EXHIBIT A
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES
Original Issue Date: October __, 2005
Original Conversion Price (subject to adjustment herein): $2.55
$
---------------
9% SECURED CONVERTIBLE DEBENTURE
DUE OCTOBER __, 2008
THIS SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized
and issued Secured Convertible Debentures of OneTravel Holdings, Inc., a
Delaware corporation, having a principal place of business at 5775 Peachtree
Dunwoody Road, Building G, Suite 300, Atlanta, GA 30346 (the "Company"),
designated as its 9% Secured Convertible Debenture, due October _, 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
________________________ or its registered assigns (the "Holder"), or shall have
paid pursuant to the terms hereunder, the principal sum of $_______________ by
October [__ , 2008, or such earlier date as this Debenture is required or
permitted to be repaid as provided hereunder (the "Maturity Date"), and to pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture in accordance with the provisions hereof.
This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
1
"Alternate Consideration" shall have the meaning set forth in
Section 5(d).
"Base Conversion Price" shall have the meaning set forth in Section
5(b).
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on
which banking institutions in the State of New York are authorized or
required by law or other government action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 40% of the voting securities of the Company, or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving
effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 60% of the aggregate voting power
of the Company or the successor entity of such transaction, or (iii) the
Company sells or transfers its assets, as an entirety or substantially as
an entirety, to another Person and the stockholders of the Company
immediately prior to such transaction own less than 60% of the aggregate
voting power of the acquiring entity immediately after the transaction, or
(iv) a replacement at one time or within a two year period of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving
as members of the board of directors on any date whose nomination to the
board of directors was approved by a majority of the members of the board
of directors who are members on the date hereof), or (v) the execution by
the Company of an agreement to which the Company is a party or by which it
is bound, providing for any of the events set forth above in (i) through
(iv).
"Common Stock" means the common stock, par value $0.04 per share, of
the Company and stock of any other class of securities into which such
securities may hereafter have been 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 the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with
the terms.
2
"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 given to such term in
the Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question, (i)
the Company shall have duly honored or cured all conversions and
redemptions scheduled to occur or occurring by virtue of one or more
Notice of Conversions of the Holder, if any, (ii) all liquidated damages
and other amounts owing to the Holder in respect of this Debenture shall
have been paid, (iii) there is an effective Registration Statement
pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares issuable pursuant to the
Transaction Documents or the Conversion Shares are available for resale
under Rule 144(k) (and the Company believes, in good faith, that such
effectiveness or availability, as the case may be, will continue
uninterrupted for the foreseeable future), (iv) the Common Stock is
trading on the Trading Market and all of the shares issuable pursuant to
the Transaction Documents are listed for trading on a 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 then
existing no Event of Default, and (vii) the issuance of the shares in
question to the Holder would not violate the limitations set forth in
Section 4(c).
"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(d).
"Interest Conversion Rate" means 93% of the lesser of (a) the
average of the 5 VWAPs immediately prior to the applicable Interest
Payment Date or (b) the average of the 5 VWAPs immediately prior to the
date the applicable interest payment shares are issued and delivered if
after the Interest Payment Date.
"Interest Conversion Shares" shall have the meaning set forth in
Section 2(a).
"Interest Notice Period" shall have the meaning set forth in Section
2(a).
"Interest Payment Date" shall have the meaning set forth in Section
2(a).
3
"Interest Share Amount" shall have the meaning set forth in Section
2(a).
"Late Fees" shall have the meaning set forth in Section 2(d).
"Mandatory Default Amount" shall equal the sum of (i) the greater
of: (A) 125% of the principal amount of this Debenture to be prepaid, plus
all accrued and unpaid interest thereon, or (B) the principal amount of
this Debenture to be prepaid, plus all other accrued and unpaid interest
hereon, divided by the Conversion Price on (x) the date the Mandatory
Default Amount is demanded or otherwise due or (y) the date the Mandatory
Default Amount is paid in full, whichever is less, multiplied by the VWAP
on (x) the date the Mandatory Default Amount is demanded or otherwise due
or (y) the date the Mandatory Default Amount is paid in full, whichever is
greater, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of this Debenture.
"New York Courts" shall have the meaning set forth in Section 9(d).
"Notice of Conversion" shall have the meaning set forth in Section
4(a).
"Optional Redemption" shall have the meaning set forth in Section
6(a).
"Optional Redemption Amount" shall mean the sum of (i) 125% of the
principal amount of the Debenture then outstanding, (ii) accrued but
unpaid interest and (iii) all liquidated damages and other amounts due in
respect of the Debenture.
"Optional Redemption Date" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Notice" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Notice Date" shall have the meaning set forth
in Section 6(a).
"Original Issue Date" shall mean the date of the first issuance of
the Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Permitted Indebtedness" shall mean (a) the Indebtedness existing on
the Original Issue Date and set forth on Schedule 3.1(aa) attached to the
Purchase Agreement, (b) Indebtedness consisting of the Obligations, (c)
Indebtedness incurred by the Company or the Subsidiaries that does not
mature or require payments of principal prior to the Maturity Date and is
made expressly subordinate in right of payment to the Indebtedness
evidenced by this Debenture, as reflected in a written agreement
reasonably acceptable to the Holder and approved by the Holder in writing,
(d) Indebtedness consisting of reimbursement and other obligations,
contingent or otherwise, under letters of credit, in an amount not to
exceed $1 million more than that set forth therefor on Schedule 3.1(aa)
attached to the Purchase Agreement, and (e) capital lease obligations and
purchase money Indebtedness incurred in connection with the acquisition of
capital assets and lease obligations with respect to newly acquired or
leased assets, in an amount not to exceed $2,000,000 more than that set
forth therefor on Schedule 3.1(aa) attached to the Purchase Agreement.
4
"Permitted Lien" shall mean 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 business, such as carriers', warehousemen's and
mechanics' Liens, statutory landlords' Liens, and other similar Liens
(including in connection with workers' compensation and unemployment
insurance) arising in the ordinary course of business, and (x) which 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 the Subsidiary Guarantors or
(y) which are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale of
the property or asset subject to such Lien, (c) Liens incurred in
connection with Permitted Indebtedness under clause (e) thereunder
provided that such Liens are not secured by assets of the Company or the
Subsidiary Guarantors other than the assets so acquired or leased, (d)
Liens in favor of the holders of the Debentures, created under the
Security Documents, (e) Liens in favor of the holders of the Seller Notes
created under the Seller Note Documents as they exist on the Original
Issue Date, (f) Liens in favor of the holder of the Farequest Note created
under the Farequest Note Documents as they exist on the Original Issue
Date, (g) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
social security legislation or to secure the performance of tenders,
statutory obligations, surety, stay, customs and appeals bonds, bids,
leases, governmental contracts, trade contracts, performance and return of
money bonds and other similar obligations (exclusive of obligations for
the payment of borrowed money) or to secure liability to insurance
carriers, (h) Liens consisting of judgment or judicial attachment liens,
provided that the enforcement of such Liens is effectively stayed and all
such Liens secure claims in the aggregate at any time outstanding for the
Company and its Subsidiaries do not exceed $150,000, (i) easements,
rights-of-way, zoning and other restrictions, minor defects or other
irregularities in title, and other similar encumbrances incurred in the
ordinary course of business which, in the aggregate, do not in any case
interfere in any material respect with the ordinary conduct of the
businesses of the Company, (j) Liens arising from precautionary UCC
financing statements filed under any lease permitted by the Transaction
Documents, (k) Liens arising from travel agency regulations relating to
customer funds, and (l) Liens set forth on Schedule 3.1 (aa) attached to
the Purchase Agreement.
5
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of October ___, 2005 to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering
among other things the resale of the Conversion Shares and naming the
Holder as a "selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"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 Nasdaq SmallCap Market, the American Stock Exchange, the New York
Stock Exchange or the Nasdaq National Market.
"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 as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:00 p.m. Eastern Time or such other time as the Trading Market
publicly announces as the official closing time of the Trading Market);
(b) if the Common Stock is not then listed or quoted on a Trading Market
and if prices for the Common Stock are then quoted on the OTC Bulletin
Board, 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 listed or quoted on the OTC Bulletin Board and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the 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.
6
Section 2. Interest.
a) Payment of Interest in Cash or Kind. The Company shall pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture at the rate of 9% per annum, payable
semi-annually on January 1 and July 1, beginning on the first such date
after the Original Issue Date, on each Optional Redemption Date (as to
that principal amount being redeemed), on each Conversion Date (as to that
principal amount being converted) and on the Maturity Date (except that,
if any such date is not a Business Day, then such payment shall be due on
the next succeeding Business Day) (each such date, an "Interest Payment
Date"), payable in cash or in shares of Common Stock valued at the
Interest Conversion Rate, or a combination thereof (the amount to be paid
in shares, the "Interest Share Amount"); provided, however, (i) payment in
shares of Common Stock may only occur if during the 20 Trading Days
immediately prior to the applicable Interest Payment Date (the "Interest
Notice Period") and through and including the date such shares of Common
Stock are issued to the Holder all of the Equity Conditions, unless waived
by the Holder in writing, have been met and the Company shall have given
the Holder notice in accordance with the notice requirements set forth
below (ii) Shareholder Approval shall have been obtained and deemed
effective and (iii) as to such Interest Payment Date, prior to the such
Interest Notice Period (but not more 5 Trading Days prior to the
commencement of the Interest Notice Period), the Company shall have
delivered to the Holder's account with The Depository Trust Company a
number of shares of Common Stock to be applied against such Interest Share
Amount equal to the quotient of (x) the applicable Interest Share Amount
divided by (y) the average of the 5 consecutive VWAPs immediately prior to
the 25 Trading Days immediately prior to the applicable Interest Payment
Date (the "Interest Conversion Shares").
b) Company's Election to Pay Interest in Kind. Subject to the terms
and conditions herein, the decision whether to pay interest hereunder in
shares of Common Stock or cash shall be at the discretion of the Company.
Prior to the commencement of an Interest Notice Period, the Company shall
provide the Holder with written notice of its election to pay interest
hereunder on the applicable Interest Payment Date either in cash, shares
of Common Stock or a combination thereof (the Company may indicate in such
notice that the election contained in such notice shall continue for later
periods until revised) and the Interest Share Amount as to the applicable
Interest Payment Date. During any Interest Notice Period, the Company's
election (whether specific to an Interest Payment Date or continuous)
shall be irrevocable as to such Interest Payment Date. Subject to the
aforementioned conditions, failure to timely provide such written notice
shall be deemed an election by the Company to pay the interest on such
Interest Payment Date in cash. At any time the Company delivers a notice
to the Holder of its election to pay the interest in shares of Common
Stock, the Company shall file a prospectus supplement pursuant to Rule 424
disclosing such election. The aggregate number of shares of Common Stock
otherwise issuable to the Holder on an Interest Payment Date shall be
reduced by the number of Interest Conversion Shares previously issued to
the Holder in connection with such Interest Payment Date.
7
c) Interest Calculations. Interest shall be calculated on the basis
of a 360-day year and shall accrue daily commencing on the Original Issue
Date until payment in full of the principal sum, together with all accrued
and unpaid interest and other amounts which may become due hereunder, has
been made. Payment of interest in shares of Common Stock (other than the
Interest Conversion Shares issued prior to an Interest Notice Period)
shall otherwise occur pursuant to Section 4(d)(ii) and only for purposes
of the payment of interest in shares, the Interest Payment Date shall be
deemed the Conversion Date. Interest shall cease to accrue with respect to
any principal amount converted, provided that the Company in fact delivers
the Conversion Shares within the time period required by Section 4(d)(ii).
Interest hereunder will be paid to the Person in whose name this Debenture
is registered on the records of the Company regarding registration and
transfers of this Debenture (the "Debenture Register"). Except as
otherwise provided herein, if at any time the Company pays interest
partially in cash and partially in shares of Common Stock to the holders
of the Debentures, then such payment shall be distributed ratably among
the holders of the Debentures based on their (or their predecessor's)
initial purchases of Debentures pursuant to the Purchase Agreement
(adjusted proportionally in the event any Debentures are no longer
outstanding.
d) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 18% per annum (or such
lower maximum amount of interest permitted to be charged under applicable
law) ("Late Fees") which will accrue daily, from the date such interest is
due hereunder through and including the date of payment. Notwithstanding
anything to the contrary contained herein, if on any Interest Payment Date
the Company has elected to pay interest in Common Stock and is not able to
pay accrued interest in the form of Common Stock because it does not then
satisfy the conditions for payment in the form of Common Stock set forth
above, then, at the option of the Holder, the Company, in lieu of
delivering either shares of Common Stock pursuant to this Section 2 or
paying the regularly scheduled cash interest payment, shall deliver,
within three Trading Days of each applicable Interest Payment Date, an
amount in cash equal to the product of the number of shares of Common
Stock otherwise deliverable to the Holder in connection with the payment
of interest due on such Interest Payment Date and the highest VWAP during
the period commencing on the Interest Payment Date and ending on the
Trading Day prior to the date such payment is made. If any Interest
Conversion Shares are issued to the Holder in connection with an Interest
Payment Date and are not applied against an Interest Share Amount, then
the Holder shall promptly return such excess shares to the Company.
e) Prepayment. Except as otherwise set forth in this Debenture,
including, without limitation, in Section 6 hereof, the Company may not
prepay any portion of the principal amount of this Debenture without the
prior written consent of the Holder.
8
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No
service charge will be made for such registration of transfer or exchange.
b) Investment Representations. This Debenture has been issued
subject to certain investment representations of the original Holder set
forth in the Purchase Agreement and may be transferred or exchanged only
in compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment to the
Company for transfer 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 into shares of Common Stock at the option of the Holder, in
whole or in part at any time and from time to time (subject to the
limitations on conversion set forth in Section 4(c) hereof). The Holder
shall effect conversions by delivering to the Company the form of Notice
of Conversion 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 is to 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
provided hereunder. To effect conversions hereunder, the Holder shall not
be required to physically surrender this Debenture to the Company unless
the entire principal amount of this Debenture plus all accrued and unpaid
interest thereon has been so converted. Conversions hereunder shall have
the effect of lowering the outstanding principal amount of this Debenture
in an amount equal to the applicable conversion. The Holder and the
Company shall maintain records showing the principal amount converted and
the date of such conversions. The Company shall deliver any objection to
any Notice of Conversion within 1 Business Day of receipt of such notice.
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 $2.55 (subject to adjustment herein)(the
"Conversion Price").
9
c) Holder's Restriction on Conversion. The Company shall not effect
any conversion of this Debenture, and the Holder shall not have the right
to convert any portion of this Debenture, pursuant to Section 4(a) or
otherwise, to the extent that after giving effect to such conversion, the
Holder (together with the Holder's Affiliates), as set forth on the
applicable Notice of Conversion, would beneficially own in excess of 4.99%
of the number of shares of the Common Stock outstanding immediately after
giving effect to such conversion. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and
its Affiliates shall include the number of shares of Common Stock issuable
upon conversion of this Debenture with respect to which the determination
of such sentence is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (A) conversion of the remaining,
nonconverted portion of this Debenture beneficially owned by the Holder or
any of its Affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including,
without limitation, any other Debentures or the Warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its Affiliates. Except
as set forth in the preceding sentence, for purposes of this Section 4(c),
beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder.
To the extent that the limitation contained in this section applies, the
determination of whether this Debenture is convertible (in relation to
other securities owned by the Holder) and of which a portion of this
Debenture is convertible shall be in the sole discretion of such Holder.
To ensure compliance with this restriction, the Holder will be deemed to
represent to the Company each time it delivers a Notice of Conversion that
such Notice of Conversion has not violated the restrictions set forth in
this paragraph and the Company shall have no obligation to verify or
confirm the accuracy of such determination. In addition, a determination
as to any group status as contemplated above shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 4(c), in
determining the number of outstanding shares of Common Stock, the Holder
may rely on the number of outstanding shares of Common Stock as reflected
in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may
be, (y) a more recent public announcement by the Company or (z) any other
notice in writing or by e-mail by the Company or the Company's Transfer
Agent setting forth the number of shares of Common Stock outstanding. Upon
the written or oral request of the Holder, the Company shall within two
Trading Days confirm orally and in writing or by e-mail to the 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 the Holder or its Affiliates since the date
as of which such number of outstanding shares of Common Stock was
reported. The provisions of this paragraph shall be implemented in a
manner otherwise than in strict conformity with the terms of this Section
4(c) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended 4.99% beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such 4.99% limitation. The
limitations contained in this paragraph shall apply to a successor holder
of this Debenture.
10
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
three Trading Days after any Conversion Date, the Company will
deliver or cause to be delivered to the Holder (A) a certificate or
certificates representing the Conversion Shares which shall be free
of restrictive legends and trading restrictions (other than those
required by the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of this
Debenture (including, if the Company has given continuous notice
pursuant to Section 2(b) for payment of interest in shares of Common
Stock at least 20 Trading Days prior to the date on which the
Conversion Notice is delivered to the Company, shares of Common
Stock representing the payment of accrued interest otherwise
determined pursuant to Section 2(a) but assuming that the Interest
Notice Period is the 20 Trading Days period immediately prior to the
date on which the Conversion Notice is delivered to the Company and
excluding for such issuance the condition that the Company deliver
Interest Conversion Shares as to such interest payment) and (B) the
amount of accrued and unpaid interest (if the Company is required to
pay accrued interest in cash). The Company shall, if available and
if allowed under applicable securities laws, use its commercially
best efforts to deliver any certificate or certificates required to
be delivered by the Company under this Section electronically
through the Depository Trust Corporation 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 a Conversion Date, the Holder shall be entitled by
written notice to the Company at any time on or before its receipt
of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the
certificates representing the principal amount of this Debenture
tendered for conversion.
11
iv. Obligation Absolute; Partial Liquidated Damages. If the
Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 4(d)(ii) by the
third Trading Day after the Conversion Date, the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty,
for each $1000 of principal amount being converted, $5 per Trading
Day (increasing to $10 per Trading Day after 5 Trading Days after
such damages begin to accrue) for each Trading Day after such third
Trading Day until such certificates are delivered. 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 (subject to the terms and provisions of
the other Transaction Documents), 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, 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 any one 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, 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 principal amount of this Debenture outstanding, which is
subject to the injunction, which bond shall remain in effect until
the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Holder to the extent it
obtains judgment. In the absence of an injunction precluding the
same, the Company shall issue Conversion Shares or, if applicable,
cash, upon a properly noticed conversion. Nothing herein shall limit
a Holder's right to pursue actual damages or declare an Event of
Default pursuant to Section 8 herein 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 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.
12
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 pursuant to
Section 4(d)(ii) by the third Trading Day after the Conversion Date,
and if after such third Trading Day the Holder is required by its
brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which the Holder anticipated
receiving upon such conversion (a "Buy-In"), then the Company shall
(A) pay in cash to the Holder (in addition to any remedies available
to or elected by the Holder) the amount by which (x) the Holder's
total purchase price (including brokerage commissions, if any) for
the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2)
the actual sale price of the Common Stock at the time of the sale
(including brokerage commissions, if any) giving rise to such
purchase obligation and (B) at the option of the Holder, either
reissue (if surrendered, or cancel the Conversion Notice so as to in
effect reissue) 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 had the Company 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 at the time of the sale (including brokerage
commissions, if any) 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 together with
applicable confirmation and other evidence reasonably requested by
the Company.
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
solely for the purpose of issuance upon conversion of this Debenture
and payment of interest on this Debenture, each as herein provided,
free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (and the other holders of
the Debentures), not less than such number of shares of the Common
Stock as shall (subject to the terms and conditions set forth in the
Purchase Agreement) be issuable (taking into account the adjustments
and restrictions of Section 5) upon the conversion of the
outstanding principal amount of this Debenture and payment of
interest hereunder. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and, if the
Registration Statement is then effective under the Securities Act,
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 the 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, one whole share of Common Stock.
13
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 certificate, 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 on shares of its Common
Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include
any shares of Common Stock issued by the Company pursuant to this
Debenture, including as interest thereon), (B) subdivides outstanding
shares of Common Stock into a larger number of shares, (C) combines
(including by way of reverse stock split) outstanding shares of Common
Stock into a smaller number of shares, or (D) issues by 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
treasury shares, if any) outstanding immediately before such event and of
which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary, as
applicable, at any time while this Debenture is outstanding, shall sell,
publicly offer, grant any option to purchase or publicly offer, sell or
grant any right to reprice its securities, or otherwise dispose of or
issue any Common Stock or Common Stock Equivalents entitling any Person to
acquire shares of Common Stock, at an effective price per share less than
the then Conversion Price (such lower price, the "Base Conversion Price"
and such issuances collectively, a "Dilutive Issuance"), as adjusted
hereunder (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
is issued in connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share which is less 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,
provided, however, prior to the date the Company obtains Shareholder
Approval in accordance with the rules and regulations of the Trading
Market, in no event shall the Conversion Price be adjusted under this
Section 5(b) to less than $_____(1), subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of this
Debenture. 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 or in respect of shares of Common Stock issued in a firm
commitment underwritten public offering with a nationally recognized and
reputable investment bank with gross proceeds of at least $10,000,000. 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, indicating therein the applicable issuance price,
or of 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, after the date of such Dilutive Issuance the Holder is entitled
to receive a number of Conversion Shares based upon the Base Conversion
Price regardless of whether the Holder accurately refers to the Base
Conversion Price in the Notice of Conversion.
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(1) The closing price of the Common Stock on the Trading Day immediately prior
to the date of the Purchase Agreement.
14
c) Pro Rata Distributions. If the Company, at any time while this
Debenture is outstanding, shall distribute to all holders of Common Stock
(and not to the holders of the Debenture) evidences of its indebtedness or
assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security, 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 one outstanding share of the Common Stock as determined by
the Board of Directors in good faith. In either case the adjustments shall
be described in a statement provided to the Holder of the portion of
assets or evidences of indebtedness so distributed or such subscription
rights applicable to one 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.
d) 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 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 one
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 one share of
Common Stock in such Fundamental Transaction, and the Company shall
apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different
components of the Alternate Consideration. If holders of Common Stock are
given any choice as to the securities, cash or property to be received in
a Fundamental Transaction, then the Holder shall be given the same choice
as to the Alternate Consideration it receives upon any conversion of this
Debenture following such Fundamental Transaction. To the extent necessary
to effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder
a new debenture consistent with the foregoing provisions and evidencing
the Holder's right to convert such debenture into Alternate Consideration.
The terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this paragraph (d) and insuring
that this Debenture (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
15
e) 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 treasury shares, if any)
issued and outstanding.
f) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion
Price is adjusted pursuant to any 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).
16
ii. Notice to Allow Conversion by Holder. If (A) the Company
shall declare a dividend (or any other distribution) 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
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; (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
mailed to the Holder at its last addresses as it shall appear upon
the stock books of the Company, at least 10 calendar days prior to
the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected
to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided, that the failure to mail such notice or any
defect therein or in the mailing 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
10-day period commencing the date of such notice to the effective
date of the event triggering such notice.
Section 6. Redemption.
a) Optional Redemption at Election of Company. Subject to the
provisions of this Section 6, at any time after the Effective Date, the
Company may deliver a notice to the Holder (an "Optional Redemption
Notice" and the date such notice is deemed delivered hereunder, the
"Optional Redemption Notice Date") of its irrevocable election to redeem
some or all of the then outstanding Debentures, for an amount, in cash,
equal to the Optional Redemption Amount on (i) the 20th Trading Day
following the Optional Redemption Notice Date, or (ii) the date of the
closing date of a Fundamental Transaction so long as such closing date is
no less than 20 Trading Days and no more than 30 Trading Days following
the Optional Redemption Notice Date (such date, the "Optional Redemption
Date" and such redemption, the "Optional Redemption"). The Optional
Redemption Amount is due in full on the Optional Redemption Date. Other
than in connection with an Optional Redemption of all of the then
outstanding Debentures occurring immediately prior to or concurrently with
the consummation of a Fundamental Transaction, the Company may only effect
an Optional Redemption if during the period commencing on the Optional
Redemption Notice Date through to the Optional Redemption Date and through
and including the date such shares of Common Stock are issued to the
Holder, 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
required 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.
17
b) Holder Redemption Right. Upon notice from the Company of, or the
public announcement of, the occurrence of a Change of Control Transaction
or a Fundamental Transaction, the Holder shall have the right to deliver a
notice to the Company (a "Holder Redemption Notice" and the date such
notice is deemed delivered hereunder, the "Holder Redemption Notice Date")
of its irrevocable election to cause the Company to redeem some or all of
the then outstanding principal amount of this Debenture for an amount, in
cash, equal to (i) 125% of the principal amount of this Debenture then
outstanding, (ii) accrued but unpaid interest and (iii) all liquidated
damages and other amounts due in respect of this Debenture (the "Holder
Redemption" and such amount the "Holder Redemption Amount"). The Holder
Redemption Notice may be delivered any time after such notice or
announcement until the 10th Trading Day prior to the consummation of the
Fundamental Transaction or Change of Control Transaction provided that the
Holder is given 30 Trading Days' prior written notice from the Company of
the consummation of such transaction. The Holder Redemption Amount is due
and payable on, and contingent upon, the closing or occurrence of the
Fundamental Transaction or the Change of Control Transaction, provided
that for a Change of Control Transaction pursuant to clause (v) therein,
such payment shall be contingent upon, and occur on, the closing of the
applicable agreement.
c) Redemption Procedure. The payment of cash pursuant to an Optional
Redemption shall be made on the Optional Redemption Date. If any portion
of the cash payment for an Optional Redemption or Holder Redemption shall
not be paid by the Company by the respective due date, interest shall
accrue thereon at the rate of 18% per annum (or the maximum rate permitted
by applicable law, whichever is less) until the payment of the Optional
Redemption Amount or Holder Redemption Amount, plus all amounts owing
thereon is paid in full. Alternatively, if any portion of the Optional
Redemption Amount or Holder Redemption Amount remains unpaid after such
date, the Holders subject to such redemption may elect, by written notice
to the Company given at any time thereafter, to invalidate ab initio such
redemption, notwithstanding anything herein contained to the contrary,
provided such Holders repay that portion of the Optional Redemption Amount
or Holder Redemption Amount previously paid, if any, with respect to such
invalidated Optional Redemption concurrently with delivery of such notice,
the Company shall have no further right to exercise such Optional
Redemption. Notwithstanding anything to the contrary in this Section 6,
the Company's determination to redeem in cash pursuant to an Optional
Redemption shall be applied among the Holders of Debentures ratably (based
on the original principal amount purchased pursuant to the Purchase
Agreement) adjusted proportionally in the event any Debentures are no
longer outstanding. 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 fax delivery of
a Notice of Conversion to the Company.
18
Section 7. Negative Covenants. So long as any portion of the Indebtedness
existing under this Debenture is outstanding, the Company will not and will not
permit any of the Subsidiary Guarantors to directly or indirectly, except as may
be waived or consented to in writing by the holders of at least 66% of the then
outstanding principal amount of the Debentures:
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 certificate of incorporation, bylaws or other charter
documents so as to materially and adversely affect 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 (i) the Seller Notes, (ii) as to the
Conversion Shares to the extent permitted or required under the
Transaction Documents or as otherwise permitted by the Transaction
Documents or (iii) as to repurchases of shares of Common Stock or other
equity securities of departing officers and directors of the Company;
provided such repurchases shall not exceed $100,000, in the aggregate, for
all officers and directors during the term of this Debenture or (iv) as
otherwise permitted by the Transaction Documents;
19
e) enter into any agreement with respect to any of the foregoing; or
f) pay cash dividends or distributions on any equity securities of
the Company, other than cash dividends or distributions by a Subsidiary to
the Company.
Section 8. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
i. any default in the payment of (A) the principal amount of
any Debenture, or (B) interest (including Late Fees) on, or
liquidated damages in respect of, any Debenture, as and when the
same shall become due and payable (whether on a Conversion Date or
the Maturity Date or by acceleration or otherwise) which default,
solely in the case of an interest payment or other default under
clause (B) above, is not cured, within 3 Trading Days;
ii. the Company shall materially fail to observe or perform in
any material respect any other covenant or agreement contained in
this Debenture or any other Debenture (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 or failure to obtain Shareholder Approval) which failure has
had or could reasonably be expected to have a Material Adverse
Effect and is not cured, if possible to cure, within the earlier to
occur of (A) 5 Trading Days after notice of such default sent by the
Holder or by any other Holder and (B) 10 Trading Days after the
Company shall become aware of such failure.
iii. a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents,
which default or event of default is not cured within 30 days. or
(B) any other material agreement, lease, document or instrument to
which the Company or any Subsidiary Guarantor is bound which default
or event of default materially restricts the ability of the Company
or either of the Subsidiary Guarantors to operate their respective
business thereof in the ordinary course;
iv. any representation or warranty made herein, in any other
Transaction Documents, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate
made or delivered to the Holder or any other holder of Debentures
shall be untrue or incorrect in any material respect as of the date
when made or deemed made;
20
v. (i) the Company or any Subsidiary Guarantor shall commence
a case, as debtor, a case under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor
thereto, or the Company or any Subsidiary Guarantor commences any
other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation
or similar law of any jurisdiction whether now or hereafter in
effect relating to the Company or any Subsidiary Guarantor or (ii)
there is commenced a case against the Company or any Subsidiary
Guarantor, under any applicable bankruptcy or insolvency laws, as
now or hereafter in effect or any successor thereto which remains
undismissed for a period of 60 days; or (iii) the Company or any
Subsidiary Guarantor is adjudicated by a court of competent
jurisdiction insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or (iv) the
Company or any Subsidiary Guarantor suffers any appointment of any
custodian or the like for it or any substantial part of its property
which continues undischarged or unstayed for a period of 60 days; or
(v) the Company or any Subsidiary Guarantor makes a general
assignment for the benefit of creditors; or (vi) the Company shall
fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or (vii) the
Company or any Subsidiary Guarantor shall call a meeting of its
creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (viii) the Company or any Subsidiary
Guarantor shall by any act or failure to act expressly indicate its
consent to, approval of or acquiescence in any of the foregoing; or
(ix) any corporate or other action is taken by the Company or any
Subsidiary Guarantor for the purpose of effecting any of the
foregoing;
vi. the Company or any Subsidiary Guarantor shall default in
any of its obligations under any mortgage, credit agreement or other
borrowing facility, indenture agreement, factoring agreement or
other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness for borrowed money or
money due under any long term leasing or factoring arrangement of
the Company in an amount exceeding $500,000, whether such
indebtedness now exists or shall hereafter be created and such
default shall result 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 quotation on
or quoted for trading on a Trading Market and shall not again be
eligible for and quoted or listed for trading thereon within five
Trading Days;
viii. shall agree to sell or dispose of all or in excess of
33% of its assets (other than FS SunTours, Inc.) in one or more
transactions (whether or not such sale would constitute a Change of
Control Transaction) or the Company shall redeem or repurchase more
than a de minimis number of its outstanding shares of Common Stock
or other equity securities of the Company (other than redemptions of
Conversion Shares and repurchases of shares of Common Stock or other
equity securities of departing officers and directors of the
Company; provided such repurchases shall not exceed $100,000, in the
aggregate, for all officers and directors during the term of this
Debenture);
21
ix. a Registration Statement shall not have been declared
effective by the Commission on or prior to the 240th calendar day
after the Closing Date;
x. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the
Registration Statement lapses for any reason or the Holder shall not
be permitted to resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Registration Statement, in
either case, for more than 60 consecutive Trading Days or 90
non-consecutive Trading Days during any 12 month period; provided,
however, that in the event that 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 opinion of counsel to
the Company, the Registration Statement, would be required to be
amended to include information concerning such transactions or the
parties thereto that 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 relating to
such an event; or
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 and in accordance with Section 4(d) or
the Company shall provide notice to the Holder, including by way of
public announcement, at any time, of its intention not to comply
with requests for conversions of any Debentures in accordance with
the terms hereof.
b) Remedies Upon Event of Default. If any Event of Default occurs,
the full principal amount of this Debenture, together with interest and
other amounts owing in respect thereof, to the date of acceleration shall
become, at the Holder's election, immediately due and payable in cash. The
aggregate amount payable upon an Event of Default shall be equal to the
Mandatory Default Amount. Commencing 5 days after the occurrence of any
Event of Default that results in the eventual acceleration of this
Debenture, the interest rate on this Debenture shall accrue at the rate of
18% per annum, or such lower maximum amount of interest permitted to be
charged under applicable law. Upon the payment in full of the Mandatory
Default Amount on this entire Debenture the Holder shall promptly
surrender this Debenture to or as directed by the Company. 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 upon the
expiration of any applicable grace period enforce any and all of its
rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder
at any time prior to payment hereunder and the Holder shall have all
rights as a Debenture holder until such time, if any, as the full payment
under this Section shall have been received by it. No such rescission or
annulment shall affect any subsequent Event of Default or impair any right
consequent thereon.
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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 (404) 943-1094, Attn: President, or such other address or
facsimile number as the Company may specify for such purposes by notice to
the Holder delivered in accordance with this Section. 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 telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone
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 telephone number specified in this Section prior to 5:30
p.m. (New York City time), (ii) the date after the date of transmission,
if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 5:30 p.m.
(New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) the second Business Day following the date
of mailing, if sent by nationally recognized overnight courier service, or
(iv) if sent other than by facsimile or courier, upon actual receipt by
the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional (subject to the terms of the
Transaction Documents), to pay the principal of, interest and liquidated
damages (if any) 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 by the Company under the terms set
forth herein and is subject to the terms of the Security Agreement.
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, and indemnity, if requested, all reasonably satisfactory
to the Company and, in the case of mutilation, delivery of such
certificate or instrument to the Company.
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d) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, 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 any such court, 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
manner permitted by 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 reasonable attorneys' fees and other
costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
e) Waiver. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed to be
a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the
Holder to insist upon strict adherence to any term of this Debenture on
one or more occasions shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term
or any other term of this Debenture. Any waiver 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 applicable laws governing usury,
the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum permitted rate of interest. 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 impede the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every
such as though no such law has been enacted.
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g) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience only,
do not constitute a part of this Debenture and shall not be deemed to
limit or affect any of the provisions hereof.
i) Assumption. Any successor to the Company or surviving entity in a
Fundamental Transaction shall (i) assume in writing 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) prior to
such Fundamental Transaction and (ii) to 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 amounts and the interest rates of the Debentures held by the
Holder and having similar ranking to this Debenture, and satisfactory to
the Holder (any such approval not to be unreasonably withheld or delayed).
The provisions of this Section 9(i) shall apply similarly and equally to
successive Fundamental Transactions and shall be applied without regard to
any limitations of this Debenture.
*********************
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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.
ONETRAVEL HOLDINGS, INC.
By:
-------------------------------------
Name: Marc E. Bercoon
Title: President
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 9% Secured
Convertible Debenture of OneTravel, Holdings, Inc., a Delaware corporation (the
"Company"), due on October __, 2008 into shares of common stock, par value $0.04
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:
Payment of Interest in Common Stock __yes __no
If yes, $___ of Interest Accrued on Account of
Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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Schedule 1
CONVERSION SCHEDULE
The 9% Secured Convertible Debentures due on October __, 2008 in the aggregate
principal amount of $____________ issued by OneTravel Holdings, Inc. This
Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.
Dated:
- ----------------------------------------------------------------------------------------------------------------
Aggregate Principal
Amount Remaining
Subsequent to
Date of Conversion Conversion
(or for first entry, Original (or original Company Attest
Issue Date) Amount of Conversion Principal Amount) Company Attest
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
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