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The Securities represented by this Debenture have not been registered under
the Securities Act of 1933, as amended ("Act"), or applicable state
securities laws ("State Acts") and shall not be sold, hypothecated, donated
or otherwise transferred unless the Borrower shall have received an opinion
of Legal Counsel for the holder hereof, or such other evidence as may be
satisfactory to Legal Counsel for the Borrower, to the effect that any such
transfer shall not require registration under the Act and the State Acts.
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CANMAX INC.
CANMAX RETAIL SYSTEMS, INC.
10.00% SENIOR SECURED CONVERTIBLE DEBENTURE
$250,000 No: 1
Date of Issue: December 15, 1997
CANMAX INC. (a Wyoming corporation) and CANMAX RETAIL SYSTEMS, INC. (a
Texas corporation) (collectively hereinafter referred to as the "Borrower")
is indebted and, for value received, herewith promises to pay to:
Founders Mezzanine Investors III, LLC
or to its order, (together with any assignee, jointly or severally, the
"Holder" or "Lender") on or before January 1, 1999 (the "Due Date") (unless
this Debenture shall have been sooner called for redemption or presented for
conversion as herein provided), the sum of Two Hundred Fifty Thousand Dollars
($250,000) (the "Principal Amount") and to pay interest on the Principal
Amount at the rate of ten percent (10.00%) per annum as provided herein.
This Debenture is a Debenture referred to in the Convertible Loan Agreement
dated December 15, 1997 among Borrower, Holder and other Lenders named
therein. Capitalized Terms used herein and not otherwise defined shall have
the meaning set forth for such terms in the Loan Agreement. In furtherance
thereof, and in consideration of the premises, the Borrower covenants,
promises and agrees as follows:
1. INTEREST: Interest on the Principal Amount outstanding from time to
time shall accrue at the rate of 10.00% per annum and be payable in monthly
installments commencing February 1, 1998, and subsequent payments shall be
made on the first day of each month thereafter until the Principal Amount and
all accrued and unpaid interest shall have been paid in full. Overdue
principal and interest on the Debenture shall, to the extent permitted by
applicable law, bear interest at the rate of 12.00% per annum. All payments
of both principal and interest shall be made at the address of the Holder
hereof as it appears in the books and records of the Borrower, or at such
other place as may be designated by the Holder hereof in writing to Borrower.
2. MATURITY: If not sooner redeemed or converted, this Debenture shall
mature on January 1, 1999 at which time all then remaining unpaid principal,
interest and any other charges then due under the Loan Agreement shall be due
and payable in full.
3. MANDATORY PRINCIPAL INSTALLMENT: If this Debenture is not sooner
redeemed or converted, Borrower shall pay to Holder on January 1, 1999, a
final installment of all of the remaining unpaid Principal plus the amount of
any unpaid interest and other charges then due.
4. OPTIONAL REDEMPTION: On any interest payment date, and after prior
irrevocable notice as provided for below, the outstanding principal amount of
this Debenture is redeemable at the option of the Borrower, in whole but not
in part, at 110% of par.
(b) The Borrower may exercise its right to redeem prior to Due Date by
giving notice (the "Redemption Notice") thereof to the Holder as such name
appears on the books of the Borrower, which notice shall specify the terms of
redemption (including the place at which the Holder may obtain payment), the
total principal amount to be redeemed (such principal amount plus the premium
thereon herein called the "Redemption Amount") and the date for redemption
(the "Redemption Date"), which date shall not be less than 30 days nor more
than 60 days after the date of the Redemption Notice. On the Redemption
Date, the Borrower shall pay all accrued unpaid interest on the Debenture up
to and including the Redemption Date, and shall pay to the Holder a dollar
amount equal to the Redemption Amount. In the case of Debentures called for
redemption, the conversion rights will expire at the close of business on the
Redemption Date.
5. CONVERSION RIGHT: The Holder shall have the right, at Holder's option,
at any time, to convert all, or, in multiples of $25,000, any part of this
Debenture into such number of fully paid and nonassessable shares of common
stock, NO par value, of Canmax Inc. (the "Common Stock") as shall be provided
herein. The Holder may exercise the conversion right by giving written
notice (the "Conversion Notice") to the Borrower of the exercise of such
right and stating the name or names in which the stock certificate or stock
certificates for the shares of Common Stock are to be issued and the address
to which such certificates shall be delivered. The Conversion Notice shall
be accompanied by the Debenture. The number of shares of Common Stock that
shall be issuable upon conversion of the Debenture shall equal the face
amount of the Debenture divided by the Conversion Price as defined below and
in effect on the date the Conversion Notice is given; provided, however, that
in the event that this Debenture shall have been partially redeemed, shares
of Common Stock shall be issued pro rata, rounded to the nearest whole share.
Conversion shall be deemed to have been effected on the date the Conversion
Notice is received (the "Conversion Date"). Within 10 business days after
receipt of the Conversion Notice, Borrower shall issue and deliver by hand
against a signed receipt therefor or by United States registered mail, return
receipt requested, to the address designated in the Conversion Notice, a
stock certificate or stock certificates of Canmax, Inc. representing the
number of shares of Common Stock to which Holder is entitled and a check or
cash in payment of all interest accrued and unpaid on the Debenture being
converted up to and including the Conversion Date. The conversion rights
will be governed by the following provisions:
(a) Conversion Price: On the issue date hereof and until such time as an
adjustment shall occur, the Conversion price shall be $1.25 PER SHARE;
provided, however, that the Conversion Price shall be subject to adjustment
at the times, and in accordance with the provisions, as follows:
(i) Adjustment for Issuance of Shares at less than the Conversion Price: If
and whenever any Additional Common Stock (as herein defined) shares shall be
issued by the Borrower (the "Stock Issue Date") for a consideration per share
less than the Conversion Price, then in each such case the Conversion Price
shall be reduced to a new Conversion Price equal to the consideration per
share received by the Borrower for the additional shares of Common Stock then
issued and the number of shares issuable to Holder upon conversion shall be
proportionately increased; and, in the case of shares issued without
consideration, the initial Conversion Price shall be reduced in amount and
the number of shares issued upon conversion shall be increased in an amount
so as to maintain for the Holder the right to convert the Debenture into
shares equal in amount to the same percentage interest in the Common Stock of
the Borrower as existed for the Holder immediately preceding the Stock Issue
Date.
(ii) Sale of Shares: In case of the issuance of Additional Common Stock
for a consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of the cash
received by Borrower for such shares, after any compensation or discount in
the sale, underwriting or purchase thereof by underwriters or dealers or
others performing similar services or for any expenses incurred in connection
therewith. In case of the issuance of any shares of Additional Common Stock
for a consideration part or all of which shall be other than cash, the amount
of the consideration therefor, other than cash, shall be deemed to be the
then fair market value (as hereinafter defined) of the property received.
(iii) Reclassification of Shares: In case of the reclassification of
securities into shares of Common Stock, the shares of Common Stock issued in
such reclassification shall be deemed to have been issued for a consideration
other than cash. Shares of Additional Common Stock issued by way of dividend
or other distribution on any class of stock of the Borrower shall be deemed
to have been issued without consideration.
(iv) Split up or Combination of Shares: In case issued and outstanding
shares of Common Stock shall be subdivided or split up into a greater number
of shares of the Common Stock, the Conversion Price shall be proportionately
decreased, and in case issued and outstanding shares of Common Stock shall be
combined into a
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Issuer's Initial _____
smaller number of shares of Common Stock, the Conversion Price shall be
proportionately increased, such increase or decrease, as the case may be,
becoming effective at the time of record of the split-up or combination, as
the case may be.
(v) Exceptions: The term "Additional Common Stock" herein shall mean all
shares of Common Stock hereafter issued by the Borrower (including Common
Stock held in the treasury of the Borrower), except (1) Common Stock issued
upon the conversion of this Debentures; (2) Common Stock issued pursuant to
exercise of authorized or outstanding options under any incentive stock
option plan for the officers, directors, and certain other key personnel as
defined in said stock option plans of the Borrower as currently established;
and (3) shares for and on the closing of USC.
(b) Adjustment for Mergers, Consolidations, Etc.:
(i) In the event of distribution to all Common Stock holders of any stock,
indebtedness of the Borrower or assets (excluding cash dividends or
distributions from retained earnings) or other rights to purchase securities
or assets, then, after such event, this Debenture will be convertible into
the kind and amount of securities, cash and other property which the Holder
would have been entitled to receive if the Holder owned the Common Stock
issuable upon conversion of this Debenture immediately prior to the
occurrence of such event.
(ii) In case of any capital reorganization, reclassification of the stock of
the Borrower (other than a change in par value or as a result of a stock
dividend, subdivision, split up or combination of shares), this Debenture
shall be convertible into the kind and number of shares of stock or other
securities or property of the Borrower to which the Holder would have been
entitled to receive if the Holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such
event. The provisions of these foregoing sentence shall similarly apply to
successive reorganizations, reclassifications, consolidations, exchanges,
leases, transfers or other dispositions or other share exchanges.
(iii) The term "Fair Market Value", as used herein, is the value ascribed to
consideration other than cash as determined by the Board of Directors of the
Borrower in good faith, which determination shall be final, conclusive and
binding. If the Board of Directors shall be unable to agree as to such fair
market value, then the issue of fair market value shall be submitted to
arbitration under and pursuant to the rules and regulations of the American
Arbitration Association, and the decision of the arbitrators shall be final,
conclusive and binding, and a final judgment may be entered thereon, provided
however that such arbitration shall be limited to determination of the fair
market value of assets tendered in consideration for the issue of Common
Stock.
(iv) Notice of Adjustment. (A) In the event the Borrower shall propose to
take any action which shall result in an adjustment in the Conversion Price,
the Borrower shall give notice to the Holder, which notice shall specify the
record date, if any, with respect to such action and the date on which such
action is to take place. Such notice shall be given on or before the earlier
of 10 days before the record date or the date which such action shall be
taken. Such notice shall also set forth all facts (to the extent known)
material to the effect of such action on the Conversion Price and the number,
kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or deliverable
upon conversion of this Debenture. (B) Following completion of an event
wherein the Conversion Price shall be adjusted, the Borrower shall furnish to
the Holder a statement, signed by the Chief Executive Officer of the Borrower
of the facts creating such adjustment and specifying the resultant adjusted
Conversion Price then in effect.
6. RESERVATION OF SHARES: Borrower warrants and agrees that it shall at
all times reserve and keep available, free from preemptive rights, sufficient
authorized and unissued shares of Common Stock to effect conversion of this
Debenture.
7. REGISTRATION RIGHTS: Shares issued upon conversion of this Debenture
shall be restricted from transfer by the Holder except if and unless the
shares are duly registered for sale pursuant to the Securities Act of 1933,
as amended, or the transfer is duly exempt from registration.
The Holder has certain rights with respect to the registration of shares of
Common Stock issued upon the conversion of this Debenture pursuant to the
terms of the Loan Agreement. Borrower agrees that a copy of the Loan
Agreement with all amendments, additions or substitutions therefor shall be
available to the Holder at the offices of the Borrower.
8. HOLDERS RIGHT TO REQUEST MULTIPLE DEBENTURES: The Holder shall, upon
written request and presentation of the Debenture, have the right, at any
interest payment date, to request division of this Debenture into two or more
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Issuer's Initial _____
units, each of such to be in such amounts as shall be requested; provided
however that no Debentures shall be issued in denominations of face amount
less than $25,000.00.
9. TRANSFER: This Debenture may be transferred on the books of the
Borrower by the registered Holder hereof, or by Holder's attorney duly
authorized in writing, only upon (i) delivery to the Borrower of a duly
executed assignment of the Debenture, or part thereof, to the proposed new
Holder, along with a current notation of the amount of payments received and
net Principal Amount yet unfunded, and presentment of such Debenture to the
Borrower for issue of a replacement Debenture, or Debentures, in the name of
the new Holder, (ii) the designation by the new Holder of the Lender's agent
for notice, such agent to be the sole party to whom Borrower shall be
required to provide notice when notice to Lender is required hereunder and
who shall be the sole party authorized to represent Lender in regard to
modification or waivers under the Debenture, the Loan Agreement, or other
Loan Documents; and any action, consent or waiver, (other than a compromise
of principal and interest), when given or taken by Lender's agent for notice,
shall be deemed to be the action of the holders of a majority in amount of
the Principal Amount of the Debentures, as such holders are recorded on the
books of the Borrower, and (iii) in compliance with the legend to read "The
Securities represented by this Debenture have not been registered under the
Securities Act of 1933, as amended ("Act"), or applicable state securities
laws ("State Acts") and shall not be sold, hypothecated, donated or otherwise
transferred unless the Borrower shall have received an opinion of Legal
Counsel for the Borrower, or such other evidence as may be satisfactory to
Legal Counsel for the Borrower, to the effect that any such transfer shall
not require registration under the Act and the State Acts."
The Borrower shall be entitled to treat any holder of record of the
Debenture as the Holder in fact thereof and of the Debenture and shall not be
bound to recognize any equitable or other claim to or interest in this
Debenture in the name of any other person, whether or not it shall have
express or other notice thereof, save as expressly provided by the laws of
Texas.
10. MAXIMUM INTEREST RATE: Regardless of any provision contained in this
Debenture, Lender shall never be entitled to receive, collect or apply as
interest on the Debenture any amount in excess of interest calculated at the
Maximum Rate, and, in the event that Lender ever receives, collects or
applies as interest any such excess, the amount which would be excessive
interest shall be deemed to be a partial prepayment of principal and treated
hereunder as such; and, if the principal amount of the Debenture is paid in
full, any remaining excess shall forthwith be paid to Borrower. In
determining whether or not the interest paid or payable under any specific
contingency exceeds interest calculated at the Maximum Rate, Borrower and
Lender shall, to the maximum extent permitted under applicable law, (i)
characterize any non principal payment as an expense, fee or premium rather
than as interest; (ii) exclude voluntary prepayments and the effects thereof,
and (iii) amortize, pro rate, allocate and spread, in equal parts, the total
amount of interest throughout the entire contemplated term of the Debenture;
provided that, if the Debenture is paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest received for
the actual period of existence thereof exceeds interest calculated at the
Maximum Rate, Lender shall refund to Borrower the amount of such excess or
credit the amount of such excess against the principal amount of the
Debenture and, in such event, Lender shall not be subject to any penalties
provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate of
interest (if any) permitted by applicable law on such day that at any time,
or from time to time, may be contracted for, taken, reserved, charged or
received on the Indebtedness evidenced by the Debenture under the laws which
are presently in effect of the United States of America and the State of
Texas or by the laws of any other jurisdiction which are or may be applicable
to the holders of the Debenture and such Indebtedness or, to the extent
permitted by law, under such applicable laws of the United States of America
and the State of Texas or by the laws of any other jurisdiction which are or
may be applicable to the Holder and which may hereafter be in effect and
which allow a higher maximum nonusurious interest rate than applicable laws
now allow.
11. RIGHTS UNDER LOAN AGREEMENT: This Debenture is issued pursuant to that
certain Convertible Loan Agreement dated December 15, 1997 by and between the
Borrower and Founders Equity Group, Inc. and Founders Mezzanine Investors
III, LLC and the Holder hereof is entitled to all the rights and benefits,
and is subject to all the obligations of Lenders and Borrower under said
agreement. Borrower and Lenders have participated in the negotiation and
preparation of the Loan Agreement and of this Debenture. Borrower agrees
that a copy of the Loan Agreement with all amendments, additions and
substitutions therefor shall be available to the Holder at the offices of the
Borrower. This Debenture is secured pursuant to a Security Agreement around
December 15, 1997.
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Issuer's Initial _____
12. GOVERNING LAW: THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, OR, WHERE
APPLICABLE, THE LAWS OF THE UNITED STATES.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Debenture
to be duly issued and executed on the Date of Issue as stated above.
ADDRESS FOR NOTICE: BORROWER
150 W. Carpenter Freeway
Irving, TX 75039 CANMAX INC.
972 541-1600
972 281-2385
By: /s/ Roger Bryant
-----------------------------------
Roger Bryant
Chief Executive Officer
Attest by: /s/ Philip Parsons
---------------------------
Philip Parsons
Chief Financial Officer
CANMAX RETAIL SYSTEMS, INC.
By: /s/ Roger Bryant
-----------------------------------
Roger Bryant
Chief Executive Officer
Attest by: /s/ Philip Parsons
---------------------------
Philip Parsons
Chief Financial Officer
This instrument was acknowledged before me on Dec. 30, 1997, by Philip M.
Parsons, Chief Financial Officer of Canmax, a______________________ corporation.
Notary Public, State of Texas
--------------------
[Notary Seal] My Commission Expires: April 14, 1998
----------------------
Printed Name of Notary Diane Kay Crone
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Issuer's Initial _____