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: February 20, 2007
Original Conversion Price (subject to adjustment herein): $0.45
$_______________
SECURED CONVERTIBLE DEBENTURE
DUE FEBRUARY 20, 2009
THIS SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized
and validly issued Secured Convertible Debentures of Airtrax, Inc., a New Jersey
corporation, (the "Company"), having its principal place of business at 200
Freeway Drive, Unit One, Blackwood, NJ 08012, designated as its Convertible
Debenture due February 20, 2009 (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 February 20, 2009 (the "Maturity
Date") or such earlier date as this Debenture is required or permitted to be
repaid as provided hereunder. 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 meanings set forth in the Purchase Agreement and (b) the
following terms shall have the following meanings:
"144 Amount" means, as to any applicable date, the highest number
of shares of Common Stock which can be sold by persons other than
affiliates as determined by the application of Section (e)(i), (ii) or
(iii) of Rule 144 under the Securities Act.
"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 40% 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 60%
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 Company immediately prior to such transaction own less than 60%
of the aggregate voting power of the acquiring entity immediately
after the transaction, or (iv) a replacement at one time or within a
two 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, no par value 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).
2
"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 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.
"Fundamental Transaction" shall have the meaning set forth in
Section 5(e).
"Mandatory Default Amount" means the sum of (i) the greater of
(A) 130% of the outstanding principal amount of this Debenture or (B)
the outstanding principal amount of this Debenture 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 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).
3
"Optional Redemption Amount" means the sum of (i) 150% of the
principal amount of the Debenture then outstanding and (ii) 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, (b) lease obligations and purchase money
indebtedness of up to $375,000, in the aggregate, incurred in
connection with the acquisition of capital assets and lease
obligations with respect to newly acquired or leased assets, (c)
indebtedness that (i) is expressly subordinate to the Debentures
pursuant to a written subordination agreement with the Purchasers that
is acceptable to each Purchaser in its sole and absolute discretion
and (ii) matures at a date later than the Maturity Date and (d)
indebtedness incurred to merge with or acquire another operating
business or to purchase assets from a third party, provided that such
indebtedness (i) is expressly subordinate to the Debentures pursuant
to a written subordination agreement with the Purchasers that is
acceptable to each Purchaser in its sole and absolute discretion and
(ii) matures at a date later than the Maturity Date.
"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; (c)
Liens incurred in connection with Permitted Indebtedness under clause
(b) thereunder, provided that such Liens are not secured by any assets
of the Company or its Subsidiaries other than the assets so acquired
or leased; and (d) Liens incurred in connection with Permitted
Indebtedness under clause (d) thereunder, provided that such Liens are
not secured by any assets of the Company or its Subsidiaries other
than the assets so acquired or purchased.
"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.
4
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of February 20, 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, 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.
"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 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.
5
Section 2. 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 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 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 $0.45 subject to adjustment herein (the
"Conversion Price").
6
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-QSB or Form 10-KSB, as the case may be;
(B) a more recent public announcement by the Company; or (C) a 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.
7
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. 21
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 certificate or certificates representing the
Conversion Shares which, on or after the Effective Date or the
date when the conversion Shares are eligible for sale under Rule
144, 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. 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
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.
8
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 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 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 150% of the aggregate number of
shares of the Common Stock as shall (subject to the terms and
conditions set forth in the Purchase Agreement) be issuable upon
the conversion of the outstanding principal amount of this
Debenture. 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.
9
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 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 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.
10
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 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.
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f) Effective Date Adjustment. On the Effective Date, the Conversion Price
shall be immediately and permanently adjusted to equal the lesser of
(i) the then Conversion Price and (ii) 80% of the average of the
Closing Prices on the 10 Trading Days immediately preceding the
Effective Date.
g) Registration Failure Adjustment. Upon the occurrence of any of the
following events, the Conversion Price shall be adjusted as follows:
(i) if the initial Registration Statement registering all
Registrable Securities is not effective on or before February 20,
2008, the then Conversion Price applicable to an amount of Conversion
Shares equal to the 144 Amount shall be immediately and permanently
adjusted to equal the lesser of (i) the then Conversion Price and (ii)
80% of the average of the 3 lowest Closing Prices during the 10
Trading Days immediately preceding February 20, 2008;
(ii) if the initial Registration Statement registering all
Registrable Securities is not effective on or before April 20, 2008,
the Conversion Price applicable to an amount of Conversion Shares
equal to the 144 Amount shall be immediately and permanently adjusted
to equal the lesser of (i) the then Conversion Price and (ii) 80% of
the average of the 3 lowest Closing Prices during the 10 Trading Days
immediately preceding April 20, 2008;
(iii) if the initial Registration Statement registering all
Registrable Securities is not effective on or before July 20, 2008,
the Conversion Price applicable to an amount of Conversion Shares
equal to the 144 Amount shall be immediately and permanently adjusted
to equal the lesser of (i) the then Conversion Price and (ii) 80% of
the average of the 3 lowest Closing Prices during the 10 Trading Days
immediately preceding July 20, 2008;
(iv) if the initial Registration Statement registering all
Registrable Securities is not effective on or before October 20, 2008,
the Conversion Price applicable to an amount of Conversion Shares
equal to the 144 Amount shall be immediately and permanently adjusted
to equal the lesser of (i) the then effective Conversion Price and
(ii) 80% of the average of the 3 lowest Closing Prices during the 10
Trading Days immediately preceding October 20, 2008; and
(v) if the initial Registration Statement registering all
Registrable Securities is not effective on or before February 20,
2009, the Conversion Price shall be immediately and permanently
adjusted to equal the lesser of (i) the then effective Conversion
Price and (ii) 80% of the average of the 3 lowest Closing Prices
during the 10 Trading Days immediately preceding February 20, 2009.
h) 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.
i) 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
thereon 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.
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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 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.
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 30th
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 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. If any of the Equity Conditions shall cease
to be satisfied at any time during the 30 Trading Day period, then the
Holder may elect to nullify the Optional Redemption Notice by notice
to the Company within 3 Trading Days 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.
13
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.
Section 7. Negative Covenants. As long as any portion of this Debenture
remains outstanding, unless Purchasers holding in the aggregate at least 75% of
the principal amount of the then outstanding Debentures shall otherwise consent
in writing, the Company shall not, and shall not permit any of its Subsidiaries
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, the
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
of directors approval); or
14
g) enter into any agreement with respect to any of the foregoing.
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) 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 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 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 40% 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;
15
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
(which, on or after the Effective Date or the date when the
conversion Shares are eligible for sale under Rule 144, shall be
free of restrictive legends and trading restrictions (other than
those which may then be required by the Purchase Agreement)) to a
Holder prior to the fifth Trading Day after a 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 $100,000,
and such judgment, writ or similar final process shall remain
unvacated, unbonded or unstayed for a period of 45 calendar days.
16
b) Remedies Upon Event of Default. If any Event of Default occurs, the
outstanding principal amount of this Debenture, 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.
17
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 (856) 227-9168, Attention: Robert Watson,
Chief Executive Officer 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 unconditional, to pay the principal of,
liquidated damages 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.
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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 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.
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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
equal to the principal amount, 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.
j) Secured Obligation. The obligations of the Company under this
Debenture are secured by all assets of the Company and each Subsidiary
pursuant to the Security Agreement, dated as of February 20, 2007,
between the Company, [the Subsidiaries of the Company and the Secured
Parties (as defined therein)
*********************
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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.
AIRTRAX, INC.
By:__________________________________________
Name: Robert Watson
Title: Chief Executive Officer
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Secured
Convertible Debenture due February 20, 2009 of Airtrax, Inc., a New Jersey
corporation (the "Company"), into shares of common stock, no par value 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:
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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Schedule 1
CONVERSION SCHEDULE
The Secured Convertible Debentures due on February 20, 2009 in the aggregate
principal amount of $____________ are issued by Airtrax, Inc., a New Jersey
corporation. 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, Amount Conversion
Original of (or original
Issue Date) Conversion Principal Amount) Company Attest
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