) hereof, beginning to accrue on the Issue Date (as defined
herein) and quarterly thereafter on the last Business Day (as defined herein) of
March, June, September and December in each calendar year (each such date an
"Interest Payment Date") or, in the case of principal and Interest due on the
Maturity Date, on such Maturity Date. The principal and Interest payable on any
Interest Payment Date will be paid to the Person (as defined herein) in whose
name this Debenture is registered at the close of business on the immediately
preceding 15th day of the month in which the Interest is payable (each such day,
a "Record Date"). Payment of the principal of and Interest on this Debenture
will be mailed to the address of the Person entitled thereto as such Person's
name and address shall appear in the Register (as defined herein).
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. The following terms (except as otherwise
expressly provided or unless the context otherwise clearly requires) for all
purposes of this Debenture and of any amendment hereto shall have the respective
meanings specified in this Section 1.01.
"Acceleration Date" shall have the meaning assigned to such term in
Section 6.02.
"Affiliate" of any specified Person shall mean any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
"Bankruptcy Law" means Title 11 of the United States Code or any
similar foreign, federal or state law for the relief of debtors.
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"Business Day" shall mean any day of the year (other than any
Saturday or Sunday) on which the Federal Reserve Bank is open for business in
New York, New York.
"Capital Stock" shall mean, collectively, the Company's equity
securities of every class, including, without limitation, the Company's Common
Stock.
"Capitalized Lease Obligation" shall mean obligations under a lease
that is required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of Indebtedness represented by such
obligations shall be the capitalized amount of such obligations determined in
accordance with such principles.
"Closing Bid Price" shall mean the closing bid price on the
over-the-counter market as reported by the OTC Bulletin Board ("OTC: BB") or
NASDAQ's Small Capitalization System ("NASDAQ"), or if then traded on a
different national securities exchange, the closing sales price on the principal
national securities exchange on which it is so traded and if not available, the
mean of the daily high and low sales prices on such securities exchange on which
it is so traded, or, if the actual Closing Bid Price is not available on any
such day on the OTC: BB or NASDAQ or such other exchange or market where traded,
then the Closing Bid Price on the last immediately preceding reported date.
"Common Stock" shall mean the Company's common stock, $.001 par
value per share.
"Company" shall mean iExalt, Inc. and its successors and assigns.
"Conversion Price" shall have the meaning assigned to such term in
Section 5.01(b).
"Convertible Securities" shall have the meaning assigned to such
term in Section 5.03(b).
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Date of Conversion" shall mean the date set forth in such Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is
faxed to the Company on or before 11:59 p.m., New York City time, on the Date of
Conversion, and (ii) that the original Debentures to be converted are
surrendered by depositing such Debentures with a common courier, as provided
above, and received by the Transfer Agent or the Company within three (3)
business days from the Date of Conversion. The person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Date of Conversion. If the original Debentures to be
converted are not received by the Transfer Agent or the Company within five (5)
business days after the Date of Conversion or if the facsimile of the Notice of
Conversion is not received by the Company or the Transfer Agent prior to the
Conversion Notice Deadline, the Notice of Conversion, at the Company's option,
may be declared null and void.
"Debenture" shall have the meaning assigned to such term in Section
2.01.
"Default" shall mean any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Default Notice" shall have the meaning assigned to such term in
Section 6.02(b).
"Equity Line Financing Agreement" shall mean that certain Equity
Line Financing Agreement, dated as of the date hereof, between the Company and
the Agent, as originally in effect and thereafter as amended, restated,
modified, supplemented, refunded, replaced or otherwise refinanced from time to
time; provided that the maximum principal amount available thereunder after
giving effect thereto does not exceed the maximum principal amount available
immediately before giving effect thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" shall have the meaning assigned to such term in
Section 6.01.
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"Fixed Conversion Price" shall have the meaning assigned to such
term in Section 5.01(b).
"GAAP" shall mean generally accepted accounting principles as in
effect in the United States of America on the date of this Debenture.
"Holder" or "Holder of Debentures" shall mean the Registered Holder
of a Debenture.
"Indebtedness" shall mean, with respect to any Person, (i) any
liability, contingent or otherwise, of such Person (A) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (B) evidenced by a note, debenture or
similar instrument (including a purchase money obligation) or (C) for the
payment of money relating to a Capitalized Lease Obligation; (ii) any liability
of others of the kind described in the preceding clause (i) which the Person has
guaranteed or which is otherwise its legal liability; (iii) any obligation
secured by a lien to which the property or assets of such Person are subject,
whether or not the obligations secured thereby shall have been assumed by or
shall otherwise be such Person's legal liability; and (iv) any and all
deferrals, renewals, extensions and refundings of, or amendments, modifications
or supplements to, any liability of the kind described in any of the preceding
clauses (i), (ii) or (iii).
"Interest" shall mean all interest accruing hereunder, including
Mandatory Interest and Deferred Interest, together with accrued and unpaid
interest on Deferred Interest as provided in Section 2.02(a).
"Interest Payment Date" shall have the meaning assigned to such term
in the first paragraph of this Debenture.
"Issue Date" shall have the meaning assigned to such term in the
first paragraph of this Debenture.
"Maturity Date" shall have the meaning assigned to such term in the
first paragraph of this Debenture.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation System.
"New Debenture" shall have the meaning assigned to such term in
Section 2.06.
"Notice of Conversion" shall mean an executed written notice
provided to the Company at the office of the Company or the Transfer Agent,
which notice shall specify the principal amount of Debentures to be converted
and shall contain a calculation of the number of shares of Common Stock to be
issued upon conversion.
"Notice of Default" shall have the meaning assigned to such term in
Section 6.01.
"Old Debenture" shall have the meaning assigned to such term in
Section 2.06.
"Person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or other private legal entity or government
or other agency or political subdivision thereof.
"Record Date" shall mean December 15 and June 15 of each calendar
year.
"Redemption Date" shall mean the date fixed for redemption pursuant
to this Debenture.
"Redemption Price" shall have the meaning assigned to such term in
Section 3.04.
"Register" shall have the meaning assigned to such term in Section
2.03.
"Registered Holder" shall mean the Holder of a Debenture as set
forth in the Register.
"Registration Rights Agreement" means the registration rights agreement dated as
of the date hereof by and between the Company and the Holder granting the Holder
of this Debenture a right to register the underlying Common Stock into which
this Debenture (and accompanying Warrants) may be converted.
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"Registration Statement" means the registration statement of the
Company filed with the Securities and Exchange Commission to register for sale
the shares of Common Stock issuable upon conversion of the Debentures, the
shares of Common Stock issuable upon exercise of the warrants issued in
connection with the Debentures and the shares of Common Stock issuable under the
Company's Equity Line of Credit dated as of the date hereof.
"Registry Office" shall have the meaning assigned to such term in
Section 2.03.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Purchase Agreement" means the Securities Purchase
Agreement date as of the date hereof between the Company and the Agent.
"Subsidiary" shall mean a corporation all of whose capital stock
with voting power, under ordinary circumstances, to elect directors is at the
time, directly or indirectly, owned by the Company, by a Subsidiary of the
Company or by the Company and a Subsidiary of the Company.
"Trading Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday, other than a day on which securities are not traded on the
applicable securities exchange or in the applicable securities market.
"Transaction Documents" shall mean the Debentures, the Registration
Rights Agreement, the Securities Purchase Agreement, the Equity Line Financing
Agreement and any warrants issued in connection therewith.
"Transfer" shall have the meaning assigned to such term in Section
2.05(b).
"U.S. Legal Tender" shall mean such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts in the United States.
"Variable Conversion Price" shall have the meaning assigned to such
term in Section 5.01(b).
SECTION 1.02 Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning expressly assigned to it hereby;
(2) a technical accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer to
this Debenture as a whole and not to any particular Article, Section or
other subdivision;
(7) references to statutes, regulations and rules include subsequent
amendments and successors thereto unless the context otherwise requires;
(8) the various headings of this Debenture are provided herein for
convenience only any shall not affect the meaning or interpretation of
this Debenture or any provision hereof; and
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(9) if any payment hereunder shall become due on any day which is
not a Business Day, such payment shall be made on the next succeeding
Business Day.
ARTICLE II
THE DEBENTURES
SECTION 2.01 Debentures Part of Series. This Debenture is one of the
duly authorized issues of Debentures of the Company designated as its 10%
Convertible Debentures Due December __, 2002, in $50,000 increments individually
a "Debenture" and collectively the "Debentures" with $600,000 in principal
issued as of the date hereof, The Debentures are unsecured debt obligations of
the Company. All Debentures will be treated equally and all payments (whether
for principal, Interest or otherwise) will be made pro rata among Registered
Holders based upon the aggregate amount that the Company is obligated to pay at
such time to such Registered Holders. If any Registered Holder of any Debenture
obtains any payment (whether voluntary, involuntary, by application of offset or
otherwise) of principal of or Interest on any Debenture in excess of such
Registered Holder's pro rata share of payments obtained by all Registered
Holders of the Debentures, such Registered Holder will return such excess
payment to the Company and the Company shall pay such excess to the other
Registered Holders of the Debentures as is necessary to cause such Registered
Holders to share the excess payment ratably among each of them as provided in
this Section 2.01.
SECTION 2.02 Interest; Payment of Interest. This Debenture shall
bear Interest for the period from the Issue Date to the Maturity Date (or in the
case of redemption in accordance with Article Three, to the Redemption Date, or
in the case of conversion, in accordance with Article Five, to the date of such
conversion) at a rate of ten percent (10%) per annum calculated on the
outstanding principal amount hereunder on the basis of a 360 day year consisting
of twelve 30 day months. Payments of Interest on this Debenture will be made on
the Interest Payment Dates of each calendar year (except in the case of a
special Record Date) prior to the Maturity Date or redemption or conversion and
on the Maturity Date and Redemption Date and the date of conversion to the
Holder of record at the close of business on the immediately preceding Record
Date as follows:
(a) Interest. Except as otherwise provided in Section 5.01, all Interest
must be paid in U.S. Legal Tender.
(b) Payment Upon Maturity Date. At the Maturity Date, the Holder of this
Debenture will be entitled to receive (i) payment of the outstanding
principal amount hereunder plus (ii) any accrued and unpaid
Interest.
(c) Payment Upon Redemption Date. At the Redemption Date, the Holder of
this Debenture will be entitled to receive (i) payment of the
outstanding principal balance hereunder to be redeemed in accordance
with Article Three plus (ii) any accrued and unpaid Interest thereon
to and including the Redemption Date.
(d) Payment Upon Conversion. Upon conversion of this Debenture into
Capital Stock pursuant to Section 5.02, accrued and unpaid Interest
shall be paid as provided in Section 5.01(a).
In the event for any reason, any payment by or act of the Company or the Holder
shall result in payment of Interest which would exceed the limit authorized by
or be in violation of the law of the jurisdiction applicable to this Debenture,
then the obligation of the Company to pay Interest or perform such act or
requirement shall be reduced to the limit authorized under such law, so that in
no event shall the Company be obligated to pay any such Interest, perform any
such act or be bound by any requirement which would result in the payment of
Interest in excess of the limit so authorized. In the event any payment by or
act of the Company shall result in the extraction of a rate of Interest in
excess of a sum which is lawfully collectible as Interest, then such amount (to
the extent of such excess not returned to the Company) shall, without further
agreement or notice between or by the Company or the Holder, be deemed applied
to the payment of principal, if any, hereunder immediately upon receipt of such
excess funds by the Holder, with the same force and effect as though the Company
had specifically designated such sums to be so
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applied to principal and the Holder had agreed to accept such sums as an
Interest-free prepayment of this Debenture. If any part of such excess remains
after the principal has been paid in full, whether by the provisions of the
preceding sentences of this Section 2.02 or otherwise, such excess shall be
deemed to be an Interest-free loan from the Company to the Holder, which loan
shall be payable immediately upon demand by the Company. The provisions of this
Section 2.02 shall control every other provision of this Debenture.
SECTION 2.03 The Register. The Company will keep at its principal
office (the "Registry Office") one or more books (the "Register") for the
registration of the Debentures (including all transfers) and the names and
addresses of the Registered Holders of the Debentures. All transfers of the
Debentures and the names and addresses of the transferees of the Debentures
shall be registered in the Register under such reasonable regulations as the
Company may prescribe.
SECTION 2.04 Registered Holders. The Company will deem and treat the
Registered Holder of this Debenture as the absolute owner hereof and will not be
affected by any notice to the contrary. Payment of the principal of and Interest
on this Debenture shall be made only to the Registered Holder hereof. All such
payments so made shall be valid and effectual to satisfy and discharge the
liability of the Company upon this Debenture to the extent of the sum or sums so
paid. For the purpose of any request, direction or consent hereunder, the
Company may deem and treat the Registered Holder of this Debenture as the Holder
without production of such Debenture.
SECTION 2.05 Transfers and Exchanges of Debentures; Lost or
Mutilated Debentures.
(a) Subject to Section 2.05(b), the Registered Holder hereof may
from time to time assign or transfer in the manner provided in this Section 2.05
to one or more Persons all or any part of this Debenture, and to the extent of
any such assignment or transfer (unless otherwise stated therein), the
transferee of such assignment or transfer (unless otherwise stated therein),
shall become a Registered Holder of this Debenture. Each transferee so becoming
a Registered Holder shall be vested with all rights and powers under this
Debenture of a Registered Holder hereunder and shall take and hold its Debenture
subject to the provisions of this Debenture and to any request made, waiver or
consent given or other action taken hereunder by each previous Registered Holder
of this Debenture.
(b) No Holder may sell, assign, transfer, or otherwise dispose of
this Debenture (collectively "Transfer"), if the Transfer, taken alone or
together with all other Transfers of Debentures, would (i) violate or result in
a violation of, any provision of the Securities Act, applicable state securities
or "blue sky" laws, as amended, or any other applicable provision of law; (ii)
subject the Company or an Affiliate of the Company to regulation as an
investment company under the Investment Company Act of 1940, as amended; or
(iii) subject the Company or an Affiliate of the Company to duties and
liabilities under ERISA.
(c) The Registered Holder may Transfer this Debenture upon the
surrender of this Debenture at the Registry Office, and no such Transfer shall
be effective until such surrender to the Company of the Debenture to be
transferred has been made. Upon such surrender the Company shall execute in the
name of the transferee(s) a new Debenture or Debentures in denominations not
less than $1,000 each and in aggregate principal amount equal to the original
principal amount of the Debenture so surrendered.
(d) If this Debenture is presented or surrendered for exchange or
Transfer, it shall be accompanied by a written instrument or instruments of
assignment or transfer, duly executed by the Registered Holder and the
transferee or by their respective attorneys duly authorized in writing (which
instrument shall contain appropriate warranties of the transferee), and an
opinion of counsel addressed to the Company, each in form and substance and
furnished by counsel reasonably satisfactory to the Company, and which opinion
shall state that such Transfer or assignment does not violate, or result in the
violation of, any provision of the Securities Act, applicable state securities
or "blue sky" laws or any other applicable provision of law, and as to such
other matters as the Company reasonably may request. The Company shall not be
required to make a transfer or an exchange of this Debenture for a period of ten
(10) Business Days preceding any Interest Payment Date.
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(e) No notarial act shall be necessary for the Transfer or exchange
of this Debenture pursuant to this Section 2.05, and the Holder of any Debenture
issued as provided in this Section 2.05 shall be entitled to any and all rights
and privileges granted under this Debenture to a Registered Holder.
(f) If this Debenture shall become mutilated or be destroyed, lost
or stolen, the Company, upon the written request of the Registered Holder, shall
execute and deliver to the Registered Holder a new Debenture in exchange and
substitution for the mutilated Debenture, or in lieu of and in substitution for
the Debenture so destroyed, lost or stolen, in either case in a principal amount
equal to the original principal amount of the Debenture so mutilated, destroyed,
lost or stolen, as reflected in the Register. The applicant for a substituted
Debenture shall furnish to the Company such security or indemnity or such
combination thereof as may be reasonably required by the Company to save the
Company harmless from all risks, and the applicant shall also furnish to the
Company evidence to its reasonable satisfaction of the mutilation, destruction,
loss or theft of the applicant's Debenture and of the applicant's ownership
thereof.
SECTION 2.06 New Debentures.
(a) Each new Debenture (a "New Debenture") issued pursuant to
Section 2.05 in exchange for, in substitution for or in lieu of a Debenture (an
"Old Debenture") shall be dated the date of such Old Debenture. The Company
shall mark on each New Debenture (i) the date and the extent to which principal
and Interest has been paid on such Old Debenture and (ii) all payments and
prepayments of principal made on such Old Debenture which are allocable to such
New Debenture. Interest and principal shall be deemed to have been paid on such
New Debenture to the date and to the extent to which Interest and principal was
paid on such Old Debenture.
(b) Any New Debenture issued pursuant to Section 2.05 in exchange
for or in substitution for or in lieu of an Old Debenture shall be the valid
obligation of the Company evidencing the same debt as such Old Debenture and
shall be entitled to the benefits of this Debenture. No service charge shall be
made for any exchange or transfer of this Debenture, but the Company may require
payment of a sum sufficient to cover any tax or governmental charge imposed with
respect thereto.
SECTION 2.07 Cancellation of Debentures. If this Debenture is
surrendered to the Company for the purpose of payment, transfer or exchange, it
shall be canceled by the Company, and no Debentures shall be issued in lieu
hereof except as expressly required or permitted by this Debenture.
ARTICLE III
REDEMPTION OF DEBENTURES
SECTION 3.01 Redemption at the Option of the Company. If the Company
is not in Default (and no Event of Default has occurred or with notice or lapse
of time would reasonably be expected to occur), the Company may redeem
Debentures (including this Debenture), in whole or in part, at any time upon not
less than 60 days' and not more than 90 days' prior written notice to the
Holders of the Debentures at a price, payable in U.S. Legal Tender only, equal
to the economic benefit that the Holder would realize from the sale of the
Common Stock to be received upon the conversion of that portion of the Debenture
to be redeemed on the date of the notice of redemption in accordance with
Section 3.04 (the "Redemption Price").
SECTION 3.02 Redemption in Part. Debentures may be redeemed in part
in denominations of $1,000 or any integral multiple thereof. In case of a
redemption in part, the Debentures to be redeemed shall be selected pro rata and
there shall be redeemed from each Holder that portion of principal amount of all
Debentures being redeemed which the outstanding principal amount of Debentures
held by such Holder bears to the total principal amount of Debentures then
outstanding.
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SECTION 3.03 Notice of Redemption. The Company shall provide notice
of redemption to each Holder at such Holder's latest address set forth in the
Register. Failure to give notice by mail, or any defect in the notice to the
Holder of any Debenture shall not affect the validity of the proceedings for the
redemption of any other Debentures. The notice shall state:
(1) the Redemption Price;
(2) that payment of the Redemption Price shall be made by wire
transfer to an account designated in writing by the Holder with
seven (7) Business Days after the Holder's receipt of the redemption
notice (the "Redemption Date") provided that the Debentures called
for redemption must be surrendered to the Company to collect the
Redemption Price;
(3) that, unless the Company defaults in making the redemption
payment on the Redemption Date, Interest on Debentures called for
redemption shall cease to accrue on and after the Redemption Date
and, the only remaining right of the Holder of such Debentures is to
receive payment of the Redemption Price upon surrender of the
Debentures redeemed to the Company;
(4) if any Debenture is being redeemed in part, the portion of
the principal amount of such Debenture to be redeemed and that,
after the Redemption Date, and upon surrender of such Debenture, a
new Debenture or Debentures in aggregate principal amount equal to
the unredeemed portion thereof will be issued; and
(5) if less than the entire principal amount of Debentures is
to be redeemed, the aggregate principal amount of Debentures to be
redeemed and the aggregate principal amount of Debentures estimated
to be outstanding after such partial redemption.
SECTION 3.04 Inability to Send Notice of Redemption The Company
shall not be entitled to send any redemption notice and begin the redemption
procedure hereunder unless it has: (a) the full amount of the Redemption Price
in cash, available in a demand or other immediately available account in a bank
or similar financial institution, specifically allotted for such redemption; (b)
immediately available credit facilities, in the full amount of the Redemption
Price with a bank or similar financial institution specifically allotted for
such redemption; or (c) a combination of the items set forth in (a) and (b)
above, aggregating the full amount of the Redemption Price. Notwithstanding the
foregoing, in the event the redemption is expected to be made contemporaneously
with the closing of a public offering of the Company's securities for an amount
in excess of the Redemption Price, the Company shall not be required to have the
full amount of the Redemption Price available to it as set forth above.
SECTION 3.05 Effect of Notice of Redemption Once notice of
redemption is mailed, all Debentures called for redemption in whole or in part
become due and payable only to the extent of the Redemption Price on the
Redemption Date. Upon surrender to the Company, such Debentures called for
redemption shall be paid at the Redemption Price. If the Company fails to pay
the Redemption Price on the Redemption Date, the redemption shall be null and
void and the Company shall have no further right to redeem the Debentures or
portion thereof called for redemption.
ARTICLE IV
COVENANTS
SECTION 4.01 Payment of Debenture. The Company shall pay the
principal of and Interest on this Debenture on the dates and in the manner
provided in Article Two, Article Three and Article Five.
SECTION 4.02 Corporate Existence, Etc. The Company will preserve and
keep in force and effect its corporate existence and all material licenses and
permits reasonably necessary to the proper conduct of its business; provided
that nothing contained in this Section 4.02 shall prevent the Company from
consolidating with, selling all or substantially all of its properties and
assets to, or being a party to a merger with any other Person if: (i) no Default
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exists or would result therefrom and (ii) the surviving Person is organized
under the laws of the United States and expressly and unconditionally assumes in
writing the due and punctual performance of all obligations hereunder and under
the Debentures.
SECTION 4.03 Insurance. The Company will maintain insurance coverage
by financially sound and reputable insurers in such forms and amounts and
against such risks as are reasonable for corporations of established reputation
engaged in the same or similar business and owning and operating similar assets.
SECTION 4.04 Taxes, Claims for Labor and Materials, Compliance with
Laws.
(a) The Company will promptly pay and discharge all lawful taxes,
assessments and governmental charges or levies imposed upon the Company, or upon
or in respect of all or any part of the property or business of the Company, all
trade accounts payable in accordance with usual and customary business terms,
and all claims for work, labor or materials, which if unpaid would become a lien
or charge upon any property of the Company; provided that the Company shall not
be required to pay any such tax, assessment, charge, levy, account payable or
claim if (1) the validity, applicability or amount thereof is being contested in
good faith by appropriate actions or proceedings and (2) the Company shall set
aside on its books, reserves deemed by it to be adequate with respect thereto.
(b) The Company will promptly comply with all applicable laws,
ordinances or governmental rules and regulations to which it is subject the
penalty for violation of which would materially and adversely affect the
properties, business, prospects, profits or condition of the Company.
SECTION 4.05 Limitation on Dividends and Purchases of Capital Stock.
The Company will not, directly or indirectly, declare or pay any dividend on, or
make any distribution to the holders of, Capital Stock of the Company with
respect to such Capital Stock (other than dividends in Capital Stock or rights
to acquire Capital Stock) and neither the Company nor any Subsidiary may
purchase, redeem, or otherwise acquire or retire for value any of the Capital
Stock of the Company or Indebtedness of the Company without the prior written
consent of the Holders of a majority of the outstanding principal balance of the
Debentures.
SECTION 4.06 Reporting.
(a) As soon as available, but in any event within 90 days after the
end of each fiscal year of the Company, the Company shall deliver to each Holder
copies of the audited consolidated balance sheet of the Company and its
Subsidiaries together with the related consolidated statements of income and
cash flows for such fiscal year prepared in accordance with GAAP consistently
followed throughout the period involved and presenting fairly the financial
condition of the Company and its Subsidiaries.
(b) As soon as available, but in any event within 45 days after the
end of each fiscal quarter of the Company, the Company shall deliver to each
Holder copies of the unaudited consolidated balance sheet of the Company and its
Subsidiaries as at the end of such fiscal quarter and the related unaudited
consolidated statements of income and cash flows for such fiscal quarter and the
portion of the fiscal year through such fiscal quarter.
SECTION 4.07 Incurrence of Additional Indebtedness. The Company will
not, and will not permit any of its Subsidiaries to, create, issue, assume,
guarantee or otherwise in any manner become liable for or with respect to or
otherwise incur (collectively, "incur" and with correlative meaning "incurrence"
and "incurred") any Indebtedness without the prior written consent of the
Holders of a majority of the outstanding principal balance of the Debentures.
SECTION 4.08 No Shop Limitation; No S-8 Registration. Company
agrees it cannot and will not register any securities pursuant to a Form S-8, or
the securities of any other investor under any other registration statement
until the Registration Statement has become effective, without the approval of
all Subscriber(s). Company agrees that prior to the Registration Statement
becoming effective, Company will not and shall not seek to raise
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capital with any other investor. However, once the Registration Statement is
deemed effective, Company is free to raise additional capital subject to
Purchaser's right of first refusal.
ARTICLE V
CONVERSION
SECTION 5.01 Conversion Privilege.
(a) Subject to and upon compliance with the provisions of this
Article Five, the entire outstanding principal amount of this Debenture, or any
portion thereof, is convertible into Common Stock at the option of the Holder at
any time, unless a redemption notice has been received by the Holder pursuant to
the terms of Article Three. On conversion of the entire outstanding principal
amount of this Debenture, or any portion thereof, any Interest that is past due
on the principal amount of such Debenture that is being converted shall be paid
in U.S. Legal Tender, or shares of Common Stock at the Holder's option.
(b) The record Holder of this Debenture shall be entitled to convert
the Debenture(s) into that number of fully-paid and non-assessable shares of
Common Stock of the Company calculated in accordance with the following formula
(the "Conversion Rate"):
Number of shares issued upon conversion = (Principal + Interest)/Conversion
Price, where
o Principal = The principal amount of the Debenture(s) to be converted,
o Interest = Principal x (N/365) x .10, where
o N = the number of days between (i) the date that, in connection
with the consummation of the initial purchase of this Debenture from
the Company, the escrow agent first had in its possession funds
representing full payment for this Debenture, and (ii) the
applicable Date of Conversion for the Debenture(s) for which
conversion is being elected, and
o Conversion Price = the lesser of (x) 75% of the average Closing
Bid Price, as that term is defined below, for on the Last Closing
Date (December, __, 2000) which amounts to $_______ (the "Fixed
Conversion Price"), or (y) 75% of the average Closing Bid Price, as
that term is defined below, of the Company's Common Stock for the
ten (10) trading days immediately preceding the Date of Conversion
(the "Variable Conversion Price").
(c) Nothing in this Debenture shall grant, or shall be deemed to
constitute the incurrence, creation, assumption or sufferance by the Company of,
and the Holder of this Debenture shall not assert, any mortgage, pledge, lien,
charge or other encumbrance of any nature whatsoever on the Common Stock
deliverable upon conversion of this Debenture.
SECTION 5.02 Exercise of Conversion Privilege.
(a) To exercise the conversion privilege, the Holder of this
Debenture shall surrender this Debenture, duly endorsed or assigned to the
Company or in blank, at the Registry Office or any other office or agency
designated in writing by the Company to the Holder of this Debenture,
accompanied by written notice to the Company at such office or agency that the
Holder of this Debenture elects to convert such Debenture and the selection of
the three closing bid prices as specified in Section 5.01(b).
(b) This Debenture shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of this
Debenture for conversion in accordance with the foregoing provisions, and at
such time the rights of the Holder of this Debenture as a Holder shall cease,
and the Person or Persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such
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Common Stock at such time. As promptly as practicable on or after the day of
conversion, but no more than three (3) business days, the Company shall issue
and shall deliver at its principal office or other office or agency which it may
designate in writing to the Holder of this Debenture a certificate or
certificates for the number of shares of Common Stock issuable upon conversion
(which may include fractional shares, as applicable).
(c) If this Debenture is converted in part only, upon such
conversion the Company shall execute and deliver to the Holder hereof, at the
expense of the Company, a new Debenture or Debentures of authorized
denominations in aggregate principal amount equal to the unconverted portion of
the principal amount of this Debenture.
SECTION 5.03 Notice of Certain Corporate Action. In case, as allowed
by this Debenture:
(a) the Company shall declare a dividend (or any other distribution)
on its Capital Stock, other than cash dividends payable from current earnings;
or
(b) the Company shall authorize the granting of its Capital Stock of
(i) rights or warrants to subscribe for or purchase any shares of Capital Stock
of any class, or (ii) any other rights; or
(c) of any reclassification of the Capital Stock of the Company
(other than a subdivision or combination of its outstanding shares of Capital
Stock), or of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then the Company shall cause to be filed in the minute book of the Company and
shall cause to be mailed to the Holder of this Debenture at the Holder's last
address appearing in the Register, at least 30 days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
rights or warrants, or, if a record is not to be taken, the date as of which the
holders of Capital Stock of record to be entitled to such dividend,
distribution, rights 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 Capital Stock of record shall be entitled
to exchange their shares of Capital Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.
SECTION 5.04 Company to Reserve Common Stock. The Company shall at
all times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, for the purpose of effecting the
conversion of the Debentures, the full number of shares of Common Stock then
issuable upon the conversion of all outstanding Debentures, and the Company will
maintain at all times all other rights and privileges sufficient to enable it to
fulfill all its obligations hereunder.
SECTION 5.05 Adjustments.
(a) If the Company merges or consolidates with another corporation
or sells or transfers all or substantially all of its assets to another person
and the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable.
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(b) If, for any reason, prior to the date of conversion or
redemption pursuant to the terms of this Debenture, 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 cash 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 Debentures outstanding on 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 that
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 principal amount
of the Outstanding Debentures then being converted, and (II) the denominator is
the principal amount of the Outstanding Debentures.
SECTION 5.06 Taxes on Conversion. The Company will pay any and all
stamp and transfer taxes that may be payable in respect of the issue or delivery
of shares of Common Stock on conversion of this Debenture pursuant to the terms
hereof. The Company shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares
of Common Stock in a name other than that of the Holder of this Debenture or
Debentures to be converted, and no such issue or delivery shall be made unless
and until the Person requesting such issue has paid to the Company the amount of
any such tax, or has established to the satisfaction of the Company that such
tax has been paid.
SECTION 5.07 Covenant as to Common Stock. The Company covenants that
all shares of Common Stock which may be issued upon conversion of this Debenture
will upon issue be duly authorized, validly issued, fully paid and
nonassessable.
SECTION 5.08 Restriction on Conversion (9.99% Limitation).
Notwithstanding any other provision of any of the other Transaction Documents,
in no event (except while there is outstanding a tender offer for any or all of
the shares of the Company's Common Stock) shall the Holder be entitled to
convert any Debenture or shall the Company have the obligation, to convert all
or any portion of this Debenture to the extent that, after such conversion, the
sum of (a) the number of shares of Common Stock beneficially owned by the Holder
and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures), and (b) the number of shares of Common Stock issuable upon the
conversion of the Debentures with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder and
its affiliates of more than 9.99% of the outstanding shares of Common Stock
(after taking into account the shares to be issued to the Holder upon such
conversion or exercise). For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), except as otherwise provided in clause (a) of such sentence. Any issuance
by the Company to the Buyer in excess of the limit contained in this Section
5.08 shall be null and void, and upon notice of such invalid issuance, the
Company shall correct its books and cause its transfer agent's books to be
corrected forthwith to reflect that the Holder's ownership of Common Stock is
within the limit set forth herein. Holder shall immediately deliver any
certificates for invalidly issued Common Stock to the Company's transfer agent.
The Company further agrees to (i) immediately reissue certificates for Common
Stock to the extent that a portion of the Common Stock represented by said
certificates have been validly issued and (ii) immediately reissue all or a
portion of those shares which were deemed invalidly issued (at the Conversion
Price set forth in the original conversion notice(s) applicable to such shares)
upon notice from Holder that the reissuance of such shares would not cause such
Holder to have a beneficial ownership interest in excess of 9.99%.
Notwithstanding the foregoing, Holder may elect, by providing the Company
written notice at any time prior to the reissuance of shares, to cancel that
portion of a prior conversion applicable to shares of Common Stock surrendered
by it pursuant to this Section 5.08. The Company hereby indemnifies and holds
Holder free and harmless in connection with any and all liabilities, losses,
costs and expenses, including, without limitation,
12
attorneys' fees and costs arising from or relating to claims made by any third
parties alleging that any Holder has violated Sections 13(d) and/or 16, to the
extent such violation is premised on the fact that, notwithstanding this Section
5.08, the Holder is the beneficial owner of all of the shares of Common Stock
which would be issuable, from time to time, if Holder converted the entire
principal and interest balance of the Debenture.
SECTION 5.09 Limitation on Issuances. The Holder recognizes that the
Company may be limited in the number of shares of Common Stock it may issue by
(a) reason of its authorized shares, or (b) the applicable rules and regulations
of the principal securities market on which the Common Stock is listed or traded
(collectively, the "Cap Regulations"). Without limiting the other provisions
hereof, (i) the Company will take all steps reasonably necessary to be in a
position to issue shares of Common Stock on conversion of the Debentures without
violating the Cap Regulations and (ii) if, despite taking such steps, the
Company still can not issue such shares of Common Stock without violating the
Cap Regulations, the Holder of this Debenture (to the extent the same can not be
converted in compliance with the Cap Regulations (an "Unconverted Debenture"),
shall have the option, exercisable in the Holder's sole and absolute discretion,
to elect any one of the following remedies:
(1) require the Company to issue shares of Common Stock in
accordance with such Holder's Notice of Conversion relating to the
Unconverted Debenture at a conversion purchase price equal to the
average of the closing bid price per share of Common Stock for any
five (5) consecutive trading days (subject to the equitable
adjustments for certain events occurring during such period as
provided in this Debenture) during the sixty (60) trading days
immediately preceding the date of the Notice of Conversion; or
(2) require the Company to redeem each Unconverted Debenture
for the Redemption Price assuming for that purpose that the date of
Redemption is the proposed date of conversion as specified in the
Holder's Notice of Conversion.
ARTICLE VI
DEFAULT AND REMEDIES
SECTION 6.01 Notice of Default; Default Defined. Within ten (10)
days after the occurrence of any default hereunder with respect to the
Debentures, the Company shall send notice of such default to the Holders of the
Debenture, unless such default shall have been cured or waived. For the purpose
of this Section 6.01, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default.
SECTION 6.02 Events of Default. Regardless of the notice required in
Section 6.01 above, an "Event of Default" with respect to this Debenture occurs
if:
(a) the Company defaults in the payment of Interest on this
Debenture or any other Debenture when the same becomes due and payable and the
default continues for a period of five (5) days after an Interest Payment Date;
(b) the Company defaults in the payment of the principal of this
Debenture or any other Debenture or the Registration Rights Agreement when the
same becomes due and payable at maturity, upon redemption or otherwise;
(c) the Company fails to comply in any material respect with any of
its covenants or other agreements contained in the Transaction Documents and the
default continues for the period and after the notice specified below (other
than the failure to cause a registration statement to become effective within a
specified time period as to which no cure period shall apply);
(d) any of the representations or warranties made by the Company in
the Transaction Documents or in any certificate or financial or other written
statements heretofore or hereafter furnished by the Company in
13
connection with the execution and delivery of the Transaction Documents shall be
false or misleading in any material respect at the time made;
(e) there shall be a default under any bond, debenture, note or
other evidence of Indebtedness of the Company or any Subsidiary or under any
mortgage, debenture or other instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness of the Company or any
Subsidiary or under any guarantee of the payment by the Company or any
Subsidiary of Indebtedness, whether such Indebtedness or guarantee now exists or
shall hereafter be created, which default relates to (i) the obligation to pay
the principal of or interest on any such Indebtedness or guarantee which default
shall have resulted in such Indebtedness becoming or being declared due and
payable prior to its stated maturity or (ii) an obligation other than the
obligations to pay the principal of or interest on any such Indebtedness and
which default shall have resulted in such Indebtedness becoming or being
declared due and payable prior to its stated maturity; provided that no default
under this clause (e) shall exist if (A) all such defaults relate to
Indebtedness owed to a party other than the Holder and (ii) all such defaults
relate to Indebtedness or guarantees with an aggregate principal amount of no
more than $10,000;
(f) the Company or any Subsidiary pursuant to or within the meaning
of any Bankruptcy Law (as defined below) (A) becomes insolvent, (B) fails
generally to pay its debts as they become due, (C) admits in writing its
inability to pay its debts as they become due, (D) commences a voluntary case or
proceeding, (E) consents to the entry of a judgment, decree or order for relief
against it in an involuntary case or proceeding, (F) consents to the appointment
of a Custodian (as defined below) of it or for any material part of its
property, (G) consents to or acquiesces in the institution of bankruptcy or
insolvency proceedings to or against it, (H) applies for, consents to or
acquiesces in the appointment of or taking possession by a Custodian of the
Company or any such Subsidiary or for any material part of the Company's or any
such Subsidiary's property, or (I) makes a general assignment for the benefit of
its creditors;
(g) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company or any Subsidiary in an involuntary
case or proceeding under any Bankruptcy Law which shall (A) approve as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
in respect of the Company or any Subsidiary, (B) appoint a Custodian of the
Company or any Subsidiary or for any material part of its property or (C) order
the winding-up or liquidation of its affairs, and such judgment, decree or order
shall remain unstayed and in effect for a period of 30 consecutive days; or any
warrant of attachment is issued against any portion of the property of the
Company or any Subsidiary which is not released within 60 days of service;
(h) uninsured final judgments for the payment of money which in the
aggregate at any one time exceed $10,000 shall be rendered against the Company
or any Subsidiary by a court of competent jurisdiction, and shall remain
undischarged for a period (during which execution shall not be effectively
stayed) of 30 days after such judgment becomes final and nonappealable;
provided, however, that the Company promptly shall give notice to the Holder of
any uninsured financial judgments rendered against the Company or a Subsidiary;
or
(i) the Company shall have its Common Stock de-listed or suspended
from trading on the National Association of Securities Dealers Over the Counter
Bulletin Board Quotation System or any other exchange or market on which the
Common Stock trades.
A Default under clause (c) is not an Event of Default until the
Holders of at least a majority in aggregate principal amount of the then
outstanding Debentures (excluding any Debentures held by the Company) notify the
Company of the Default and the Company does not cure the Default within 20 days
after receipt of the notice. The notice must specify the Default, demand that it
be remedied and state that the notice is a "Notice of Default." When a Default
is cured, it ceases.
SECTION 6.03 Acceleration. If an Event of Default (other than an
Event of Default specified in Section 6.02(e) or Section 6.02(f)) occurs and is
continuing, the Holders of at least a majority in aggregate principal amount of
the Debentures then outstanding (excluding any Debentures held by the Company)
may, by notice to the Company, declare all unpaid principal and accrued Interest
to the date of acceleration on the Debentures then
14
outstanding (if not then due and payable) to be due and payable on the
"Acceleration Date," which shall be the the fifth (5th) Business Day after the
receipt of notice of such declaration by the Company; provided that, in the
event the condition giving rise to such Event of Default shall have ceased to
exist or payment shall have been made prior to the Acceleration Date, such
declaration shall be automatically rescinded and such amounts shall no longer
become due and payable pursuant hereto. If an Event of Default specified in
Section 6.02(e) or Section 6.02(f) with respect to the Company occurs, all
unpaid principal and accrued Interest on this Debenture then outstanding shall
become immediately due and payable without any declaration or other act on the
part of any Person. Upon payment of such principal amount and Interest, all of
the Company's obligations under this Debenture shall terminate. The Holders of a
majority in aggregate principal amount of the then outstanding Debentures
(excluding any Debentures held by the Company) by notice to the Company may
rescind an acceleration and its consequences if (i) all existing Events of
Default, other than the
non-payment of the principal of the Debentures which has become due solely by
such declaration of acceleration, have been cured or waived, (ii) to the extent
the payment of such interest is lawful, interest on overdue installments of
interest and overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid, and (iii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. It is
expressly understood and agreed that the decision so to waive any Default and so
to rescind and annul any consequences thereof is within the sole judgment and
control of the Holders and such Holders shall be under no obligation to do so.
Notwithstanding the foregoing, if a declaration of acceleration
shall have occurred because of an Event of Default specified in Section 6.02(d),
such declaration shall be automatically rescinded if the Indebtedness that is
the subject of such Event of Default shall have been paid or discharged or such
Event of Default shall have been rescinded, cured or waived in accordance with
the terms of any agreement governing or evidencing such Indebtedness and written
notice of such payment, discharge, rescission, cure or waiver, as the case may
be, shall have been given to the Holders of the Debentures by the Company or by
the requisite holders of such Indebtedness or the trustee, agent or other
representative of such holders within 60 days after such declaration and no
other Event of Default shall have occurred and be continuing on the date of
receipt of such notice.
SECTION 6.04 Other Remedies. If an Event of Default with respect to
this Debenture occurs and is continuing and, except in the case of Defaults
under Sections 6.01(e) and 6.01(f), the Indebtedness represented hereby has been
declared due and payable pursuant to Section 6.02, the Holder hereof may pursue
any available remedy by proceeding at law or in equity to collect the payment of
principal of or Interest on this Debenture or to enforce the performance of any
provision of this Debenture.
A delay or omission by the Holder of this Debenture in exercising
any right or remedy accruing upon Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. No
remedy is exclusive of any other remedy. All available remedies are cumulative
to the extent permitted by law.
SECTION 6.05 Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of the then outstanding Debentures (excluding any
Debentures held by the Company or any of its Affiliates) on behalf of the
Holders of all the Debentures, including this Debenture, by notice to the
Company, may waive an existing Default or Event of Default and its consequences;
except a Default or an Event of Default in the payment of the principal of or
Interest on any Debenture, or in respect of a covenant or provision hereof which
under Article Eight cannot be modified or amended without the consent of the
Holder of each outstanding Debenture affected. When a Default or Event of
Default is waived, it is cured and ceases; but no such waiver shall extend to
any subsequent default or impair any right consequent thereon.
SECTION 6.06 Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Debenture, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made
15
by the party litigant. This Section 6.05 does not apply to a suit by a Holder or
Holders of more than 10% in aggregate principal amount of the then outstanding
Debentures.
ARTICLE VII
AMENDMENTS AND WAIVERS
SECTION 7.01 With Consent of Holders. The Company, when having
provided at least 15 days' prior written notice to all Holders, with the written
consent of the Holder or Holders of at least a majority in aggregate principal
amount of the then outstanding Debentures (excluding any Debentures held by the
Company or any of its Affiliates) may amend or supplement such Debentures
(including this Debenture). The Holder or Holders of at least a majority in
aggregate principal amount of Debentures then outstanding (excluding any
Debentures held by the Company or any of its Affiliates) may waive compliance by
the Company with any provision of such Debentures as it relates to such Holder
or Holders; provided such Holder or Holders provide written notice to each other
Holder. However, without the consent of each Holder of the Debentures, no
amendment, supplement or waiver, including a waiver pursuant to Section 7.04
may:
(1) reduce the principal amount of such Debentures whose
Holders must consent to an amendment, supplement or waiver of any
provision of any Debenture;
(2) reduce the rate of Interest on any Debenture;
(3) reduce the principal amount due on any Debenture;
(4) change the Maturity Date of Debentures or alter the
redemption provisions with respect thereto in a manner adverse to
such Holder;
(5) make any changes in Section 6.05 or this Section 7.01,
except to increase any such percentage or to provide that certain
other provisions of this Debenture cannot be modified or waived
without the consent of the Holder of each Debenture affected
thereby;
(6) make the principal of any Debenture payable with anything
other than U.S. Legal Tender and the Interest payable in anything
other than U.S. Legal Tender or, in the case of conversion, Common
Stock; or
(7) modify the provisions of Article Five in a manner adverse
to any Holder of any Debenture.
It shall not be necessary for the consent of the Holders of
Debentures under this Section 7.01 to approve the particular form of any
proposed amendment, supplement or waiver, but it shall be sufficient if such
consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 7.01
becomes effective, the Company shall provide notice, pursuant to Section 8.01 to
the Holders affected thereby setting forth the amendment, supplement or waiver.
Any failure of the Company to give such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any amendment.
SECTION 7.02 Revocation and Effect of Consents. Until an amendment
or waiver becomes effective, a consent to it by a Holder of a Debenture is a
continuing consent by such Holder and every subsequent Holder of such Debenture
or portion of such Debenture that evidences the same debt as the consenting
Holder's Debenture, even if notation of the consent is not made on any
Debenture. However, any such Holder or subsequent Holder may revoke the consent
as to his Debenture or portion of a Debenture. Such revocation shall be
effective only if the Company receives the notice of such revocation before the
date on which the Company receives the consent of
16
Holders of the requisite principal amount of the then outstanding Debentures to
such amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a Record Date
for the purpose of determining the Holders of the Debentures entitled to consent
to any amendment, supplement or waiver. If a Record Date is fixed, then
notwithstanding the last two sentences of the immediately preceding paragraph,
those Persons who were Holders of the Debentures at such Record Date (or their
duly designated proxies), and only those Persons, shall be entitled to revoke
any consent previously given, whether or not such Persons continue to be Holders
after such Record Date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder of the Debentures, unless it makes a change described in any
of clauses (1) through (7) of Section 7.01, in which case the amendment,
supplement or waiver shall bind only each Holder of a Debenture who has
consented to it and every subsequent Holder of a Debenture or portion of a
Debenture that evidences the same debt as the consenting Holder's Debenture.
SECTION 7.03 Notation on or Exchange of Debentures. If an amendment,
supplement or waiver changes the terms of a Debenture, the Company may require
the Holder of this Debenture to deliver it to the Company. The Company may place
an appropriate notation on the Debenture about the changed terms and return it
to the Holder. Alternatively, if the Company has so determined, the Company in
exchange for this Debenture may issue a new Debenture that reflects the changed
terms.
SECTION 7.04 Effect of Amendment. Upon the execution of any
amendment pursuant to the provisions hereof, this Debenture shall be and be
deemed to be modified and amended in accordance therewith and the respective
rights, limitations of rights, obligations and duties under this Debenture of
the Company and the Holders of this Debenture shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such amendment shall be
and be deemed to be part of the terms and conditions of this Debenture for any
and all purposes.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Notices. Any notices or other communications required
or permitted hereunder shall be in writing, and shall be sufficiently given if
made by hand delivery, by telecopier by a nationally recognized express courier
or registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Company, to:
iExalt, Inc.
Attention: President: Don Sapaugh
12000 Aerospace Avenue, Suite 110
Houston, TX 77034
Telecopy: 281-922-4114:
Telephone: 281-464-8400
With a copy (which shall not constitute notice) to:
Seth Farbman, P.C.
Attention: Seth Farbman, Esq.
138-54 Jewel Avenue
Flushing, New York 11367
Telecopy: 718-261-8807
Telephone: 718-261-4327
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If to the holder of the Debenture, to
Thomson Kernaghan & Co., Ltd.
Attention: President
365 Bay Street, 10th floor
Toronto, Ontario
M5H 2V2 Canada
Telecopy: 416-860-6355
Telephone: 416-860-6121
With a copy (which shall not constitute notice) to:
Law Offices of Lance T. Bury
Attention: Lance T. Bury, Esq.
2035 Crabapple Parc Way
Roswell, GA 30076
Telecopy: 770-518-0916
Telephone: 770-392-3332
Any notice or communication to the Company or the Holder of this
Debenture shall be deemed to have been given or made as of the date so delivered
if personally delivered; when receipt is acknowledged, if telecopied; one (1)
day (three (3) days in the case of international deliveries) after dispatch if
sent by a nationally recognized express courier for overnight delivery; and five
(5) calendar days (seven (7) days in the case of international deliveries) after
mailing if sent by registered or certified mail (except that a notice of change
of address shall not be deemed to have been given until actually received by the
addressee).
Where this Debenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed by first-class mail, postage prepaid to such
Registered Holders as their names and addresses appear in the Register. Where
this Debenture provides for notice in any manner, such notice may be waived in
writing by the person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Company, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver. In any case where notice to Holders is given by mail, neither the
failure to mail such notices nor any defect in any notice so mailed to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders, and any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given.
SECTION 8.02 Consents. Failure to respond to any notice given
pursuant to the terms of this Debenture shall not be deemed consent to any
proposed action described in such notice.
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SECTION 8.03 Governing Law, Jurisdiction and Venue. Governing Law,
Jurisdiction and Venue. This Agreement shall be governed by, and construed in
accordance with, the laws of the state of New York as well as the U.S.
securities laws. The parties agree to binding arbitration before the American
Arbitration Association or successor entity if applicable (or other agreed to
arbitration panel). The parties agree that venue shall lie in New York City for
any civil action between the Company and the Investor, or their respective
successors in interest, arising out of or relating to this Agreement. The
Company and the Investor, for themselves and their respective successors in
interest, hereby irrevocably consent to such binding arbitration, and hereby
irrevocably waive any claim of forum non conveniens or right to change such
venue. The parties agree to a three panel board, with each party picking one
arbitrator, and the two selected arbitrators agreeing upon the third arbitrator.
SECTION 8.04 No Adverse Interpretation of Other Agreements. This
Debenture may not be used to interpret any debenture, loan or debt agreement of
the Company or any of its Subsidiaries. Any such debenture, loan or debt
agreement may not be used to interpret this Debenture.
SECTION 8.05 Successors. All agreements of the Company in this
Debenture shall bind its successor.
SECTION 8.06 Execution in Counterparts; Copies Valid as an Original.
This Agreement may be executed in any number of counterparts, each of which
shall be enforceable against the parties actually executing such counterparts,
and all of which together shall constitute one (1) instrument. A signed copy or
facsimile shall be as valid and binding as an original.
SECTION 8.07 Severability. In case any provision in this Debenture
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto. This Debenture shall be construed to give economic effect to the intent
of the parties hereto. Without limiting the foregoing, in the event and to the
extent that payment of any portion of Interest shall at any time be unlawful or
unenforceable, such portion of such Interest (including, without limitation, any
Interest as to which interest thereon is payable hereunder) as may be necessary
to give economic effect to the intent of the parties hereto, shall be deemed to
be principal.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed, as of the date first written above.
The principal amount of this Debenture is $50,000.00.
Dated as of December 11, 2000.
IEXALT, INC.
By: /s/ Don W. Sapaugh
----------------------
Name: Don W. Sapaugh
Title: President and CEO
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