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: June 7, 2006
Original Conversion Price (subject to adjustment herein): $0.05
$378,000
ORIGINAL ISSUE DISCOUNT SELF-LIQUIDATING CONVERTIBLE DEBENTURE
DUE JUNE 7, 2008
THIS ORIGINAL ISSUE DISCOUNT SELF-LIQUIDATING CONVERTIBLE DEBENTURE is one
of a series of duly authorized and validly issued Original Issue Discount
Self-Liquidating Convertible Debentures of UC Hub Group Inc., a Nevada
corporation, having its principal place of business at 285 E. Warm Springs Road,
Las Vegas, NV 89119 (the "Company"), designated as its Original Issue Discount
-------
Self-Liquidating Convertible Debenture, due June 7, 2008 (this debenture, the
"Debenture" and collectively with the other such series of debentures, the
---------
"Debentures").
----------
FOR VALUE RECEIVED, the Company promises to pay to Crescent International
Ltd. or its registered assigns (the "Holder"), or shall have paid pursuant to
------
the terms hereunder, the principal sum of $378,000 by June 7, 2008, or such
earlier date as this Debenture is required or permitted to be repaid as provided
hereunder (the "Maturity Date"). 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:
"Alternate Consideration" shall have the meaning set forth in Section
------------------------
5(e).
1
"Bankruptcy Event" means any of the following events: (a) the Company
-----------------
or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of
Regulation S-X) thereof commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction relating to the Company or any Significant Subsidiary thereof;
(b) there is commenced against the Company or any Significant Subsidiary
thereof any such case or proceeding that is not dismissed within 60 days
after commencement; (c) the Company or any Significant Subsidiary thereof
is adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (d) the Company or any
Significant Subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property that is not
discharged or stayed within 60 calendar days after such appointment; (e)
the Company or any Significant Subsidiary thereof makes a general
assignment for the benefit of creditors; (f) the Company or any Significant
Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or (g)
the Company or any Significant Subsidiary thereof, by any act or failure to
act, expressly indicates its consent to, approval of or acquiescence in any
of the foregoing or takes any corporate or other action for the purpose of
effecting any of the foregoing.
"Base Conversion Price" shall have the meaning set forth in Section
-----------------------
5(b).
"Business Day" means any day except Saturday, Sunday, any day which
-------------
shall be a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by
law or other governmental action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
------
"Change of Control Transaction" means the occurrence after the date
--------------------------------
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 33% of the voting securities of the Company
(other than by means of conversion or exercise of the Debentures and the
Securities issued together with the Debentures), or (ii) the Company merges
into or consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such transaction,
the stockholders of the Company immediately prior to such transaction own
less than 66% of the aggregate voting power of the Company or the successor
entity of such transaction, or (iii) the Company sells or transfers all or
substantially all of its assets to another Person and the stockholders of
the Company immediately prior to such transaction own less than 66% of the
aggregate voting power of the acquiring entity immediately after the
transaction, or (iv) a replacement at one time or within a three year
period of more than one-half of the members of the Company's board of
directors which is not approved by a majority of
2
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.
"Closing Price" means on any particular date (a) the last reported
--------------
closing bid price per share of Common Stock on such date on the Trading
Market (as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)),
or (b) if there is no such price on such date, then the closing bid price
on the Trading Market on the date nearest preceding such date (as reported
by Bloomberg L.P. at 4:15 p.m. (New York City time)), or (c) if the Common
Stock is not then listed or quoted on the Trading Market 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) if the shares of Common Stock are not then
publicly traded the fair market value of a share of Common Stock as
determined by an appraiser selected in good faith by the Purchasers of a
majority in interest of the Shares then outstanding.
"Common Stock" means the common stock, par value $0.001 per share, of
-------------
the Company and stock of any other class of securities into which such
securities may hereafter be reclassified or changed into.
"Conversion Date" shall have the meaning set forth in Section 4(a).
----------------
"Conversion Price" shall have the meaning set forth in Section 4(b).
-----------------
"Conversion Shares" means, collectively, the shares of Common Stock
------------------
issuable upon conversion of this Debenture in accordance with the terms
hereof.
"Debenture Register" shall have the meaning set forth in Section 2(c).
------------------
"Dilutive Issuance" shall have the meaning set forth in Section 5(b).
------------------
"Dilutive Issuance Notice" shall have the meaning set forth in Section
------------------------
5(b).
"Effectiveness Period" shall have the meaning set forth in the
---------------------
Registration Rights Agreement.
"Equity Conditions" shall mean, 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
3
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 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 or Monthly Redemption,
the shares issuable upon conversion in full of the Optional Redemption
Amount or the Monthly Redemption Amount) to the Holder would not violate
the limitations set forth in Section 4(c)(i) 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 furnished 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).
"Late Fees" shall have the meaning set forth in Section 2(d).
----------
"Mandatory Default Amount" means the sum of (i) the greater of (A)
--------------------------
130% of the outstanding principal amount of this Debenture, plus all
liquidated damages and other amounts owed to the Holder in connection with
the Debenture, or (B) the outstanding principal amount of this Debenture,
plus all liquidated damages and other amounts owed to the Holder in
connection with the 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.
"Monthly Conversion Period" shall have the meaning set forth in
---------------------------
Section 6(b) hereof.
"Monthly Conversion Price" shall have the meaning set forth in Section
------------------------
6(b) hereof.
4
"Monthly Redemption" means the redemption of this Debenture pursuant
-------------------
to Section 6(b) hereof.
"Monthly Redemption Amount" means, as to a Monthly Redemption, the
---------------------------
sum of (i) $21,000 in principal amount of the Debenture and (ii) all
liquidated damages and other amounts owed to the Holder in connection with
the Debenture.
"Monthly Redemption Date" means the 1st of each month, commencing on
-------------------------
the first such date following the earlier of (a) 30 calendar days following
the Effective Date and (b) 180 calendar days following the Closing Date and
terminating upon the full redemption of this Debenture.
"Monthly Redemption Notice" shall have the meaning set forth in
---------------------------
Section 6(b) hereof.
"Monthly Redemption Period" shall have the meaning set forth in
---------------------------
Section 6(a) hereof.
"Monthly Redemption Share Amount" shall have the meaning set forth in
--------------------------------
Section 6(b) hereof.
"New York Courts" shall have the meaning set forth in Section 9(d).
-----------------
"Notice of Conversion" shall have the meaning set forth in Section
----------------------
4(a).
"Optional Redemption" shall have the meaning set forth in Section
--------------------
6(a).
"Optional Redemption Amount" means the sum of (i) 110% 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 and (b) lease obligations and purchase money
indebtedness of up to $500,000, in the aggregate,
5
incurred in connection with the acquisition of capital assets and lease
obligations with respect to newly acquired or leased assets.
"Permitted Lien" means the individual and collective reference to the
---------------
following: (a) Liens for taxes, assessments and other governmental charges
or levies not yet due or Liens for taxes, assessments and other
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith
judgment of the management of the Company) have been established in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Company's business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens, and other
similar Liens arising in the ordinary course of the Company's business, and
which (x) do not individually or in the aggregate materially detract from
the value of such property or assets or materially impair the use thereof
in the operation of the business of the Company and its consolidated
Subsidiaries or (y) are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing for the
foreseeable future the forfeiture or sale of the property or asset subject
to such Lien; and (c) Liens incurred in connection with Permitted
Indebtedness under clause (b) thereunder, provided that such Liens are not
secured by assets of the Company or its Subsidiaries other than the assets
so acquired or leased.
"Person" means an individual or corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Pre-Redemption Conversion Shares" shall have the meaning set forth
----------------------------------
in Section 6(a) hereof.
"Purchase Agreement" means the Securities Purchase Agreement among the
------------------
Company and the original Holders, dated as of June 6, 2006, as amended,
modified or supplemented from time to time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
-------------------------------
Agreement among the Company and the original Holders, dated as of the date
of the Purchase Agreement, 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 of the Holder, who shall be named 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.
6
"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 National
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.
Section 2. Interest.
--------- --------
a) No Payment of Interest. The Company shall not pay interest to
-----------------------
the Holder on this Debenture.
b) 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.
Section3. 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
7
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 (a "Conversion
----------
Date"). If no Conversion Date is specified in a Notice of Conversion, the
----
Conversion Date shall be the date that such Notice of Conversion is deemed
delivered hereunder. To effect conversions hereunder, the Holder shall not
be required to physically surrender this Debenture to the Company unless
the entire principal amount of this Debenture, plus all liquidated damages
and other amounts owed to the Holder in connection with the 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 $0.05 (subject to adjustment herein) (the
"Conversion Price").
-----------------
c) Conversion Limitations.
-----------------------
i. 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
8
(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)(i), 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)(i) 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)(i), 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 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
9
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)(i) 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)(i) 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)(i) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such limitation. The
limitations contained in this paragraph shall apply to a successor
holder of this Debenture.
d) Mechanics of Conversion.
-------------------------
i. Conversion Shares Issuable Upon Conversion of Principal
----------------------------------------------------------
Amount. The number of shares of Common Stock issuable upon a
------
conversion hereunder shall be determined by the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be
converted by (y) the Conversion Price.
ii. Delivery of Certificate Upon Conversion. Not later than 3
---------------------------------------
Trading Days after each Conversion Date (the "Share Delivery Date"),
-------------------
the Company shall deliver, or cause to be delivered, to the Holder (A)
a certificate or certificates representing the Conversion Shares
which, on or after the Effective Date, shall be free of restrictive
legends and trading restrictions (other than those which may then be
required by the Purchase Agreement) representing the number of shares
of Common Stock being acquired upon the conversion of this Debenture
and (B) a bank check in the amount of all liquidated damages and other
amounts owed to the Holder in connection with the 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,
10
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 Share Delivery 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 the Share Delivery
Date 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.
11
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) 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 such aggregate number of shares of the
Common Stock as shall (subject to the terms and conditions set forth
in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5) upon the conversion of the
outstanding principal amount of this Debenture. The Company covenants
that all shares of Common Stock that shall
12
be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable and, if the Registration Statement is
then effective under the Securities Act, shall be registered for
public sale in accordance with such Registration Statement.
vii. Fractional Shares. Upon a conversion hereunder the
------------------
Company shall not be required to issue stock certificates representing
fractions of shares of Common Stock, but may if otherwise permitted,
make a cash payment in respect of any final fraction of a share based
on the VWAP at such time. If the Company elects not, or is unable, to
make such a cash payment, the Holder shall be entitled to receive, in
lieu of the final fraction of a share, 1 whole share of Common Stock.
viii. Transfer Taxes. The issuance of certificates for
---------------
shares of the Common Stock on conversion of this Debenture shall be
made without charge to the Holder hereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery
of such certificates, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion
in a name other than that of the Holder of this Debenture so converted
and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such
tax has been paid.
Section 5. Certain Adjustments.
---------- --------------------
a) Stock Dividends and Stock Splits. If the Company, at any time
--------------------------------
while this Debenture is outstanding: (A) pays a stock dividend or otherwise
makes a distribution or 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 this Debenture); (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.
13
b) Subsequent Equity Sales. If the Company or any Subsidiary
-------------------------
thereof, as applicable, at any time while this Debenture is outstanding,
sells or grants any option to purchase or sells or grants any right to
reprice its securities, 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 the 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.
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.
14
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
15
debenture consistent with the foregoing provisions and evidencing the
Holder's right to convert such debenture into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this Section 5(e) and insuring that
this Debenture (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
f) Calculations. All calculations under this Section 5 shall be
------------
made to the nearest cent or the nearest 1/100th of a share, as the case may
be. For purposes of this Section 5, the number of shares of Common Stock
deemed to be issued and outstanding as of a given date shall be the sum of
the number of shares of Common Stock (excluding any treasury shares of the
Company) issued and outstanding.
g) Notice to the Holder.
-----------------------
i. Adjustment to Conversion Price. Whenever the Conversion
-------------------------------
Price is adjusted pursuant to any provision of this Section 5, the
Company shall promptly mail to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Company
issues a variable rate security, 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 or exercise price at which such securities may be converted
or exercised in the case of a Variable Rate Transaction (as defined in
the Purchase Agreement).
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
16
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. Optional Redemption; Monthly Redemption.
---------- ----------------------------------------
a) Optional Redemption at Election of Company. Subject to the
----------------------------------------------
provisions of this Section 6, at any time after the 12-month anniversary of
the Closing 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 Debentures for cash
in an amount equal to the Optional Redemption Amount on the 20th Trading
Day following the Optional Redemption Notice Date (such date, the "Optional
--------
Redemption Date" and such redemption, the "Optional Redemption"). The
---------------- -------------------
Optional Redemption Amount is payable in full on the Optional Redemption
Date. The Company may only effect an Optional Redemption if 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, each of the
Equity Conditions shall have been met. If any of the Equity Conditions
shall cease to be satisfied at any time during the 20 Trading Day period,
then the Holder may elect to nullify the Optional Redemption Notice by
notice to the Company within 3 Trading Days after the first day on which
any such Equity Condition has not been met (provided that if, by a
provision of the Transaction Documents, the Company is obligated to notify
the Holder of the non-existence of an Equity Condition, such notice period
shall be extended to the third Trading Day after proper notice from the
Company) in which case the Optional Redemption Notice shall be null and
void, ab initio. The Company covenants and agrees that it will honor all
-- ------
Notices of Conversion tendered from the time of delivery of the Optional
Redemption Notice through the date all amounts owing thereon are due and
paid in full.
b) Monthly Redemption. On each Monthly Redemption Date, the
-------------------
Company shall redeem the Monthly Redemption Amount (the "Monthly
-------
Redemption"). The Monthly Redemption Amount payable on each Monthly
----------
Redemption Date shall be paid in cash; provided, however, as to any Monthly
-------- -------
Redemption and upon 15 Trading Days' prior written irrevocable notice (the
"Monthly Redemption Notice" and the 15 Trading Day period immediately
---------------------------
following the Monthly Redemption Notice, the "Monthly Redemption Period"),
-------------------------
in lieu of a cash payment the Company may elect to pay all or part
17
of a Monthly Redemption Amount in Conversion Shares (such dollar amount to
be paid on a Monthly Redemption Date in Conversion Shares, the "Monthly
-------
Redemption Share Amount") based on a conversion price equal to the lesser
-------------------------
of (i) the then Conversion Price and (ii) 80% of the average of the VWAPs
for the 10 consecutive Trading Days ending on the Trading Day that is
immediately prior to the applicable Monthly Redemption Date (subject to
adjustment for any stock dividend, stock split, stock combination or other
similar event affecting the Common Stock during such 10 Trading Day period)
(the price calculated during the 10 Trading Day period immediately prior to
the Monthly Redemption Date, the "Monthly Conversion Price" and such 10
------------------------
Trading Day period, the "Monthly Conversion Period"); provided, further,
------------------------- -------- -------
that the Company may not pay the Monthly Redemption Amount in Conversion
Shares unless (y) from the date the Holder receives the duly delivered
Monthly Redemption Notice through and until the date such Monthly
Redemption is paid in full, the Equity Conditions have been satisfied
(unless waived in writing by the Holder) and (z) as to such Monthly
Redemption, prior to such Monthly Redemption Period (but not more than 5
Trading Days prior to the commencement of the Monthly Redemption Period),
the Company shall have delivered to the Holder's account with The
Depository Trust Company a number of shares of Common Stock to be applied
against such Monthly Redemption Share Amount equal to the quotient of (x)
the applicable Monthly Redemption Share Amount divided by (y) the then
Conversion Price (the "Pre-Redemption Conversion Shares"). The Holder may
--------------------------------
convert, pursuant to Section 4(a), any principal amount of this Debenture
subject to a Monthly Redemption at any time prior to the date that the
Monthly Redemption Amount is due and paid in full. Unless otherwise
indicated by the Holder in the applicable Notice of Conversion, any
principal amount of this Debenture converted during the applicable Monthly
Redemption Period until the date the Monthly Redemption Amount is paid in
full shall be first applied to the principal amount subject to the Monthly
Redemption Amount payable in cash and then to the Monthly Redemption Share
Amount. Any principal amount of this Debenture converted during the
applicable Monthly Redemption Period in excess of the Monthly Redemption
Amount shall be applied against the last principal amount of this Debenture
scheduled to be redeemed hereunder, in reverse time order from the Maturity
Date; provided, however, if any such conversion is applied against such
-------- -------
Monthly Redemption Amount, the Pre-Redemption Conversion Shares, if any
were issued in connection with such Monthly Redemption or were not already
applied to such conversions, shall be first applied against such
conversion. The Company covenants and agrees that it will honor all Notice
of Conversions tendered up until such amounts are paid in full. The
Company's determination to pay a Monthly Redemption in cash, shares of
Common Stock or a combination thereof shall be applied ratably to all of
the holders of the then outstanding Debentures based on their (or their
predecessor's) initial purchases of Debentures pursuant to the Purchase
Agreement. At any time the Company delivers a notice to the Holder of its
election to pay the Monthly Redemption Amount in shares of Common Stock,
the Company shall file a prospectus supplement pursuant to Rule 424
disclosing such election.
c) Redemption Procedure. The payment of cash or issuance of
---------------------
Common Stock, as applicable, pursuant to an Optional Redemption or Monthly
Redemption, as
18
applicable, shall be made on the Optional Redemption Date or the Monthly
Redemption Date. If any portion of the payment pursuant to an Optional
Redemption or Monthly Redemption shall not be paid by the Company by the
applicable due date, interest shall accrue thereon until such amount is
paid in full at an interest rate equal to the lesser of 18% per annum or
the maximum rate permitted by applicable law. Notwithstanding anything
herein contained to the contrary, if any portion of the Optional Redemption
Amount or Monthly Redemption Amount remains unpaid after such date, the
Holder may elect, by written notice to the Company given at any time
thereafter, to invalidate ab initio such Optional Redemption or Monthly
-- ------
Redemption and, with respect to the Company's failure to timely pay the
Optional Redemption Amount, the Company shall forfeit the right to exercise
such Optional Redemption for the remaining term of the Debenture.
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, 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) enter into any agreement with respect to any of the foregoing;
or
19
f) pay cash dividends or distributions on any equity securities of
the Company.
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 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
20
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 5 Trading Days;
viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction or shall agree to sell or
dispose of all or in excess of 33% of its assets in one transaction or
a series of related transactions (whether or not such sale would
constitute a Change of Control Transaction);
ix. a Registration Statement shall not have been declared
effective by the Commission on or prior to the 210th calendar day
after the Closing Date;
x. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), either (a) the effectiveness of the
Registration Statement lapses for any reason or (b) the Holder shall
not be permitted to resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Registration Statement for a
period of more than 20 consecutive Trading Days or 30 non-consecutive
Trading Days during any 12 month period; provided, however, that if
-------- -------
the Company is negotiating a merger, consolidation, acquisition or
sale of all or substantially all of its assets or a similar
transaction and, in the written opinion of counsel to the Company, the
Registration Statement would be required to be amended to include
information concerning such pending transaction(s) or the parties
thereto which information is not available or may not be publicly
disclosed at the time, the Company shall be permitted an additional 10
consecutive Trading Days during any 12 month period pursuant to this
Section 8(a)(x);
xi. the Company shall fail for any reason to deliver
certificates to a Holder prior to the fifth Trading Day after a
Conversion Date pursuant to Section 4(d) or the Company shall provide
at any time notice to the Holder, including by way of public
announcement, of the Company's intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof; or
xii. any monetary judgment, writ or similar final process
shall be entered or filed against the Company, any Subsidiary or any
of their respective property or other assets for more than $50,000,
and such judgment, writ or similar final process shall remain
unvacated, unbonded or unstayed for a period of 45 calendar days.
21
b) Remedies Upon Event of Default. If any Event of Default occurs,
------------------------------
the outstanding principal amount of this Debenture, plus 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, a late fee on this Debenture shall accrue
at a rate equal to the lesser of 18% per annum or the maximum rate
permitted under applicable law. Upon the payment in full of the Mandatory
Default Amount, the Holder shall promptly surrender this Debenture to or as
directed by the Company. In connection with such acceleration described
herein, the Holder need not provide, and the Company hereby waives, any
presentment, demand, protest or other notice of any kind, and the Holder
may immediately and without expiration of any grace period enforce any and
all of its rights and remedies hereunder and all other remedies available
to it under applicable law. Such acceleration may be rescinded and annulled
by Holder at any time prior to payment hereunder and the Holder shall have
all rights as a holder of the Debenture until such time, if any, as the
Holder receives full payment pursuant to this Section 8(b). No such
rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section 9. Miscellaneous.
---------- -------------
a) Notices. Any and all notices or other communications or
-------
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight
courier service, addressed to the Company, at the address set forth above,
facsimile number (818) 887-2686, ATTN: LARRY WILCOX 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
22
unconditional, to pay the principal of, liquidated damages and other
amounts owing, as applicable, on this Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed. This Debenture is a
direct debt obligation of the Company. This Debenture ranks pari passu with
---- -----
all other Debentures now or hereafter issued under the terms set forth
herein.
c) Lost or Mutilated Debenture. If this Debenture shall be
------------------------------
mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the principal amount of this
Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, reasonably satisfactory to the Company.
d) Governing Law. All questions concerning the construction,
--------------
validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflict of
laws thereof. Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the transactions contemplated by
any of the Transaction Documents (whether brought against a party hereto or
its respective Affiliates, directors, officers, shareholders, employees or
agents) shall be commenced in the state and federal courts sitting in the
City of New York, Borough of Manhattan (the "New York Courts"). Each party
---------------
hereto hereby irrevocably submits to the exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to
it under this Debenture and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in
any other manner permitted by applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any legal proceeding arising out of or
relating to this Debenture or the transactions contemplated hereby. If
either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys' fees
and other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.
e) Waiver. Any waiver by the Company or the Holder of a breach of
------
any provision of this Debenture shall not operate as or be construed to be
a waiver of any
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other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon
strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term
of this Debenture. Any waiver by the Company or the Holder must be in
writing.
f) Severability. If any provision of this Debenture is invalid,
------------
illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is inapplicable to any Person or circumstance,
it shall nevertheless remain applicable to all other Persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates the applicable law governing usury,
the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under applicable
law. The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
or other law which would prohibit or forgive the Company from paying all or
any portion of the principal of or interest on this Debenture as
contemplated herein, wherever enacted, now or at any time hereafter in
force, or which may affect the covenants or the performance of this
indenture, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or impeded the
execution of any power herein granted to the Holder, but will suffer and
permit the execution of every such as though no such law has been enacted.
g) Next Business Day. Whenever any payment or other obligation
-------------------
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience
--------
only, do not constitute a part of this Debenture and shall not be deemed to
limit or affect any of the provisions hereof.
i) Assumption. Any successor to the Company or any surviving
----------
entity in a Fundamental Transaction shall (i) assume, prior to such
Fundamental Transaction, all of the obligations of the Company under this
Debenture and the other Transaction Documents pursuant to written
agreements in form and substance satisfactory to the Holder (such approval
not to be unreasonably withheld or delayed) and (ii) issue to the Holder a
new debenture of such successor entity evidenced by a written instrument
substantially similar in form and substance to this Debenture, including,
without limitation, having a principal amount and interest rate equal to
the principal amount and the interest rate of this Debenture and having
similar ranking to this Debenture, which shall be satisfactory to the
Holder (any such approval not to be unreasonably withheld or delayed). The
provisions of this Section 9(i) shall apply similarly and equally to
successive Fundamental Transactions and shall be applied without regard to
any limitations of this Debenture.
24
*********************
25
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.
UC HUB GROUP, INC.
By:
-------------------------------
Name:
Title:
26
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Original Issue
Discount Self-Liquidating Convertible Debenture of UC Hub Group, Inc., a Nevada
corporation (the "Company"), due on June 7, 2008, into shares of common stock,
-------
par value $0.001 per share (the "Common Stock"), of the Company according to the
------------
conditions hereof, as of the date written below. If shares 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 determined in accordance with Section 13(d) of the Exchange Act,
specified under Section 4 of this Debenture.
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 Original Issue Discount Self-Liquidating Convertible Debentures due on June
7, 2008, in the aggregate principal amount of $378,000 issued by UC Hub Group,
Inc. This Conversion Schedule reflects conversions made under Section 4 of the
above referenced Debenture.
Dated:
- --------------------------------------------------------------------------------
Aggregate
Principal
Amount
Date of Conversion Amount of Remaining
(or for first entry, Conversion Subsequent to Company Attest
Original Issue Date) Conversion
(or original
Principal
Amount)
- --------------------- ------------------ ------------------- ----------------
- --------------------- ------------------ ------------------- ----------------
- --------------------- ------------------ ------------------- ----------------
- --------------------- ------------------ ------------------- ----------------
- --------------------- ------------------ ------------------- ----------------
- --------------------- ------------------ ------------------- ----------------
- --------------------- ------------------ ------------------- ----------------
- --------------------- ------------------ ------------------- ----------------
- --------------------- ------------------ ------------------- ----------------
- --------------------------------------------------------------------------------
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