EXHIBIT 10.2
FORM OF DEBENTURE
EXHIBIT A
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: APRIL 3, 2007
Original Conversion Price (subject to adjustment herein): $0.30
$---------------
SERIES A 8% SENIOR CONVERTIBLE DEBENTURE
DUE APRIL 3, 2010
THIS SERIES A 8% SENIOR CONVERTIBLE DEBENTURE is one of a series of
duly authorized and validly issued Series A 8% Senior Convertible Debentures of
Titanium Group Limited, a corporation organized under the laws of the British
Virgin Islands (the "COMPANY"), having its principal place of business at 4/F
BOCG Insurance Tower, 134-136 Des Voeux Road Central, Hong Kong, China,
designated as its Series A 8% Senior Convertible Debenture due April 3, 2010
(this debenture, the "DEBENTURE" and, collectively with the other such series of
debentures, the "DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "HOLDER"), or shall have
paid pursuant to the terms hereunder, the principal sum of $_________ on April
3, 2010 (the "MATURITY DATE") or such earlier date as this Debenture is required
or permitted to be repaid as provided hereunder, and to pay interest to the
Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture in accordance with the provisions hereof. This Debenture is
subject to the following additional provisions:
SECTION 1. DEFINITIONS. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise
defined herein shall have the
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meanings set forth in the Purchase Agreement and (b) the following terms shall
have the following meanings:
"ALTERNATE CONSIDERATION" shall have the meaning set forth in
Section 5(e).
"BANKRUPTCY EVENT" means any of the following events: (a) the
Company or any Significant Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X) thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any
Significant Subsidiary thereof is adjudicated insolvent or bankrupt or
any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Significant Subsidiary
thereof suffers any appointment of any custodian or the like for it or
any substantial part of its property that is not discharged or stayed
within 60 calendar days after such appointment; (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the
benefit of creditors; (f) the Company or any Significant Subsidiary
thereof calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (g) the
Company or any Significant Subsidiary thereof, by any act or failure to
act, expressly indicates its consent to, approval of or acquiescence in
any of the foregoing or takes any corporate or other action for the
purpose of effecting any of the foregoing.
"BASE CONVERSION PRICE" shall have the meaning set forth in
Section 5(b).
"BUSINESS DAY" means any day except Saturday, Sunday, any day
which shall be a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized
or required by law or other governmental action to close.
"BUY-IN" shall have the meaning set forth in Section 4(d)(v).
"CHANGE OF CONTROL TRANSACTION" means the occurrence after the
date hereof of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of 33% of the voting securities
of the Company (other than by means of conversion or exercise of the
Debentures and the Securities issued together with the Debentures), or
(ii) the Company merges into or consolidates with any other Person, or
any Person merges into or consolidates with the Company and, after
giving effect to such transaction, the stockholders of the Company
immediately prior to such transaction own less than 66% of the
aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers all or
substantially all of its assets to another Person and the stockholders
of the
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Company immediately prior to such transaction own less than 66% of the
aggregate voting power of the acquiring entity immediately after the
transaction, or (iv) a replacement at one time or within a three year
period of more than one-half of the members of the Company's board of
directors which is not approved by a majority of those individuals who
are members of the board of directors on the date hereof (or by those
individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a
majority of the members of the board of directors who are members on
the date hereof), or (v) the execution by the Company of an agreement
to which the Company is a party or by which it is bound, providing for
any of the events set forth in clauses (i) through (iv) above.
"COMMON STOCK" means the common stock, par value $0.01 per
share, of the Company and stock of any other class of securities into
which such securities may hereafter be reclassified or changed into.
"CONVERSION DATE" shall have the meaning set forth in Section
4(a).
"CONVERSION PRICE" shall have the meaning set forth in Section
4(b).
"CONVERSION SHARES" means, collectively, the shares of Common
Stock issuable upon conversion of this Debenture in accordance with the
terms hereof.
"DEBENTURE REGISTER" shall have the meaning set forth in
Section 2(c).
"DILUTIVE ISSUANCE" shall have the meaning set forth in
Section 5(b).
"DILUTIVE ISSUANCE NOTICE" shall have the meaning set forth in
Section 5(b).
"EFFECTIVENESS PERIOD" shall have the meaning set forth in the
Registration Rights Agreement.
"EQUITY CONDITIONS" means, during the period in question, (i)
the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notices of
Conversion of the Holder, if any, (ii) the Company shall have paid all
liquidated damages and other amounts owing to the Holder in respect of
this Debenture, (iii) there is an effective Registration Statement
pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that
such effectiveness will continue uninterrupted for the foreseeable
future), (iv) the Common Stock is trading on a Trading Market and all
of the shares issuable pursuant to the Transaction Documents are listed
or quoted for trading on such Trading Market (and the Company believes,
in good faith, that trading of the Common Stock on a Trading Market
will continue uninterrupted for the foreseeable future), (v) there is a
sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the shares issuable
pursuant to the Transaction Documents, (vi) there is no existing Event
of Default or no existing event which, with the passage of time
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or the giving of notice, would constitute an Event of Default, (vii)
the issuance of the shares in question (or, in the case of an Optional
Redemption, the shares issuable upon conversion in full of the Optional
Redemption Amount) to the Holder would not violate the limitations set
forth in Section 4(c) herein, (viii) there has been no public
announcement of a pending or proposed Fundamental Transaction or Change
of Control Transaction that has not been consummated and (ix) the
Holder is not in possession of any information provided by the Company
that constitutes, or may constitute, material non-public information.
"EVENT OF DEFAULT" shall have the meaning set forth in Section
8.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"FORCED CONVERSION" shall have the meaning set forth in
Section 6(c).
"FORCED CONVERSION DATE" shall have the meaning set forth in
Section 6(c).
"FORCED CONVERSION NOTICE" shall have the meaning set forth
in Section 6(c).
"FORCED CONVERSION NOTICE DATE" shall have the meaning set
forth in Section 6(c).
"FUNDAMENTAL TRANSACTION" shall have the meaning set forth in
Section 5(e).
"INTEREST CONVERSION RATE" means the lesser of (a) the
Conversion Price or (b) 90% of the lesser of (i) the average of the
VWAPs for the 10 consecutive Trading Days ending on the Trading Day
that is immediately prior to the applicable Interest Payment Date or
(ii) the average of the VWAPs for the 10 consecutive Trading Days
ending on the Trading Day that is immediately prior to the date the
applicable Interest Conversion Shares are issued and delivered if after
the Interest Payment Date.
"INTEREST CONVERSION SHARES" shall have the meaning set forth
in Section 2(a).
"INTEREST NOTICE PERIOD" shall have the meaning set forth in
Section 2(a).
"INTEREST PAYMENT DATE" shall have the meaning set forth in
Section 2(a).
"INTEREST SHARE AMOUNT" shall have the meaning set forth in
Section 2(a).
"LATE FEES" shall have the meaning set forth in Section 2(d).
"MANDATORY DEFAULT AMOUNT" means the sum of (i) the greater of
(A) 130% of the outstanding principal amount of this Debenture, plus
all accrued and unpaid interest hereon, or (B) the outstanding
principal amount of this Debenture, plus all accrued and unpaid
interest hereon, divided by the Conversion Price on the date the
Mandatory Default Amount is either (a) demanded (if demand or notice is
required to create an
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Event of Default) or otherwise due or (b) paid in full, whichever has a
lower Conversion Price, multiplied by the VWAP on the date the
Mandatory Default Amount is either (x) demanded or otherwise due or (y)
paid in full, whichever has a higher VWAP, and (ii) all other amounts,
costs, expenses and liquidated damages due in respect of this
Debenture.
"NEW YORK COURTS" shall have the meaning set forth in Section
9(d).
"NOTICE OF CONVERSION" shall have the meaning set forth in
Section 4(a).
"OPTIONAL REDEMPTION" shall have the meaning set forth in
Section 6(a).
"OPTIONAL REDEMPTION AMOUNT" means the sum of (i) 120% of the
then outstanding principal amount of the Debenture, (ii) accrued but
unpaid interest and (iii) all liquidated damages and other amounts due
in respect of the Debenture.
"OPTIONAL REDEMPTION DATE" shall have the meaning set forth in
Section 6(a).
"OPTIONAL REDEMPTION NOTICE" shall have the meaning set forth
in Section 6(a).
"OPTIONAL REDEMPTION NOTICE DATE" shall have the meaning set
forth in Section 6(a).
"ORIGINAL ISSUE DATE" means the date of the first issuance of
the Debentures, regardless of any transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debentures.
"PERMITTED INDEBTEDNESS" means (a) the Indebtedness existing
on the Original Issue Date and set forth on SCHEDULE 3.1(AA) attached
to the Purchase Agreement and (b) lease obligations and purchase money
indebtedness of up to $250,000, in the aggregate, incurred in
connection with the acquisition of capital assets and lease obligations
with respect to newly acquired or leased assets.
"PERMITTED LIEN" means the individual and collective reference
to the following: (a) Liens for taxes, assessments and other
governmental charges or levies not yet due or Liens for taxes,
assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves
(in the good faith judgment of the management of the Company) have been
established in accordance with GAAP; (b) Liens imposed by law which
were incurred in the ordinary course of the Company's business, such as
carriers', warehousemen's and mechanics' Liens, statutory landlords'
Liens, and other similar Liens arising in the ordinary course of the
Company's business, and which (x) do not individually or in the
aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business
of the Company and its consolidated Subsidiaries or (y) are being
contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing for the foreseeable future the forfeiture
or sale of the property or asset subject to such Lien; and (c) Liens
incurred in connection with Permitted Indebtedness under
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clause (b) thereunder, provided that such Liens are not secured by
assets of the Company or its Subsidiaries other than the assets so
acquired or leased.
"PERSON" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement,
dated as of April 3, 2007, among the Company and the original Holders,
as amended, modified or supplemented from time to time in accordance
with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, among the
Company and the original Holders, as amended, modified or supplemented
from time to time in accordance with its terms.
"REGISTRATION STATEMENT" means a registration statement that
registers the resale of all Conversion Shares and Interest Conversion
Shares of the Holder, names such Holder as a "selling stockholder"
therein, and meets the requirements of the Registration Rights
Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SHARE DELIVERY DATE" shall have the meaning set forth in
Section 4(d).
"SUBSIDIARY" shall have the meaning set forth in the Purchase
Agreement.
"THRESHOLD PERIOD" shall have the meaning set forth in Section
6(d).
"TRADING DAY" means a day on which the principal Trading
Market is open for business.
"TRADING MARKET" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the American Stock Exchange, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, the New York
Stock Exchange or the OTC Bulletin Board.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in
the Purchase Agreement.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted for trading as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)); (b) if the OTC
6
Bulletin Board is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the OTC Bulletin Board; (c) if the Common Stock is not then quoted
for trading on the OTC Bulletin Board and if prices for the Common
Stock are then reported in the "Pink Sheets" published by Pink Sheets,
LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common
Stock so reported; or (d) in all other cases, the fair market value of
a share of Common Stock as determined by an independent appraiser
selected in good faith by the Holder and reasonably acceptable to the
Company.
SECTION 2. INTEREST.
a) PAYMENT OF INTEREST IN CASH OR KIND. The Company shall
pay interest to the Holder on the aggregate then unconverted and
outstanding principal amount of this Debenture at the rate of 8% per
annum, payable quarterly on January 1, April 1, July 1 and October 1,
beginning on the first such date after the Original Issue Date, on each
Conversion Date (as to that principal amount then being converted), on
each Optional Redemption Date (as to that principal amount then being
redeemed) and on the Maturity Date (each such date, an "INTEREST
PAYMENT DATE") (if any Interest Payment Date is not a Business Day,
then the applicable payment shall be due on the next succeeding
Business Day), in cash or duly authorized, validly issued, fully paid
and non-assessable shares of Common Stock at the Interest Conversion
Rate (the dollar amount to be paid in shares, the "INTEREST SHARE
AMOUNT") or a combination thereof; provided, HOWEVER, that payment in
shares of Common Stock may only occur if (i) all of the Equity
Conditions have been met (unless waived by the Holder in writing)
during the 20 Trading Days immediately prior to the applicable Interest
Payment Date (the "INTEREST NOTICE PERIOD") and through and including
the date such shares of Common Stock are issued to the Holder, (ii) the
Company shall have given the Holder notice in accordance with the
notice requirements set forth below and (iii) as to such Interest
Payment Date, prior to such Interest Notice Period (but not more than 5
Trading Days prior to the commencement of such Interest Notice Period),
the Company shall have delivered to the Holder's account with The
Depository Trust Company a number of shares of Common Stock to be
applied against such Interest Share Amount equal to the quotient of (x)
the applicable Interest Share Amount divided by (y) the then Conversion
Price (the "INTEREST CONVERSION SHARES").
b) COMPANY'S ELECTION TO PAY INTEREST IN KIND. Subject to
the terms and conditions herein, the decision whether to pay interest
hereunder in cash, shares of Common Stock or a combination thereof
shall be at the discretion of the Company. Prior to the commencement of
any Interest Notice Period, the Company shall deliver to the Holder a
written notice of its election to pay interest hereunder on the
applicable Interest Payment Date either in cash, shares of Common Stock
or a combination thereof and the Interest Share Amount as to the
applicable Interest Payment Date, provided that the Company may
indicate in such notice that the election contained in such notice
shall apply to future Interest Payment Dates until revised by a
subsequent notice. During any Interest Notice Period, the Company's
election (whether specific to an Interest Payment Date or continuous)
shall be irrevocable as to such Interest Payment Date. Subject to the
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aforementioned conditions, failure to timely deliver such written
notice to the Holder shall be deemed an election by the Company to pay
the interest on such Interest Payment Date in cash. At any time the
Company delivers a notice to the Holder of its election to pay the
interest in shares of Common Stock, the Company shall timely file a
prospectus supplement pursuant to Rule 424 disclosing such election.
The aggregate number of shares of Common Stock otherwise issuable to
the Holder on an Interest Payment Date shall be reduced by the number
of Interest Conversion Shares previously issued to the Holder in
connection with such Interest Payment Date.
c) INTEREST CALCULATIONS. Interest shall be calculated on
the basis of a 360-day year, consisting of twelve 30 calendar day
periods, and shall accrue daily commencing on the Original Issue Date
until payment in full of the principal sum, together with all accrued
and unpaid interest, liquidated damages and other amounts which may
become due hereunder, has been made. Payment of interest in shares of
Common Stock (other than the Interest Conversion Shares issued prior to
an Interest Notice Period) shall otherwise occur pursuant to Section
4(d)(ii) herein and, solely for purposes of the payment of interest in
shares, the Interest Payment Date shall be deemed the Conversion Date.
Interest shall cease to accrue with respect to any principal amount
converted, provided that the Company actually delivers the Conversion
Shares within the time period required by Section 4(d)(ii) herein.
Interest hereunder will be paid to the Person in whose name this
Debenture is registered on the records of the Company regarding
registration and transfers of this Debenture (the "DEBENTURE
REGISTER"). Except as otherwise provided herein, if at any time the
Company pays interest partially in cash and partially in shares of
Common Stock to the holders of the Debentures, then such payment of
cash shall be distributed ratably among the holders of the
then-outstanding Debentures based on their (or their predecessor's)
initial purchases of Debentures pursuant to the Purchase Agreement.
d) LATE FEE. All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at an interest rate equal to the
lesser of 18% per annum or the maximum rate permitted by applicable law
("LATE FEES") which shall accrue daily from the date such interest is
due hereunder through and including the date of payment in full.
Notwithstanding anything to the contrary contained herein, if on any
Interest Payment Date the Company has elected to pay accrued interest
in the form of Common Stock but the Company is not permitted to pay
accrued interest in Common Stock because it fails to satisfy the
conditions for payment in Common Stock set forth in Section 2(a)
herein, then, at the option of the Holder, the Company, in lieu of
delivering either shares of Common Stock pursuant to this Section 2 or
paying the regularly scheduled interest payment in cash, shall deliver,
within three Trading Days of each applicable Interest Payment Date, an
amount in cash equal to the product of (x) the number of shares of
Common Stock otherwise deliverable to the Holder in connection with the
payment of interest due on such Interest Payment Date multiplied by (y)
the highest VWAP during the period commencing on the Interest Payment
Date and ending on the Trading Day prior to the date such payment is
made. If any Interest Conversion Shares are issued to the Holder in
connection with an Interest Payment Date and are not applied against an
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Interest Share Amount, then the Holder shall promptly return such
excess shares to the Company.
e) PREPAYMENT. Except as otherwise set forth in this
Debenture, the Company may not prepay any portion of the principal
amount of this Debenture without the prior written consent of the
Holder.
SECTION 3. REGISTRATION OF TRANSFERS AND EXCHANGES.
a) DIFFERENT DENOMINATIONS. This Debenture is exchangeable
for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the
same. No service charge will be payable for such registration of
transfer or exchange.
b) INVESTMENT REPRESENTATIONS. This Debenture has been
issued subject to certain investment representations of the original
Holder set forth in the Purchase Agreement and may be transferred or
exchanged only in compliance with the Purchase Agreement and applicable
federal and state securities laws and regulations.
c) RELIANCE ON DEBENTURE REGISTER. Prior to due presentment
for transfer to the Company of this Debenture, the Company and any
agent of the Company may treat the Person in whose name this Debenture
is duly registered on the Debenture Register as the owner hereof for
the purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
SECTION 4. CONVERSION.
a) VOLUNTARY CONVERSION. At any time after the Original
Issue Date until this Debenture is no longer outstanding, this
Debenture shall be convertible, in whole or in part, into shares of
Common Stock at the option of the Holder, at any time and from time to
time (subject to the conversion limitations set forth in Section 4(c)
hereof). The Holder shall effect conversions by delivering to the
Company a Notice of Conversion, the form of which is attached hereto as
ANNEX A (a "NOTICE OF CONVERSION"), specifying therein the principal
amount of this Debenture to be converted and the date on which such
conversion shall be effected (such date, the "CONVERSION DATE"). If no
Conversion Date is specified in a Notice of Conversion, the Conversion
Date shall be the date that such Notice of Conversion is deemed
delivered hereunder. To effect conversions hereunder, the Holder shall
not be required to physically surrender this Debenture to the Company
unless the entire principal amount of this Debenture, plus all accrued
and unpaid interest thereon, has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal
amount of this Debenture in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing
the principal amount(s) converted and the date of such conversion(s).
The Company may deliver an objection to any Notice of Conversion within
1 Business Day of delivery of such Notice of Conversion. In the event
of any dispute or discrepancy, the
9
records of the Holder shall be controlling and determinative in the
absence of manifest error. THE HOLDER, AND ANY ASSIGNEE BY ACCEPTANCE
OF THIS DEBENTURE, ACKNOWLEDGE AND AGREE THAT, BY REASON OF THE
PROVISIONS OF THIS PARAGRAPH, FOLLOWING CONVERSION OF A PORTION OF THIS
DEBENTURE, THE UNPAID AND UNCONVERTED PRINCIPAL AMOUNT OF THIS
DEBENTURE MAY BE LESS THAN THE AMOUNT STATED ON THE FACE HEREOF.
b) CONVERSION PRICE. The conversion price in effect on any
Conversion Date shall be equal to $0.30, subject to adjustment herein
(the "CONVERSION PRICE").
c) HOLDER'S RESTRICTION ON CONVERSION. The Company shall not
effect any conversion of this Debenture, and a Holder shall not have
the right to convert any portion of this Debenture, to the extent that
after giving effect to the conversion set forth on the applicable
Notice of Conversion, such Holder (together with such Holder's
Affiliates, and any other person or entity acting as a group together
with such Holder or any of such Holder's Affiliates) would beneficially
own in excess of the Beneficial Ownership Limitation (as defined
below). For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by such Holder and its Affiliates shall
include the number of shares of Common Stock issuable upon conversion
of this Debenture with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which are
issuable upon (A) conversion of the remaining, unconverted principal
amount of this Debenture beneficially owned by such Holder or any of
its Affiliates and (B) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company subject to a
limitation on conversion or exercise analogous to the limitation
contained herein (including, without limitation, any other Debentures
or the Warrants) beneficially owned by such Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 4(c), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. To the extent that the limitation
contained in this Section 4(c) applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by
such Holder together with any Affiliates) and of which principal amount
of this Debenture is convertible shall be in the sole discretion of
such Holder, and the submission of a Notice of Conversion shall be
deemed to be such Holder's determination of whether this Debenture may
be converted (in relation to other securities owned by such Holder
together with any Affiliates) and which principal amount of this
Debenture is convertible, in each case subject to such aggregate
percentage limitations. To ensure compliance with this restriction,
each Holder will be deemed to represent to the Company each time it
delivers a Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and the Company
shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d)
of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 4(c), in determining the
number of outstanding shares of Common Stock, a Holder may rely on the
number of outstanding shares of Common Stock as stated in the most
recent of the following: (A) the Company's most recent Form 10-Q or
Form 10-K, as the case may be; (B) a more recent public announcement by
the Company; or (C) a
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more recent notice by the Company or the Company's transfer agent
setting forth the number of shares of Common Stock outstanding. Upon
the written or oral request of a Holder, the Company shall within two
Trading Days confirm orally and in writing to such Holder the number of
shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Debenture, by such Holder or its Affiliates since the
date as of which such number of outstanding shares of Common Stock was
reported. The "BENEFICIAL OWNERSHIP LIMITATION" shall be 4.99% of the
number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock issuable upon
conversion of this Debenture held by the Holder. The Beneficial
Ownership Limitation provisions of this Section 4(c) may be waived by
such Holder, at the election of such Holder, upon not less than 61
days' prior notice to the Company, to change the Beneficial Ownership
Limitation to 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares
of Common Stock upon conversion of this Debenture held by the Holder
and the provisions of this Section 4(c) shall continue to apply. Upon
such a change by a Holder of the Beneficial Ownership Limitation from
such 4.99% limitation to such 9.99% limitation, the Beneficial
Ownership Limitation may not be further waived by such Holder. The
provisions of this paragraph shall be construed and implemented in a
manner otherwise than in strict conformity with the terms of this
Section 4(c) to correct this paragraph (or any portion hereof) which
may be defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements necessary
or desirable to properly give effect to such limitation. The
limitations contained in this paragraph shall apply to a successor
holder of this Debenture.
d) MECHANICS OF CONVERSION.
i. CONVERSION SHARES ISSUABLE UPON CONVERSION OF
PRINCIPAL AMOUNT. The number of shares of Common Stock
issuable upon a conversion hereunder shall be determined by
the quotient obtained by dividing (x) the outstanding
principal amount of this Debenture to be converted by (y) the
Conversion Price. i.
ii. DELIVERY OF CERTIFICATE UPON CONVERSION. Not later
than three Trading Days after each Conversion Date (the "SHARE
DELIVERY DATE"), the Company shall deliver, or cause to be
delivered, to the Holder (A) a certificate or certificates
representing the Conversion Shares which, on or after the
Effective Date, shall be free of restrictive legends and
trading restrictions (other than those which may then be
required by the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of
this Debenture (including, if the Company has given continuous
notice pursuant to Section 2(b) for payment of interest in
shares of Common Stock at least 20 Trading Days prior to the
date on which the Conversion Notice is delivered to the
Company, shares of Common Stock representing the payment of
accrued interest otherwise determined pursuant to Section 2(a)
but assuming that the Interest Payment Period
11
is the 20 Trading Days period immediately prior to the date on
which the Conversion Notice is delivered to the Company and
excluding for such issuance the condition that the Company
deliver Interest Conversion Shares as to such interest
payment) and (B) a bank check in the amount of accrued and
unpaid interest (if the Company has elected or is required to
pay accrued interest in cash). On or after the Effective Date,
the Company shall use its best efforts to deliver any
certificate or certificates required to be delivered by the
Company under this Section 4 electronically through the
Depository Trust Company or another established clearing
corporation performing similar functions.
iii. FAILURE TO DELIVER CERTIFICATES. If in the case of
any Notice of Conversion such certificate or certificates are
not delivered to or as directed by the applicable Holder by
the third Trading Day after the Conversion Date, the Holder
shall be entitled to elect by written notice to the Company at
any time on or before its receipt of such certificate or
certificates, to rescind such Conversion, in which event the
Company shall promptly return to the Holder any original
Debenture delivered to the Company and the Holder shall
promptly return the Common Stock certificates representing the
principal amount of this Debenture tendered for conversion to
the Company.
iv. OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES.
The Company's obligations to issue and deliver the Conversion
Shares upon conversion of this Debenture in accordance with
the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same,
any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by
the Holder or any other Person of any obligation to the
Company or any violation or alleged violation of law by the
Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of
the Company to the Holder in connection with the issuance of
such Conversion Shares; PROVIDED, HOWEVER, that such delivery
shall not operate as a waiver by the Company of any such
action the Company may have against the Holder. In the event
the Holder of this Debenture shall elect to convert any or all
of the outstanding principal amount hereof, the Company may
not refuse conversion based on any claim that the Holder or
anyone associated or affiliated with the Holder has been
engaged in any violation of law, agreement or for any other
reason, unless an injunction from a court, on notice to
Holder, restraining and or enjoining conversion of all or part
of this Debenture shall have been sought and obtained, and the
Company posts a surety bond for the benefit of the Holder in
the amount of 150% of the outstanding principal amount of this
Debenture, which is subject to the injunction, which bond
shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the
proceeds of which shall be payable to such Holder to the
extent it obtains judgment. In the absence of such injunction,
the Company shall issue Conversion Shares or, if
12
applicable, cash, upon a properly noticed conversion. If the
Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 4(d)(ii) by
the third Trading Day after the Conversion Date, the Company
shall pay to such Holder, in cash, as liquidated damages and
not as a penalty, for each $1000 of principal amount being
converted, $10 per Trading Day (increasing to $20 per Trading
Day on the fifth Trading Day after such liquidated damages
begin to accrue) for each Trading Day after such third Trading
Day until such certificates are delivered. Nothing herein
shall limit a Holder's right to pursue actual damages or
declare an Event of Default pursuant to Section 8 hereof for
the Company's failure to deliver Conversion Shares within the
period specified herein and such Holder shall have the right
to pursue all remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such
rights shall not prohibit the Holder from seeking to enforce
damages pursuant to any other Section hereof or under
applicable law.
v. COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER
CERTIFICATES UPON CONVERSION. In addition to any other rights
available to the Holder, if the Company fails for any reason
to deliver to the Holder such certificate or certificates by
the Share Delivery Date pursuant to Section 4(d)(ii), and if
after such Share Delivery Date the Holder is required by its
brokerage firm to purchase (in an open market transaction or
otherwise), or the Holder's brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction
of a sale by such Holder of the Conversion Shares which the
Holder was entitled to receive upon the conversion relating to
such Share Delivery Date (a "BUY-IN"), then the Company shall
(A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by
which (x) the Holder's total purchase price (including any
brokerage commissions) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder was entitled to receive from
the conversion at issue multiplied by (2) the actual sale
price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions)
and (B) at the option of the Holder, either reissue (if
surrendered) this Debenture in a principal amount equal to the
principal amount of the attempted conversion or deliver to the
Holder the number of shares of Common Stock that would have
been issued if the Company had timely complied with its
delivery requirements under Section 4(d)(ii). For example, if
the Holder purchases Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an
attempted conversion of this Debenture with respect to which
the actual sale price of the Conversion Shares (including any
brokerage commissions) giving rise to such purchase obligation
was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect
of the Buy-In and, upon request of the Company, evidence of
the amount of such loss. Nothing herein shall limit a
13
Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon
conversion of this Debenture as required pursuant to the terms
hereof.
vi. RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The
Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common
Stock for the sole purpose of issuance upon conversion of this
Debenture and payment of interest on this Debenture, each as
herein provided, free from preemptive rights or any other
actual contingent purchase rights of Persons other than the
Holder (and the other holders of the Debentures), not less
than such aggregate number of shares of the Common Stock as
shall (subject to the terms and conditions set forth in the
Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5) upon the conversion
of the outstanding principal amount of this Debenture and
payment of interest hereunder. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon
issue, be duly authorized, validly issued, fully paid and
nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be registered for
public sale in accordance with such Registration Statement.
vii. FRACTIONAL SHARES. Upon a conversion hereunder the
Company shall not be required to issue stock certificates
representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the VWAP at such time. If
the Company elects not, or is unable, to make such a cash
payment, the Holder shall be entitled to receive, in lieu of
the final fraction of a share, 1 whole share of Common Stock.
viii. TRANSFER TAXES. The issuance of certificates for
shares of the Common Stock on conversion of this Debenture
shall be made without charge to the Holder hereof for any
documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificates,
provided that the Company shall not be required to pay any tax
that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion
in a name other than that of the Holder of this Debenture so
converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
SECTION 5. CERTAIN ADJUSTMENTS.
a) STOCK DIVIDENDS AND STOCK SPLITS. If the Company, at any
time while this Debenture is outstanding: (A) pays a stock dividend or
otherwise makes a distribution or
14
distributions payable in shares of Common Stock on shares of Common
Stock or any Common Stock Equivalents (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Company upon
conversion of, or payment of interest on, the Debentures); (B)
subdivides outstanding shares of Common Stock into a larger number of
shares; (C) combines (including by way of a reverse stock split)
outstanding shares of Common Stock into a smaller number of shares; or
(D) issues, in the event of a reclassification of shares of the Common
Stock, any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be
the number of shares of Common Stock (excluding any treasury shares of
the Company) outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
b) SUBSEQUENT EQUITY SALES. If, at any time while this
Debenture is outstanding, the Company or any Subsidiary, as applicable,
sells or grants any option to purchase or sells or grants any right to
reprice, or otherwise disposes of or issues (or announces any sale,
grant or any option to purchase or other disposition), any Common Stock
or Common Stock Equivalents entitling any Person to acquire shares of
Common Stock at an effective price per share that is lower than the
then Conversion Price (such lower price, the "BASE CONVERSION PRICE"
and such issuances, collectively, a "DILUTIVE ISSUANCE") (if the holder
of the Common Stock or Common Stock Equivalents so issued shall at any
time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or
otherwise, or due to warrants, options or rights per share which are
issued in connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share that is lower than the
Conversion Price, such issuance shall be deemed to have occurred for
less than the Conversion Price on such date of the Dilutive Issuance),
then the Conversion Price shall be reduced to equal the Base Conversion
Price. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of an Exempt
Issuance. The Company shall notify the Holder in writing, no later than
1 Business Day following the issuance of any Common Stock or Common
Stock Equivalents subject to this Section 5(b), indicating therein the
applicable issuance price, or applicable reset price, exchange price,
conversion price and other pricing terms (such notice, the "DILUTIVE
ISSUANCE NOTICE"). For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section
5(b), upon the occurrence of any Dilutive Issuance, the Holder is
entitled to receive a number of Conversion Shares based upon the Base
Conversion Price on or after the date of such Dilutive Issuance,
regardless of whether the Holder accurately refers to the Base
Conversion Price in the Notice of Conversion.
15
c) SUBSEQUENT RIGHTS OFFERINGS. If the Company, at any time
while the Debenture is outstanding, shall issue rights, options or
warrants to all holders of Common Stock (and not to Holders) entitling
them to subscribe for or purchase shares of Common Stock at a price per
share that is lower than the VWAP on the record date referenced below,
then the Conversion Price shall be multiplied by a fraction of which
the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of
the Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered (assuming delivery to the
Company in full of all consideration payable upon exercise of such
rights, options or warrants) would purchase at such VWAP. Such
adjustment shall be made whenever such rights or warrants are issued,
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options
or warrants.
d) PRO RATA DISTRIBUTIONS. If the Company, at any time while
this Debenture is outstanding, distributes to all holders of Common
Stock (and not to the Holders) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe
for or purchase any security (other than the Common Stock, which shall
be subject to Section 5(b)), then in each such case the Conversion
Price shall be adjusted by multiplying such Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on
such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to 1 outstanding share of the Common Stock as determined by
the Board of Directors of the Company in good faith. In either case the
adjustments shall be described in a statement delivered to the Holder
describing the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to 1 share of Common
Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date
mentioned above.
e) FUNDAMENTAL TRANSACTION. If, at any time while this
Debenture is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B) the
Company effects any sale of all or substantially all of its assets in
one transaction or a series of related transactions, (C) any tender
offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property,
or (D) the Company effects any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (in any such case, a "FUNDAMENTAL TRANSACTION"), then, upon
any subsequent conversion of this Debenture, the Holder shall have the
right to receive, for each Conversion Share that
16
would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of 1
share of Common Stock (the "ALTERNATE CONSIDERATION"). For purposes of
any such conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based
on the amount of Alternate Consideration issuable in respect of 1 share
of Common Stock in such Fundamental Transaction, and the Company shall
apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different
components of the Alternate Consideration. If holders of Common Stock
are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given
the same choice as to the Alternate Consideration it receives upon any
conversion of this Debenture following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new debenture consistent with
the foregoing provisions and evidencing the Holder's right to convert
such debenture into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include
terms requiring any such successor or surviving entity to comply with
the provisions of this Section 5(e) and insuring that this Debenture
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.
f) CALCULATIONS. All calculations under this Section 5
shall be made to the nearest cent or the nearest 1/100th of a share, as
the case may be. For purposes of this Section 5, the number of shares
of Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding any
treasury shares of the Company) issued and outstanding.
g) NOTICE TO THE HOLDER.
i. ADJUSTMENT TO CONVERSION PRICE. Whenever the
Conversion Price is adjusted pursuant to any provision of this
Section 5, the Company shall promptly mail to each Holder a
notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Company enters into a
Variable Rate Transaction, despite the prohibition set forth
in the Purchase Agreement, the Company shall be deemed to have
issued Common Stock or Common Stock Equivalents at the lowest
possible conversion price at which such securities may be
converted or exercised.
ii. NOTICE TO ALLOW CONVERSION BY HOLDER. If (A) the
Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock of
rights or warrants to subscribe for or
17
purchase any shares of capital stock of any class or of any
rights, (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of
the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property or (E) the
Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of
conversion of this Debenture, and shall cause to be delivered
to the Holder at its last address as it shall appear upon the
Debenture Register, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the
date as of which the holders of the Common Stock of record to
be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of
the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange,
provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in
such notice. The Holder is entitled to convert this Debenture
during the 20-day period commencing on the date of such notice
through the effective date of the event triggering such
notice.
SECTION 6. REDEMPTION AND FORCED CONVERSION.
a) OPTIONAL REDEMPTION AT ELECTION OF COMPANY. Subject to
the provisions of this Section 6, at any time after the Effective Date,
the Company may deliver a notice to the Holder (an "OPTIONAL REDEMPTION
Notice" and the date such notice is deemed delivered hereunder, the
"OPTIONAL REDEMPTION NOTICE DATE") of its irrevocable election to
redeem some or all of the then outstanding principal amount of this
Debenture for cash in an amount equal to the Optional Redemption Amount
on the 20th Trading Day following the Optional Redemption Notice Date
(such date, the "OPTIONAL REDEMPTION DATE" and such redemption, the
"OPTIONAL REDEMPTION"). The Optional Redemption Amount is payable in
full on the Optional Redemption Date. The Company may only effect an
Optional Redemption if each of the Equity Conditions shall have been
met (unless waived in writing by the Holder) on each Trading Day during
the period commencing on the Optional Redemption Notice Date through to
the Optional Redemption Date and through and including the date payment
of the Optional Redemption Amount is actually made in full. If any of
the Equity Conditions shall cease to be satisfied at any time during
the 20 Trading Day period, then the Holder may elect to nullify the
Optional Redemption Notice by notice to the Company within 3 Trading
Days
18
after the first day on which any such Equity Condition has not been met
(provided that if, by a provision of the Transaction Documents, the
Company is obligated to notify the Holder of the non-existence of an
Equity Condition, such notice period shall be extended to the third
Trading Day after proper notice from the Company) in which case the
Optional Redemption Notice shall be null and void, AB INITIO. The
Company covenants and agrees that it will honor all Notices of
Conversion tendered from the time of delivery of the Optional
Redemption Notice through the date all amounts owing thereon are due
and paid in full.
b) REDEMPTION PROCEDURE. The payment of cash or issuance of
Common Stock, as applicable, pursuant to an Optional Redemption shall
be payable on the Optional Redemption Date. If any portion of the
payment pursuant to an Optional Redemption shall not be paid by the
Company by the applicable due date, interest shall accrue thereon at an
interest rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law until such amount is paid in full.
Notwithstanding anything herein contained to the contrary, if any
portion of the Optional Redemption Amount remains unpaid after such
date, the Holder may elect, by written notice to the Company given at
any time thereafter, to invalidate such Optional Redemption, AB INITIO,
and, with respect to the Company's failure to honor the Optional
Redemption, the Company shall have no further right to exercise such
Optional Redemption. Notwithstanding anything to the contrary in this
Section 6, the Company's determination to redeem in cash or its
elections under Section 6(b) shall be applied ratably among the Holders
of Debentures. The Holder may elect to convert the outstanding
principal amount of the Debenture pursuant to Section 4 prior to actual
payment in cash for any redemption under this Section 6 by the delivery
of a Notice of Conversion to the Company.
c) FORCED CONVERSION. Notwithstanding anything herein to
the contrary, if after the earlier of the Effective Date or the date on
which the Conversion Shares are eligible for resale without restriction
pursuant to Rule 144(k) (such date, the "144(K) DATE"), the VWAP for
each of any 30 consecutive Trading Days, which period shall have
commenced only after the earlier of the Effective Date or the 144(k)
Date (such period the "THRESHOLD PERIOD"), exceeds 250% of the then
Conversion Price, the Company may, within 1 Trading Day after the end
of any such Threshold Period, deliver a written notice to the Holder (a
"FORCED CONVERSION NOTICE" and the date such notice is delivered to the
Holder, the "FORCED CONVERSION NOTICE DATE") to cause the Holder to
convert all or part of the then outstanding principal amount of this
Debenture plus, if so specified in the Forced Conversion Notice,
accrued but unpaid interest, liquidated damages and other amounts owing
to the Holder under this Debenture, it being agreed that the
"Conversion Date" for purposes of Section 4 shall be deemed to occur on
the third Trading Day following the Forced Conversion Notice Date (such
third Trading Day, the "FORCED CONVERSION DATE"). The Company may not
deliver a Forced Conversion Notice, and any Forced Conversion Notice
delivered by the Company shall not be effective, unless all of the
Equity Conditions (except that, after the 144(k) Date, Equity Condition
(iii) shall not be applicable in this Section 6(c)) are met (unless
waived in writing by the Holder) on each Trading Day occurring during
the applicable Threshold Period through and
19
including the later of the Forced Conversion Date and the Trading Day
after the date such Conversion Shares pursuant to such conversion are
delivered to the Holder. Any Forced Conversion shall be applied ratably
to all Holders based on their initial purchases of Debentures pursuant
to the Purchase Agreement, provided that any voluntary conversions by a
Holder shall be applied against such Holder's PRO RATA allocation,
thereby decreasing the aggregate amount forcibly converted hereunder if
only a portion of this Debenture is forcibly converted. For purposes of
clarification, a Forced Conversion shall be subject to all of the
provisions of Section 4, including, without limitation, the provision
requiring payment of liquidated damages and limitations on conversions.
SECTION 7. NEGATIVE COVENANTS. As long as any portion of this
Debenture remains outstanding, the Company shall not, and shall not permit any
of its subsidiaries (whether or not a Subsidiary on the Original Issue Date)
to, directly or indirectly:
a) other than Permitted Indebtedness, enter into, create,
incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee,
on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits
therefrom;
b) other than Permitted Liens, enter into, create, incur,
assume or suffer to exist any Liens of any kind, on or with respect to
any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom;
c) amend its charter documents, including, without
limitation, its certificate of incorporation and bylaws, in any manner
that materially and adversely affects any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a DE MINIMIS number of shares of its Common
Stock or Common Stock Equivalents other than as to (a) the Conversion
Shares or Warrant Shares as permitted or required under the Transaction
Documents and (b) repurchases of Common Stock or Common Stock
Equivalents of departing officers and directors of the Company,
provided that such repurchases shall not exceed an aggregate of
$100,000 for all officers and directors during the term of this
Debenture;
e) pay cash dividends or distributions on any equity
securities of the Company;
f) enter into any transaction with any Affiliate of the
Company which would be required to be disclosed in any public filing
with the Commission, unless such transaction is made on an arm's-length
basis and expressly approved by a majority of the disinterested
directors of the Company (even if less than a quorum otherwise required
for board approval); or
g) enter into any agreement with respect to any of the
foregoing.
20
SECTION 8. EVENTS OF DEFAULT.
a) "EVENT OF DEFAULT" means, wherever used herein, any of
the following events (whatever the reason for such event and whether
such event shall be voluntary or involuntary or effected by operation
of law or pursuant to any judgment, decree or order of any court, or
any order, rule or regulation of any administrative or governmental
body):
i. any default in the payment of (A) the principal
amount of any Debenture or (B) interest, liquidated damages
and other amounts owing to a Holder on any Debenture, as and
when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or
otherwise) which default, solely in the case of an interest
payment or other default under clause (B) above, is not cured
within 3 Trading Days;
ii. the Company shall fail to observe or perform any
other covenant or agreement contained in the Debentures (other
than a breach by the Company of its obligations to deliver
shares of Common Stock to the Holder upon conversion, which
breach is addressed in clause (xi) below) which failure is not
cured, if possible to cure, within the earlier to occur of (A)
5 Trading Days after notice of such failure sent by the Holder
or by any other Holder and (B) 10 Trading Days after the
Company has become or should have become aware of such
failure;
iii. a default or event of default (subject to any grace
or cure period provided in the applicable agreement, document
or instrument) shall occur under (A) any of the Transaction
Documents or (B) any other material agreement, lease, document
or instrument to which the Company or any Subsidiary is
obligated (and not covered by clause (vi) below);
iv. any representation or warranty made in this
Debenture, any other Transaction Documents, any written
statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the
Holder or any other Holder shall be untrue or incorrect in any
material respect as of the date when made or deemed made;
v. the Company or any Significant Subsidiary shall be
subject to a Bankruptcy Event;
vi. the Company or any Subsidiary shall default on
any of its obligations under any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or
other instrument under which there may be issued, or by which
there may be secured or evidenced, any indebtedness for
borrowed money or money due under any long term leasing or
factoring arrangement that (a) involves an obligation greater
than $150,000, whether such
21
indebtedness now exists or shall hereafter be created, and (b)
results in such indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise
become due and payable;
vii. the Common Stock shall not be eligible for listing
or quotation for trading on a Trading Market and shall not be
eligible to resume listing or quotation for trading thereon
within five Trading Days;
viii. the Company shall be a party to any Change of
Control Transaction or Fundamental Transaction or shall agree
to sell or dispose of all or in excess of 33% of its assets in
one transaction or a series of related transactions (whether
or not such sale would constitute a Change of Control
Transaction);
ix. a Registration Statement shall not have been
declared effective by the Commission on or prior to the 180th
calendar day after the Closing Date;
x. if, during the Effectiveness Period (as defined in
the Registration Rights Agreement), either (a) the
effectiveness of the Registration Statement lapses for any
reason or (b) the Holder shall not be permitted to resell
Registrable Securities (as defined in the Registration Rights
Agreement) under the Registration Statement for a period of
more than 20 consecutive Trading Days or 30 non-consecutive
Trading Days during any 12 month period; PROVIDED, HOWEVER,
that if the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets
or a similar transaction and, in the written opinion of
counsel to the Company, the Registration Statement would be
required to be amended to include information concerning such
pending transaction(s) or the parties thereto which
information is not available or may not be publicly disclosed
at the time, the Company shall be permitted an additional 10
consecutive Trading Days during any 12 month period pursuant
to this Section 8(a)(x);
xi. the Company shall fail for any reason to deliver
certificates to a Holder prior to the fifth Trading Day after
a Conversion Date or any Forced Conversion Date pursuant to
Section 4(d) or the Company shall provide at any time notice
to the Holder, including by way of public announcement, of the
Company's intention to not honor requests for conversions of
any Debentures in accordance with the terms hereof; or
xii. any monetary judgment, writ or similar final
process shall be entered or filed against the Company, any
Subsidiary or any of their respective property or other assets
for more than $50,000, and such judgment, writ or similar
final process shall remain unvacated, unbonded or unstayed for
a period of 45 calendar days.
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b) REMEDIES UPON EVENT OF DEFAULT. If any Event of Default
occurs, the outstanding principal amount of this Debenture, plus
accrued but unpaid interest, liquidated damages and other amounts owing
in respect thereof through the date of acceleration, shall become, at
the Holder's election, immediately due and payable in cash at the
Mandatory Default Amount. Commencing 5 days after the occurrence of any
Event of Default that results in the eventual acceleration of this
Debenture, the interest rate on this Debenture shall accrue at an
interest rate equal to the lesser of 18% per annum or the maximum rate
permitted under applicable law. Upon the payment in full of the
Mandatory Default Amount, the Holder shall promptly surrender this
Debenture to or as directed by the Company. In connection with such
acceleration described herein, the Holder need not provide, and the
Company hereby waives, any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of
any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law.
Such acceleration may be rescinded and annulled by Holder at any time
prior to payment hereunder and the Holder shall have all rights as a
holder of the Debenture until such time, if any, as the Holder receives
full payment pursuant to this Section 8(b). No such rescission or
annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.
SECTION 9. MISCELLANEOUS.
a) NOTICES. Any and all notices or other communications
or deliveries to be provided by the Holder hereunder, including,
without limitation, any Notice of Conversion, shall be in writing and
delivered personally, by facsimile, or sent by a nationally recognized
overnight courier service, addressed to the Company, at the address set
forth above, facsimile number (852) 2776 2257, Attention: Jason Ma or
such other facsimile number or address as the Company may specify for
such purpose by notice to the Holder delivered in accordance with this
Section 9. Any and all notices or other communications or deliveries to
be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or
address of such Holder appearing on the books of the Company, or if no
such facsimile number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number specified in this Section 9 prior
to 5:30 p.m. (New York City time), (ii) the date immediately following
the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number specified in this Section 9
between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City
time) on any date, (iii) the second Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required
to be given.
b) ABSOLUTE OBLIGATION. Except as expressly provided herein,
no provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and
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unconditional, to pay the principal of, liquidated damages and accrued
interest, as applicable, on this Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed. This Debenture is
a direct debt obligation of the Company. This Debenture ranks PARI
PASSU with all other Debentures now or hereafter issued under the terms
set forth herein.
c) LOST OR MUTILATED DEBENTURE. If this Debenture shall be
mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost,
stolen or destroyed Debenture, a new Debenture for the principal amount
of this Debenture so mutilated, lost, stolen or destroyed, but only
upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, reasonably satisfactory to the
Company.
d) GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of
conflict of laws thereof. Each party agrees that all legal proceedings
concerning the interpretation, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether
brought against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the
state and federal courts sitting in the City of New York, Borough of
Manhattan (the "NEW YORK COURTS"). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and
hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the
jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for
notices to it under this Debenture and agrees that such service shall
constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by applicable law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted
by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Debenture, then
the prevailing party in such action or proceeding shall be reimbursed
by the other party for its attorneys fees and other costs and expenses
incurred in the investigation, preparation and prosecution of such
action or proceeding.
e) WAIVER. Any waiver by the Company or the Holder of a
breach of any provision of this Debenture shall not operate as or be
construed to be a waiver of any
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other breach of such provision or of any breach of any other provision
of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any
other term of this Debenture. Any waiver by the Company or the Holder
must be in writing.
f) SEVERABILITY. If any provision of this Debenture is
invalid, illegal or unenforceable, the balance of this Debenture shall
remain in effect, and if any provision is inapplicable to any Person or
circumstance, it shall nevertheless remain applicable to all other
Persons and circumstances. If it shall be found that any interest or
other amount deemed interest due hereunder violates the applicable law
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum rate of interest
permitted under applicable law. The Company covenants (to the extent
that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives
all benefits or advantage of any such law, and covenants that it will
not, by resort to any such law, hinder, delay or impeded the execution
of any power herein granted to the Holder, but will suffer and permit
the execution of every such as though no such law has been enacted.
g) NEXT BUSINESS DAY. Whenever any payment or other
obligation hereunder shall be due on a day other than a Business Day,
such payment shall be made on the next succeeding Business Day.
h) HEADINGS. The headings contained herein are for
convenience only, do not constitute a part of this Debenture and shall
not be deemed to limit or affect any of the provisions hereof.
i) ASSUMPTION. Any successor to the Company or any surviving
entity in a Fundamental Transaction shall (i) assume, prior to such
Fundamental Transaction, all of the obligations of the Company under
this Debenture and the other Transaction Documents pursuant to written
agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) and (ii) issue to
the Holder a new debenture of such successor entity evidenced by a
written instrument substantially similar in form and substance to this
Debenture, including, without limitation, having a principal amount and
interest rate equal to the principal amount and the interest rate of
this Debenture and having similar ranking to this Debenture, which
shall be satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed). The provisions of this Section 9(i)
shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations of
this Debenture.
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26
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
TITANIUM GROUP LIMITED
By:
--------------------------------------
Name:
Title:
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Series A
8% Senior Convertible Debenture due April 3, 2010 of Titanium Group Limited, a
corporation organized under the laws of the British Virgin Islands (the
"COMPANY"), into shares of common stock, par value $0.01 per share (the "COMMON
STOCK"), of the Company according to the conditions hereof, as of the date
written below. If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No fee
will be charged to the holder for any conversion, except for such transfer
taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts specified under Section 4 of this Debenture, as determined in
accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $____ of Interest Accrued on Account of
Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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SCHEDULE 1
CONVERSION SCHEDULE
The Series A 8% Senior Convertible Debentures due on April 3, 2010 in the
aggregate principal amount of $_____ are issued by Titanium Group Limited. This
Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.
Dated:
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Aggregate Principal
Amount Remaining
Date of Conversion Subsequent to
(or for first entry, Original Conversion
Issue Date) Amount of Conversion (or original Company Attest
Principal Amount)
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