EXHIBIT 4.1
SECURED CONVERTIBLE DEBENTURE
THE SECURITIES REPRESENTED AND ISSUABLE BY THIS DEBENTURE (THE "SECURITIES")
HAVE BEEN ISSUED IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933 (THE "1933 ACT"), AND APPROPRIATE EXEMPTIONS FROM
REGISTRATION UNDER THE SECURITIES LAWS OF OTHER APPLICABLE JURISDICTIONS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED OTHER THAN PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER THE 1933 ACT OR AN EXEMPTION FROM
REGISTRATION UNDER THE 1933 ACT AND THE APPLICABLE SECURITIES LAWS OF ANY OTHER
JURISDICTION. THE ISSUER SHALL BE ENTITLED TO REQUIRE AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IT WITH RESPECT TO COMPLIANCE WITH THE 1933 ACT AND
APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION. TRANSFER OF THE SECURITIES
IS PROHIBITED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S (RULE 901
THROUGH 905 AND PRELIMINARY NOTES THERETO), PURSUANT TO REGISTRATION UNDER THE
33 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION; AND THAT
HEDGING TRANSACTIONS INVOLVING THOSE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE 33 ACT.
April 16, 2001 $1,250,000.00
THIS SECURED CONVERTIBLE DEBENTURE (this "Debenture") is executed and
delivered, as of April 16 , 2001, by BINGO.COM, INC., a Florida corporation (the
"Company"), as to $750,000 to Redruth Ventures Inc., a British Virgin Islands
corporation, and as to $500,000 to Bingo, Inc., an Anguillia corporation (the
"Holders").
WHEREAS, the Holders have agreed to make a loan to the Company in an
amount of $1,250,000.00 on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Holders hereby agree as
follows:
Section 1. PROMISE TO PAY.
The Company promises to pay to the Holders, pari passu, an amount equal
to One Million Two Hundred Fifty Thousand United States Dollars (U.S.
$1,250,000.00), together with simple interest at the fixed rate per annum (the
"Interest Rate") of twelve percent (12%), with interest accruing and payable on
the outstanding principal amount of this Debenture, as further set forth herein.
Drawdowns of principal under this Debenture will be; US$250,000 on April 16,
2001; US$250,000 on May 1, 2001; US$250,000 on June 1, 2001; US$150,000 on July
1, 2001; US$100,000 on October 1,2001; US$100,000 on January 1, 2002; US$100,000
on April 1, 2002; and US$50,000 on July 1, 2002.
Section 2. PAYMENT.
(a) The Company shall pay the then outstanding principal amount of this
Debenture on April 16, 2006. Interest shall accrue on the principal amount from
time to time outstanding under this Debenture at the Interest Rate from the date
hereof through April 16, 2003 (the "Accrued Interest Payment Date"), but such
accrued interest shall not be payable until the Accrued Interest Payment Date.
Thereafter, interest shall accrue at the Interest Rate and be payable on the
first business day (the "Payment Date") of each succeeding quarter through and
including April 16, 2006 (each such payment date being referred to herein as a
"Payment Date"). All principal, accrued but unpaid interest and any other
amounts due hereunder shall be due and payable at maturity on April 16, 2006.
(b)(1) The Company shall pay the accrued interest on the Accrued
Interest Payment Date and shall pay all other interest thereafter accrued, at
the Company's option, in (i) cash in lawful money of United States of America,
(ii) common stock of the Company ("Company Common Stock") or (iii) a combination
of both cash and Company Common Stock. Any amounts remaining unpaid on this
Debenture on the maturity date hereof, whether principal, interest or other
amounts due hereunder, shall be paid in full in cash on such date. Any Company
Common Stock delivered to the Holder in payment of this Debenture as described
above will be valued at $0.25 per share ("Valuation Price"). The Company Common
Stock is listed on the OTC Bulletin Board and the Company shall take all
reasonable steps to maintain such listing. Such Valuation Price shall be
equitably adjusted in the case of a Corporate Event (as hereinafter defined) in
the manner provided in paragraph (d) below.
(b)(2) The Company hereby grants to the Holders an option pursuant to
which the Holders will have the right, but not the obligation, to elect, until
the third (3rd) anniversary of the date of this Debenture, to convert any or all
of the principal amount of this Debenture into shares of Company Common Stock at
a conversion price of $0.125 per share (the "Conversion Price"), exercisable by
written notice to the Company. Such Conversion Price shall be equitably adjusted
in the case of a Corporate Event (as hereinafter defined) in the manner provided
in paragraph (d) below.
(c) In order to make any payments on this Debenture in Company Common
Stock as described above, the Company will take, until the date on which all
principal and interest on this Debenture is fully repaid, all actions necessary
or appropriate to reserve for issuance that number of shares of Company Common
Stock sufficient to permit the Company to fulfill its obligations under this
Debenture. If the Holders elects to (i) have the Company pay any portion of
accrued interest (as provided in subsection (b)(1) above), principal (upon
conversion) as provided for in subsection (b)(2) above on this Debenture or (ii)
exercise the Warrants (as defined below) by delivering shares of Company Common
Stock to the Holders, the Company shall promptly take all steps required to
cause the Holders to be issued a sufficient number of shares of Company Common
Stock.
(d) If, at any time after the date hereof and prior to the date on
which all principal and interest on this Debenture is paid in full, the Company
effects a dividend or other distribution upon or in redemption of Company Common
Stock payable in Company Common Stock, other securities or other property, a
combination of outstanding shares of Company Common Stock into a smaller number
of shares
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of Company Common Stock, or any reorganization, split, exchange or
reclassification of Company Common Stock, or any consolidation or merger of the
Company with another corporation, or the sale of all or substantially all of its
assets to another corporation, in such a way that holders of outstanding Company
Common Stock shall be entitled to receive (either directly, or upon subsequent
liquidation) stock, securities or other property with respect to or in exchange
for Company Common Stock (any such event described in the foregoing clauses
being referred to as a "Corporate Event"), then as a condition of such Corporate
Event, lawful, appropriate, equitable and adequate provisions shall be made to
the terms of paragraphs (b) and (c) above whereby the Holders shall thereafter
be entitled to receive on each Payment Date (or, if applicable, the Accrued
Interest Payment Date) (under the same terms otherwise applicable to its receipt
of Company Common Stock), in lieu of or in addition to, as the case may be, the
payments specified in paragraphs (b) and (c) above, such cash, stock, securities
or other property which, when valued in a fair and equitable manner consistent
with the purposes and intent of this Debenture and when added to the amounts
being paid or Company Common Stock being issued on such Payment Date (or, if
applicable, the Accrued Interest Payment Date), discharges the full amount of
the accrued interest and principal (with respect to the maturity date hereof)
due on such date.
(e) All payments due hereunder, whether made in the form of cash or
delivery of Company Common Stock, shall be made to each Holder's address for
notices set forth below or at such other place as the Holders may designate to
the Company in writing.
Section 3. VOLUNTARY PREPAYMENT.
The Company may prepay this Debenture in full or in part at any time,
provided that any such prepayment must be made in cash, unless otherwise agreed
to by the Holders. Early payments under this Debenture shall not relieve the
Company of its obligation to continue to make regularly scheduled payments as
required herein, but shall instead reduce the principal balance due, and the
Company may be required to make fewer payments under this Debenture.
Section 4. GRANT OF SECURITY INTEREST
The Company hereby grants to the Holders a first priority and perfected
security interest in and to all of the assets of the Company, including without
limitation, all intellectual property rights of the Company (including the
Company's domain name "Bingo.com"). The Company agrees to execute and deliver
all documents and instruments reasonably requested by the Holders to effectuate
the foregoing, including without limitation, UCC-1 financing statements.
Section 5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Company represents, warrants and covenants to the Holders as of the
date of this Debenture:
(a) Organization. The Company is a corporation which is duly organized,
validly existing and in good standing under the laws of the State of Florida.
(b) Authorization. The Company's execution, delivery and performance of
this Debenture has been duly authorized and does not conflict with, and will not
result in a violation of, or constitute or give rise to an event of default
under, the Company's articles of incorporation or by-laws. Furthermore, the
execution, delivery and performance by the Company of this Debenture does not
conflict with, and will not result in a violation of, or constitute or give rise
to an event of default under, any agreement or other instrument which may be
binding upon the Company or under any law or governmental regulation or court
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decree or order applicable to the Company and/or its properties. The Company has
the power and authority to enter into the obligations evidenced by this
Debenture. The Company has the power and authority to own and to hold all of its
assets and properties and to carry on its business as presently conducted. All
consents and approvals required to be obtained in connection with the execution
and delivery of this Debenture and the Warrants have been obtained.
(c) Issued Shares. All shares of Company Common Stock to be delivered
to the Holders pursuant to the terms of this Debenture, when issued and
delivered in accordance with the terms hereof, will be duly authorized, validly
issued, fully paid, nonassessable and free of any pre-emptive or similar rights.
(d) Exchange Act Reports. The Company has duly filed with the
Securities and Exchange Commission (the "SEC") all reports, schedules, forms,
statements and other documents required to be filed by it under the Securities
Exchange Act of 1934 ("Exchange Act Reports") since January 1, 1998. As of their
respective dates, all such Exchange Act Reports filed by the Company since such
date complied in all material respects with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations of the SEC promulgated
thereunder applicable to such Exchange Act Reports, and none of such Exchange
Act Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(e) Binding Effect. This Debenture constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights generally and (ii) equitable principles that may limit the
availability of certain equitable remedies (such as specific performance) in
certain instances.
(f) Designees to the Board of Directors. As of the date of this
Debenture, all necessary and appropriate corporate, stockholder and other action
(including resignations) shall have been taken by the company and its
stockholders to effect an increase in the Board of Directors of the Company from
three (3) members to five (5) members, as of the date of this Debenture and
continuing through the date on which all principal and interest on this
Debenture has been fully repaid, all necessary and appropriate corporate,
stockholder and other action shall be taken to result in four of such five
members of the Board of Directors of the Company being designated by the
Holders.
(f) Warrants. The Company shall execute and deliver, on the date
hereof, a warrant agreement (the "Warrant Agreement"), a form of which is set
forth as Exhibit A hereto, providing for, among other things, the issuance to
Holders of warrants (the "Warrants") to purchase an aggregate of 12,000,000
shares of Company Common Stock as 4,800,000 shares for Bingo, Inc., and
7,200,000 shares for Redruth Ventures Inc. at an exercise price of $0.25 per
share. Such warrants shall be exercisable for three years from the date of this
Debenture.
The Company agrees that the foregoing representations, warranties and
covenants shall be continuing in nature and shall remain in full force and
effect until such time as this Debenture shall be paid in full. The Company
agrees to notify the Holders immediately of any breach by the Company of any
representation, warranty or agreement of the Company contained herein or should
any representation, warranty or agreement made herein become untrue or false at
any time. The Company further agrees to indemnify and hold the Holders harmless
against any breach by the Company of any representation, warranty or covenant of
the Company contained in this Debenture.
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Section 6. REGISTRATION RIGHTS
(a) At the Company's sole expense (except for underwriting discounts
and commissions) the Company agrees to take all reasonable actions (including
preparing and filing with the SEC a registration statement (the "Registration
Statement") on an annual basis and the prospectus forming a part thereof) as may
be necessary to have such registration statement declared effective by the SEC
at the earliest date practicable and to keep such registration statement
effective, and to comply with the provisions of the Securities Act of 1933 (the
"Securities Act") and all applicable rules and regulations promulgated
thereunder in order to permit the Holders during such period to resell or
otherwise dispose of all of their Registered Shares (as defined below), without
further registration of the Registered Shares under the Securities Act; provided
that, before filing any such amendment or supplement, the Company will furnish
the Holders with copies of all such documents proposed to be filed and will
consider in good faith any written comments or suggested changes thereto made by
counsel designated by the Holders. Without limiting the generality of the
foregoing, the Company shall amend or supplement the Registration Statement to
increase the number of shares subject to resale by the Holders thereunder in the
event that the number of Registered Shares exceeds the number disclosed
thereunder as being available for resale by the Holders. "Registered Shares"
means all shares of Company Common Stock acquired by the Holders pursuant to the
terms of this Debenture (1) exercise of the conversion option by the Holders
with respect to the principal of this Debenture, (2) the Company's election to
pay accrued interest in the form of shares of Company Common Stock or (3) upon
exercise of the Warrants.
(b) Following any resale by the Holders of Registered Shares pursuant
to the Registration Statement, the Holders shall notify the Company of the
number of Registered Shares sold and the date thereof. Nothing herein shall be
deemed to require the Holders to notify the Company of any sale of Registered
Shares pursuant to Rule 144 and Regulations promulgated under the Securities
Act, an exemption from the registration requirements of the Securities Act or
any other means (other than pursuant to the Registration Statement).
(c) The Company agrees to take all other reasonable steps to ensure
that the Holder's resale of Registered Shares under the Registration Statement
is effected in accordance with the Securities Act and the regulations
promulgated thereunder, including:
(i) promptly filing all Exchange Act Reports as may be
necessary to update the information relating to the Company included in
the Registration Statement;
(ii) promptly furnishing to the Holders such number of copies
of such Registration Statement, each amendment and supplement thereto,
the prospectus included in such Registration Statement and such other
documents as the Holders may reasonably request in order to facilitate
the disposition of Registered Shares;
(iii) using its reasonable efforts to register or qualify the
resales under state securities or "blue sky" laws and taking any and
all other acts that may be necessary or advisable to enable the Holders
to consummate such resales in such jurisdictions, provided however,
that the Company will not be required to qualify generally to do
business in any jurisdiction where it would not otherwise be required
to qualify but for this subparagraph or subject itself to taxation in
any such jurisdiction; notifying the Holders, at any time when a
prospectus relating thereto is required to be delivered by the Holders
under the Securities Act in connection with a resale of Registered
Shares, of the occurrence of any event as a result of which the
prospectus included in the Registration Statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of the Holders,
preparing a supplement or amendment to such prospectus or file an
Exchange Act Report so that, as thereafter delivered to the purchasers
of such stock, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make the
statements therein not misleading;
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(iv) otherwise using its reasonable commercial efforts to
comply with all applicable rules and regulations of the SEC; and
(v) in the event of the issuance of any stop order suspending
the effectiveness of the Registration Statement, or of any order
suspending or preventing the use of any related prospectus or
suspending the qualification of any Company Common Stock registered
under such Registration Statement for sale in any jurisdiction, using
its reasonable commercial efforts promptly to obtain the withdrawal of
such order.
Section 7. MERGER.
Notwithstanding any provision herein to the contrary, the Company shall
not consolidate or merge into or with any other person unless such person
expressly assumes all of the obligations of the Company under this Debenture.
Section 8. DEFAULT.
The following actions and/or inactions shall constitute events of
default under this Debenture:
(a) Default Under This Debenture. Should the Company (i) default in the
payment of any installment of principal or interest as and within five (5) days
of when due, (ii) default in the payment of any other amount due under this
Debenture as and when due or (iii) default in the performance of any other
covenant, condition or agreement (including a Holder's conversion option)
contained in this Debenture or the Warrant Agreements and such default shall
remain unremedied fifteen (15) days after the occurrence thereof.
(b) Default in Favor of Third Parties. Should the Company default under
any loan, extension of credit, security agreement, purchase or sales agreement
or any other agreement in favor of any other creditor or person that materially
impairs the ability of the Company to perform its obligations hereunder.
(c) Insolvency. Should the suspension, failure or insolvency, however
evidenced, of the Company occur or exist.
(d) Readjustment of Indebtedness. Should proceedings for readjustment
of indebtedness, reorganization, bankruptcy, composition or extension under any
insolvency law be brought by or against the Company, unless, if brought against
the Company, such proceedings are dismissed within sixty (60) days after the
filing thereof.
(e) Assignment for Benefit of Creditors. Should the Company file
proceedings for a respite from or make a general assignment for the benefit of
creditors.
(f) Receivership. Should a receiver of all or any material portion of
the property or assets of the Company be applied for or appointed.
(g) Dissolution Proceedings. Should proceedings for the dissolution or
appointment of a liquidator of the Company be commenced.
(h) False Statements. Should any representation, warranty or material
statement of the Company made in writing in connection with the obligations
evidenced by this Debenture prove to be incorrect or misleading in any material
respect when made.
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Section 9. HOLDERS' RIGHTS UPON DEFAULT.
Should any one or more events of default occur or exist under this
Debenture as provided above, the Holders shall have the right, at their sole
option, to formally declare this Debenture to be in default and to accelerate
the maturity and insist upon immediate payment in full in cash of the principal
balance then outstanding under this Debenture plus accrued interest, together
with reasonable attorney's fees, costs, expenses and other fees and charges as
provided herein.
Section 10. WAIVERS.
The Company hereby waives presentment for payment, protest, notice of
protest and notice of nonpayment. The Company agrees that the Holders acceptance
of payment other than in accordance with the terms of this Debenture, or the
Holders subsequent agreement to extend or modify such repayment terms, or the
Holder's failure or delay in exercising any rights or remedies granted to the
Holders, shall not have the effect of releasing the Company from its obligations
to the Holders. In addition, any failure or delay on the part of the Holders to
exercise any of the rights and remedies granted to the Holders shall not have
the effect of waiving any of the Holders' rights and remedies. Any partial
exercise of any rights and/or remedies granted to the Holders shall furthermore
not be construed as a waiver of any other rights and remedies, it being the
Company's intent and agreement that the Holders' rights and remedies shall be
cumulative in nature. The Company further agrees that, should any event of
default occur or exist under this Debenture, any waiver or forbearance on the
part of the Holders to pursue the rights and remedies available to the Holders
shall be binding upon the Holders only to the extent that the Holders
specifically agree to any such waiver or forbearance in writing. A waiver or
forbearance on the part of the Holders as to one event of default shall not be
construed as a waiver or forbearance as to any other event of default.
Section 11. ATTORNEYS' FEES.
If the Holders refer this Debenture to an attorney for collection, or
files suit against the Company to collect this Debenture, or if the Company
files for bankruptcy or other relief from creditors, the Company agrees to pay
the Holders' reasonable attorneys' fees. In addition, the Company shall
reimburse the Holders for all fees and expenses of the Holders' outside counsel
incurred in connection with the preparation, negotiation, execution and delivery
of this Debenture.
Section 12. NOTICES.
Any notice or demand which, by provision of this Debenture, is required
or permitted to be served by one party hereto to or on the other party hereto
shall be deemed to have been sufficiently given and served for all purposes (if
mailed) three (3) calendar days after being deposited, postage prepaid, in the
United States mail, registered or certified mail, or (if delivered by express
courier) one (1) business day after being delivered to such courier, or (if
delivered in person) the same day as delivery, in each case addressed (until
another address is given in writing by one party hereto to the other party
hereto) as follows:
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If to the Company:
Bingo.com, Inc.
Suite C200, 4223 Glencoe Avenue
Marina del Ray, California
90292
If to the Holders:
Redruth Ventures Inc.
3076 Francis Drake's Highway
P.O. Box 3463 Road Town, Tortola, BVI
Bingo, Inc.
The Hansa Bank Building
P.O. Box 727, Landsome Road
The Valley, Anguilla, B.W.I.
Section 13. GOVERNING LAW.
The Company agrees that this Debenture and the obligations evidenced
hereby shall be governed under the laws of the State of Florida.
Section 14. SUCCESSOR AND ASSIGNS LIABLE.
The Company's obligations and agreements under this Debenture shall be
binding upon the Company's successors and permitted assigns. The rights and
remedies granted to the Holders under this Debenture shall inure to the benefit
of the Holders' respective successors and assigns, as well as to any subsequent
holder or holders of this Debenture.
Section 15. CAPTION HEADINGS.
Caption headings of the sections of this Debenture are for convenience
purposes only and are not to be used to interpret or to define their provisions.
In this Debenture, whenever the context so requires, the singular includes the
plural and the plural also includes the singular.
Section 16. SEVERABILITY.
If any provision of this Debenture is held to be invalid, illegal or
unenforceable by any court, that provision shall be deleted from this Debenture
and the balance of this Debenture shall be interpreted as if the deleted
provision never existed.
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Section 17 RESTRICTIONS ON SECURITIES
The Holders acknowledge that this Debenture and the shares of the Company's
Common Stock issuable by the Company pursuant to the terms and conditions as set
out in this Debenture have not been registered under the Securities Act and are
being issued under Section 4(2) of the Act and Regulation S (Rule 901 through
Rule 905 and Preliminary Notes thereto) promulgated under the Securities Act,
and as such transfer is prohibited except in accordance with the provisions of
Regulation S (Rule 901 through Rule 905 and Preliminary Notes thereto), pursuant
to registration under the Securities Act, or pursuant to an available exemption
from registration; and that hedging transactions involving those securities may
not be conducted unless in compliance with the Securities Act.
IN WITNESS WHEREOF, the Company and the Holders have each duly executed
this as of the date first written above.
COMPANY:
BINGO.COM, INC.
By: /S/ Shane Murphy
---------------------------------------
Name: Shane Murphy
Title: President and CEO
HOLDERS:
BINGO, INC.
By: /S/ Donald Curtis
---------------------------------------
Name: Donald Curtis
Title: Director
REDRUTH VENTURES INC.
By: /S/ Mitch White
---------------------------------------
Name: Mitch White
Title: Officer
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