EXHIBIT 10.1
THIS SECURITY HAS NOT 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 MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITY AS PERMITTED BY
LAW AND THE SECURITIES PURCHASE AGREEMENT PURSUANT TO WHICH THE SECURITIES WERE
ISSUED.
Original Issue Date: January 30, 2006
No. 1 $600,000
12% SECURED CONVERTIBLE DEBENTURE
This 12% Secured Convertible Debenture (this "Debenture") is a duly
authorized and issued 12% Secured Convertible Debenture of BPK RESOURCES, INC.,
a Nevada corporation, having its principal place of business located at address
set forth on the signature page hereto (the "Company"), for the principal amount
of SIX HUNDRED THOUSAND DOLLARS ($600,000), issued in connection with that
certain Purchase Agreement (as defined below) of even date herewith entered into
by and among the Company and the Holder.
FOR VALUE RECEIVED, the Company promises to pay to TRIDENT GROWTH FUND,
L.P., a Delaware limited partnership, having its principal place of business
located at 700 Gemini, Houston, Texas 77058, or its registered assigns (the
"Holder"), the principal sum of SIX HUNDRED THOUSAND DOLLARS ($600,000) on the
earlier of (a) January 30, 2007; or (b) the consummation of a Change of Control
Transaction (the "Maturity Date"), and to pay interest to the Holder on the 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 below and
elsewhere in this Debenture, capitalized terms contained herein shall have the
meanings given to such terms in the Purchase Agreement, and (b) the following
terms shall have the following meanings:
Page 1
"Bankruptcy Event" means any of the following events: (a) the Company or
any Subsidiary (as such term is defined in Rule 1.02(s) 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 Subsidiary thereof; (b) there is commenced against the Company or
any Subsidiary thereof any such case or proceeding that is not dismissed within
60 days after commencement; (c) the Company or any 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
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 days; (e) the Company or any Subsidiary thereof makes a general assignment
for the benefit of creditors; (f) the Company or any Subsidiary thereof calls a
meeting of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; (g) the Company or any 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; or (h) an application for the
appointment of a receiver or liquidator for the Company or any of its material
assets.
"Capital Lease" means any lease of property (real, personal or mixed)
which, in accordance with GAAP, should be capitalized on the lessee's balance
sheet or for which the amount of the asset and liability thereunder as if so
capitalized should be disclosed in a note to such balance sheet.
"Cash Flow" means an amount equal to (i) the Company's Consolidated
EBITDA, minus (ii) the Company's Consolidated non-financed Capital Expenditures.
"Consolidated EBITDA" means, for any Person for any period:
(i) the consolidated net income of such Person and its Consolidated
Subsidiaries for such period (after Income Taxes), calculated in accordance with
GAAP, but excluding:
(A) any gain arising from the sale of capital assets,
(B) any gain arising from any write-up of assets,
(C) earnings of any other Person, substantially all of the
assets of which have been acquired by such Person or its Consolidated
Subsidiaries in any manner, to the extent that such earnings were realized by
such other Person prior to the date of such acquisition.
Page 2
(D) earnings of any Person in which the Person or its
Consolidated Subsidiaries has an ownership interest (other than wholly owned
Subsidiaries of such Person ), unless such earnings have actually been received
by the Person or its Consolidated Subsidiaries in the form of cash
distributions,
(E) earnings of any Person to which assets of the Person or
its Consolidated Subsidiaries shall have been sold, transferred or disposed of,
or into which the Person shall have merged, to the extent that such earnings
arise prior to the date of such transaction,
(F) any gain arising from the acquisition of any securities of
such Person or any of its Consolidated Subsidiaries, and
(G) any extraordinary gain realized by such Person or any of
its Consolidated Subsidiaries during such period.
(ii) plus the following, but only in each case to the extent
incurred by the Company and its Consolidated Subsidiaries during such period and
deducted in the calculation above for such period,
(A) all income and franchise taxes,
(B) all Interest Expense,
(C) all depreciation expense, and
(D) all amortization expense.
"Current Assets" means, at any particular time, all amounts which, in
conformity with GAAP, would be included as current assets on a consolidated
balance sheet of the Company and its Subsidiaries; provided however, there shall
be excluded therefrom (a) all prepaid expenses of every type and nature, (b) all
amounts due from partners, officers, stockholders or other Affiliates, and all
loans due from employees, and (c) all deferred charges.
"Current Liabilities" means, at any particular time, all amounts
(including deferred taxes) which, in conformity with GAAP, would be included as
current liabilities on a consolidated balance sheet of the Company and its
Subsidiaries.
"Current Ratio" means the ratio of Current Assets to Current Liabilities.
Page 3
"Dallas Courts" shall have the meaning set forth in Section 7(e).
"Debenture Register" shall have the meaning set forth in Section 2(b).
"Event of Default" shall have the meaning set forth in Section 6.
"GAAP" mean generally accepted accounting principles.
"Interest Expense" means, with respect to any Person and for any period
(without duplication), all interest on that Person's Debt, whether paid in cash
or accrued as a liability and payable in cash during any subsequent period
(including, without limitation, the interest component of Capital Leases), as
determined by GAAP.
"Late Fees" shall have the meaning set forth in the second paragraph to
this Debenture.
"Liabilities" mean all liabilities, obligations and indebtedness of any
and every kind and nature (including, without limitation, lease obligations,
accrued interest, charges, expenses, attorneys' fees and other sums) chargeable
to the Company and made to or for the benefit of the Company, whether arising
under this Debenture or arising under the any of the Transaction Documents,
whether heretofore, now or hereafter owing, arising, due or payable from Company
to the Holder and however evidenced, credited, incurred, acquired or owing,
whether primary, secondary, direct, contingent, fixed, or otherwise, including
obligation of performance.
"Net Income" or "Net Loss" means, with respect to any Person for any
period, the net income or net loss of such Person determined in accordance with
GAAP, after payment of income Taxes but excluding any extraordinary or
non-recurring items.
"Original Issue Date" shall mean the date of the first issuance of this
Debenture regardless of the number of transfers of this or any portion of this
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture or Debentures.
"Purchase Agreement" means the Securities Purchase Agreement, of even date
herewith, to which the Company and the Holder are parties, as amended, modified
or supplemented from time to time in accordance with its terms.
Page 4
Section 2. Interest.
a) Payment of Interest in Cash. The Company shall pay interest, in cash,
to the Holder on the then outstanding principal amount of this Debenture at the
rate of 12% per annum, payable in cash via wire transfer monthly, in arrears, on
the last day of each month for the period beginning on the Initial Issuance Date
and ending on the Maturity Date or such earlier or later time when this
Debenture is paid or prepaid in full (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"), subject to the conversion
rights of Holder as stated herein.
b) 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.
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
Debentures (the "Debenture Register").
c) 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 Fee")
which will accrue daily, from the date such interest is due hereunder through
and including the date of payment.
d) Prepayment. The Company may prepay all or any portion of the then
outstanding principal amount of this Debenture without any prepayment premium or
discount by providing Holder not less than 90 days prior written notice, such
outstanding principal balance remaining subject to Holder's conversion rights
hereunder until the actual prepayment is made following such notice period.
Section 3. Conversion Right; Adjustments.
The Holder of this Debenture shall have the right, at Holder's option, at
any time on or after the Original Issue Date of this Debenture, to convert all,
or, in multiples of $50,000, any part of this Debenture into such number of
fully paid and nonassessable shares of Common Stock as shall be provided herein.
The Holder of this Debenture may exercise the conversion right by giving written
notice (a "Conversion Notice") to the Company of the exercise of such right and
stating the name or names in which the stock certificate or stock certificates
for the shares of Common Stock are to be issued and the address to which such
certificates shall be delivered. The Conversion Notice shall be accompanied by
this Debenture. The number of shares of Common Stock that shall be issuable upon
Page 5
conversion of the Debenture shall equal the then outstanding principal amount of
this Debenture plus all accrued and unpaid interest due and payable on the
Debenture on the Conversion Date (defined below) or a portion thereof (in the
discretion of the Holder) divided by the Conversion Price (as defined below) in
effect on the date the Conversion Notice is given. Conversion shall be deemed to
have been effected on the date the Conversion Notice is delivered to the Company
(each, a "Conversion Date"). Within 10 business days after a Conversion Date,
the Company shall issue and deliver by hand against a signed receipt therefor or
by reputable overnight delivery carrier to the address designated in the
Conversion Notice, a stock certificate or stock certificates of the Company
representing the number of shares of Common Stock to which Holder is entitled
and a check or cash in payment of all interest accrued and unpaid under the
Debenture being converted up to and including the Conversion Date. If a stock
certificate or stock certificates are not delivered within 10 business days
after a Conversion Date, the Company shall pay and/or grant to Holder 0.1% (on a
Fully Diluted Basis) of the Company's Common Stock per day until such
certificates are delivered. The conversion rights will be governed by the
following provisions:
a) Conversion Price. On the issue date hereof and until such time as an
adjustment shall occur, the Conversion Price shall be equal to the lesser of :
(i) $0.13; or
(ii) the average price per share of the Common Stock and Common
Stock Equivalents sold to any Person in the first Qualifying Transaction to be
consummated following the Original Issue Date (determined by dividing the total
number of shares of Common Stock issued plus shares issuable under Common Stock
Equivalents in such Qualifying Transaction, by the aggregate gross consideration
received by the Company plus all consideration to be received upon exercise or
conversion of all Common Stock Equivalents issued in such Qualifying
Transaction). With respect to determining the price paid per share in any asset
purchase, only shares of Common Stock actually issued and outstanding shall be
used in determining such per share calculation.
b) Adjustment for Issuance of Shares at less than the Conversion Price.
(i) If and whenever any Additional Common Stock (as herein defined)
shares shall be issued by the Company (the "Stock Issue Date") for a gross
consideration per share less than the Conversion Price, then in each such case
the initial Conversion Price shall be reduced to a new Conversion Price in an
amount equal to the gross consideration per share received by the Company for
the additional shares of Common Stock then issued, and accordingly, the number
of shares issuable to Holder upon conversion shall be proportionately increased
as a result thereof; and, in the case of shares issued without consideration,
the initial Conversion Price shall be reduced in amount and the number of shares
issued upon conversion shall be increased in an amount so as to maintain for the
Holder the right to convert this Debenture into shares equal in amount to the
same percentage interest in the Common Stock of the Company as existed for the
Holder immediately preceding the Stock Issue Date.
Page 6
(ii) Consideration for Shares. In case of the issuance of Additional
Common Stock for a consideration part or all of which shall be cash, the amount
of the cash consideration therefor shall be deemed to be the amount of the cash
received by Company for such shares. In case of the issuance of any shares of
Additional Common Stock for a consideration part or all of which shall be other
than cash, the amount of the consideration therefor, other than cash, shall be
deemed to be the then fair market value of the property received as determined
by an investment banking firm selected by Holder.
(iii) Reclassification of Shares. In case of the reclassification of
securities into shares of Common Stock, the shares of Common Stock issued in
such reclassification shall be deemed to have been issued for a consideration
other than cash. Shares of Additional Common Stock issued by way of dividend or
other distribution on any class of stock of the Company shall be deemed to have
been issued without consideration.
(iv) Split up or Combination of Shares. In case issued and
outstanding shares of Common Stock shall be subdivided or split up into a
greater number of shares of the Common Stock, the Conversion Price shall be
proportionately decreased, and in case issued and outstanding shares of Common
Stock shall be combined into a smaller number of shares of Common Stock, the
Conversion Price shall be proportionately increased, such increase or decrease,
as the case may be, becoming effective at the time of record of the split-up or
combination, as the case may be.
(v) The term "Additional Common Stock" herein shall mean, in the
most broadest sense, all shares of Common Stock or Common Stock Equivalents
hereafter issued by the Company (including, but not limited to Common Stock held
in the treasury of the Company), except for Exempt Issuances and Common Stock
issued upon the conversion or exercise of any security purchased in connection
with the Purchase Agreement.
Page 7
c) Adjustment for Mergers, Consolidations, Etc..
(i) In the event of distribution to all Common Stock holders of any
stock, indebtedness of the Company or assets (excluding cash dividends or
distributions from retained earnings) or other rights to purchase securities or
assets, then, after such event, this Debenture will be convertible into the kind
and amount of securities, cash and other property which the holder of the
Debenture would have been entitled to receive if the holder owned the Common
Stock issuable upon conversion of the Debenture immediately prior to the
occurrence of such event.
(ii) In case of any capital reorganization, reclassification of the
stock of the Company (other than a change in par value or as a result of a stock
dividend, subdivision, split up or combination of shares), this Debenture shall
be convertible into the kind and number of shares of stock or other securities
or property of the Company to which the holder of the Debenture would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such event.
The provisions of the foregoing sentence shall similarly apply to successive
reorganizations, reclassifications, consolidations, exchanges, leases, transfers
or other dispositions or other share exchanges.
d) Notice of Adjustment. In the event the Company shall propose to take
any action which shall result in an adjustment in the Conversion Price, the
Company shall give notice to the Holder, which notice shall specify the record
date, if any, with respect to such action and the date on which such action is
to take place. Such notice shall be given on or before the earlier of 10 days
before the record date or the date which such action shall be taken. Such notice
shall also set forth all facts (to the extent known) material to the effect of
such action on the Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of this Debenture.
Additionally, following completion of an event wherein the Conversion Price
shall be adjusted, the Company shall furnish to the holder of this Debenture a
statement, signed by an authorized officer of the Company of the facts creating
such adjustment and specifying the resultant adjusted Conversion Price then in
effect.
e) Reservation of Shares. The Company warrants and agrees that it shall at
all times reserve and keep available, free from preemptive rights, sufficient
authorized and unissued shares of Common Stock to effect conversion of this
Debenture.
f) Registration Rights. The Holder has certain rights with respect to the
registration of shares of Common Stock issued upon the conversion of this
Debenture, such rights being specifically set forth in the Purchase Agreement
entered into by and between Holder and the Company on the date hereof.
Page 8
g) Exercise Limitations. At any time after the Common Stock is registered
under Section 12 of the Exchange Act, the Holder shall not have the right to
convert any portion of this Debenture, pursuant to Section 3 or otherwise, to
the extent that after giving effect to such issuance after exercise, the Holder
(together with the Holder's affiliates), as set forth on the applicable
Conversion Notice, would beneficially own in excess of 4.99% (or as applicable,
9.99%) of the number of shares of the Common Stock outstanding immediately after
giving effect to such issuance. For purposes of the foregoing determination, 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 such
conversion of this Debenture less the number of shares of Common Stock which
would be issuable upon (A) conversion of the remaining, unexercised portion of
this Debenture and (B) exercise or conversion of the unexercised or unconverted
portion of any other Securities (including, without limitation, any other
Debentures or Warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the Holder.
Except as set forth in the preceding sentence, for purposes of this Section
3(g), beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act. To the extent that the limitation contained in this Section
3(g) 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 Holder. For purposes
of this Section 3(g), 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) Schedule 3.1(g) to the Purchase Agreement, (y) a more recent
public announcement by the Company or (z) any other notice by the Company or the
Company's Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the Company shall
within two Business Days confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. The provisions of this Section 3(g)
may be waived by the Holder upon, at the election of the Holder, not less than
61 days' prior notice to the Company, and the provisions of this Section 3(g)
shall continue to apply until such 61st day (or such later date, as determined
by the Holder, as may be specified in such notice of waiver).
Section 4. 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.
Page 9
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 5. Negative Covenants. Other than with respect to actions taken in
furtherance of consummating the Graphite Transaction as set forth and described
in accordance with the Purchase Agreement, so long as any portion of this
Debenture is outstanding, without the prior written consent of the Holder, which
consent may be withheld in the sole discretion of the Holder, the Company will
not and will not permit any of its Subsidiaries to directly or indirectly:
a) Indebtedness. Other than equipment leases of up to $25,000 in the
aggregate for any 12 month period, enter into, create, incur, assume or suffer
to exist any indebtedness or Liens, 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 that is senior to, or pari passu with, in any respect, the
Company's obligations under the Debentures;
b) Repayment of Indebtedness. Repay any principal due and owing on any
promissory notes, debentures, or other forms of indebtedness, other than (i)
periodic interest payments due and owing thereunder; (ii) repayment due of any
principal amount or interest due or becoming due under this Debenture; and (iii)
repayment of the indebtedness set forth in Schedule 4.9 to the Purchase
Agreement; provided, nothing contained in this section shall prohibit the
Company from making any payments with respect to trade payables made in the
ordinary course of the Company's business;
c) Repayment of Shares. Repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a de minimus number of shares of its Common Stock or
other equity securities or as otherwise permitted by the Transaction Documents;
d) Bylaws; Governing Documents. Amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder in its capacity as a holder of the Debentures;
Page 10
e) Loans and Investments. Lend or advance money, credit or property to any
person or entity, or invest in (by capital contribution or otherwise), or
purchase or repurchase the stock or indebtedness or assets or properties of any
person or entity, or agree to do any of the foregoing, other than in the
ordinary course of business;
f) Guarantees. Assume, endorse or otherwise become or remain liable in
connection with the obligations (including accounts payable) of any other person
or entity, other than in the ordinary course of business.
g) Sale of Assets, Dissolution, Etc. Transfer, sell, assign, lease or
otherwise dispose of any of its properties or assets, or any assets or
properties necessary or desirable for the proper conduct of its business, or
transfer, sell, assign or otherwise dispose of any of its accounts, or contract
rights to any person or entity, or change the nature of its business, wind-up,
liquidate or dissolve, or agree to any of the foregoing, other than in the
ordinary course of business;
h) Acquisition of Assets. Agree to purchase, acquire, or lease of any
assets of any Person, other than in the ordinary course of business;
i) Compensation. Increase the compensation of any of its officers or
consultants making more than $100,000 per year, hire any relative of any
officer, director or shareholder of the Company, or pay a bonus to any such
person.
j) No Further Issuance of Securities. Other than in accordance herewith
and other than with respect to any Exempt Issuance or any issuance of securities
to any Person or group of Persons in any transaction or series of related
transactions, which, does not exceed, in the aggregate, 20% of the then
outstanding and issued securities of the Company, create, issue or permit the
issuance of any additional securities of the Company or of any of its
Subsidiaries (including with respect to any Qualifying Transaction), if any, or
any rights, options or warrants to acquire any such securities; provided,
however, that in the event that Company desires to issue securities with
preferences or rights greater than that which the Common Stock has and the
Holder consents to same, the Holder will then have the option of converting all
or any part of this Debenture into such stock in lieu of the Common Stock;
k) No Dividends; No Redemption. Declare any dividend, pay or set aside for
payment any dividend or other distribution, in cash, stock, or other property,
or make any payment to any related parties, including to any preferred
stockholders, as a dividend, redemption, or otherwise, other than the payment of
salaries in the ordinary course of business; provided, however, that with
respect to dividends to be paid to preferred stockholders, if the Holder
approves the certificate of designation or other such instrument which sets
forth the terms of such preferred stock (including the obligation to pay such
dividends) and which allows for the creation and issuance of such preferred
stock, then the Company's consent shall not be necessary for each dividend to be
paid thereunder.
Page 11
l) Stock Splits. Undertake a reverse or forward stock split or
reclassification of the Common Stock; or
n) Agreement. Enter into any agreement obligating the Company to undertake
any of the matters set forth in this Section 5.
Section 6. Affirmative Covenants. Other than with respect to actions
specifically taken in furtherance of consummating the Graphite Transaction as
set forth and described in accordance with the Purchase Agreement, so long as
any portion of this Debenture is outstanding and unless the Holder otherwise
consents in writing, which consent may be withheld in the sole discretion of the
Holder, the Company will:
a) Taxes and Liens. Promptly pay, or cause to be paid, all taxes,
assessments and other governmental charges which may lawfully be levied or
assessed upon the income or profits of the Company, or upon any property, real,
personal or mixed, belonging to the Company, or upon any part thereof, and also
any lawful claims for labor, material and supplies which if unpaid, might become
a lien or charge against any such property; provided, -------- however, the
Company shall not be required to pay any such tax, assessment, charge, levy or
claim so long as the validity thereof shall be actively contested in good faith
by proper proceedings; but, provided further that any such tax, assessment,
charge, levy or claim shall be paid or bonded in a manner satisfactory to the
Holder upon the commencement of proceedings to foreclose any lien securing the
same.
b) Business and Existence. Do or cause to be done all things necessary to
preserve and to keep in full force and effect any licenses necessary to the
business of the Company, its corporate existence and rights of its franchises,
trade names, trademarks, and permits which are reasonably necessary for the
continuance of its business; and continue to engage principally in the business
currently operated by the Company.
c) Insurance and Properties. Keep its business and properties insured at
all times with responsible insurance companies and carry such types and amounts
of insurance as are required by all federal, state and local governments in the
areas which the Company does business and as are usually carried by entities
engaged in the same or similar business similarly situated. In addition, the
Company shall maintain in full force and effect policies of liability insurance
in amounts at least equal to that currently in effect.
Page 12
d) Maintain Property and Assets. Maintain its property and assets in good
order and repair and, from time to time, make all needed and proper repairs,
renewals, replacements, additions and improvements thereto, so that the business
carried on may be properly and advantageously conducted at all times in
accordance with prudent business management, and maintain annually adequate
reserves for maintenance thereof.
e) True Books. Keep true books of record and account in which full, true
and correct entries will be made of all of its dealings and transactions, and
set aside on its books such reserves as may be required by GAAP, consistently
applied, with respect to all taxes, assessments, charges, levies and claims
referred to in (a) above, and with respect to its business in general, and
include such reserves in interim as well as year-end financial statements.
f) Right of Inspection. Permit any person designated by the Holder, at the
Holder's expense, to visit and inspect any of the properties, books and
financial reports of the Company, all at such reasonable times upon three (3)
Business Days prior notice to Company, and as often as the Holder may reasonably
request, provided the Holder does not unreasonably interfere with the daily
operations of the Company and Holder executes a confidentiality agreement.
g) Observance of Laws. Conform to and duly observe all laws, regulations
and other valid requirements of any regulatory authority with respect to the
conduct of its business except those that would not cause a Material Adverse
Effect, as determined in the reasonable discretion of the Holder.
h) Company's Knowledge of Default. Upon an officer or director of the
Company obtaining knowledge of, or threat of, an Event of Default hereunder,
cause such officer to promptly, within no more than five (5) Business Days,
deliver to the Holder notice thereof specifying the nature thereof, the period
of existence thereof, and what action the Company has taken and/or proposes to
take with respect thereto.
i) Notice of Proceedings. Upon an officer or director of the Company
obtaining knowledge of any material litigation, dispute or proceedings being
instituted or threatened against the Company, or any attachment, levy, execution
or other process being instituted against any assets of the Company, cause such
officer to promptly, within no more than five (5) Business Days, give the Holder
written notice of such litigation, dispute, proceeding, levy, execution or other
process.
j) Certificate of Covenant Compliance Within 30 days of the last day of
each March, June, September and December, the Company will issue a Certificate
of Covenant Compliance, executed by either the Chief Executive Officer or Chief
Financial Officer in the form of Exhibit A attached hereto. If the Company is
not in compliance with the covenants specified in this Section 5, the Company
will modify the Certificate of Covenant Compliance by stating the exception and
providing a detailed explanation of the non-compliance.
Page 13
k) Payment of Holder's Expenses. If at any time or times hereafter, Holder
employs counsel in connection with the execution and consummation of the
transactions contemplated by this Debenture or to commence, defend or intervene,
file a petition, complaint, answer, motion or other pleading, or to take any
action in or with respect to any suit or proceeding (bankruptcy or otherwise)
relating to this Debenture or any other Transaction Document, or any other
agreement, guaranty, note, instrument or document heretofore, now or at any time
or times hereafter executed by the Company and delivered to Holder, or to
enforce any rights of Holder hereunder whether before or after the occurrence of
any Event of Default, or to collect any of the Liabilities, then in any of such
events, all of the reasonable attorneys' fees arising from such services, and
any expenses, costs and charges relating thereto, shall be part of the
Liabilities, payable on demand.
l) Financial Reporting. The Company shall provide to Holder audited annual
financial statements, audited by the Company's independent certified public
accounting firm. Said financial statements shall be prepared in accordance with
GAAP, consistently applied, and shall be delivered to Holder within ninety (90)
days after the close of the Company's fiscal year. The Company shall provide to
Holder unaudited quarterly financial statements (including period to date and
year to date actual to prior periods) presented in accordance with GAAP,
consistently applied (subject to such exceptions for interim financials as may
be noted by the Company thereon), and shall be delivered to Holder within
forty-five (45) days after the close of the Company's quarter. The Company shall
also deliver any other reports reasonably requested by Holder. If the statements
or reports are not delivered or accessible within such forty-five (45) days of
the close of any quarter, then the Company will pay a late fee of $250 per day
until the report is delivered to or accessible by Holder.
m) Financial Covenants. As of the 90th date following the date of this
Agreement and thereafter continuing until the Termination Date, the Company must
maintain the following ratios:
(i) Cash Interest Coverage. Until this Debenture is repaid in full,
the Company shall maintain a Consolidated EBITDA ratio, based on any of the
Company's quarterly financial statements (as determined on the last day of each
fiscal quarter for the immediately preceding quarter), of 2.0 or greater. The
Consolidated EBITDA ratio is defined as Consolidated EBITDA divided by Interest
Expense (Consolidated EBITDA / Interest Expense).
Page 14
(ii) Cash Flow Coverage Ratio. The ratio of (a) the Company's Cash
Flow to (b) the sum of (i) the Company's consolidated Interest Expense plus (ii)
the Company's scheduled payments of principal (including the principal component
of Capital Leases) to be paid during the 12 months following any date of
determination shall at all times exceed (1) 1.5 to 1.0. Compliance with the
ratio will be tested as of the last day of each month, with Cash Flow and
Interest Expense being calculated for the twelve months then ended.
(iii) Current Ratio. The Company will at all times maintain a
Current Ratio of not less than 1.5 to 1.0. The Current Ratio shall be calculated
and tested quarterly as of the last day of each fiscal quarter of the Company.
Section 7. 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, in each case free of any claim of
subordination, as and when the same shall become due and payable (whether
on the Maturity Date or by acceleration or otherwise);
ii. the Company shall fail to observe or perform any other covenant
or agreement contained in this Debenture or any of the other Transaction
Documents which failure is not cured, if possible to cure, within the
earlier to occur of (A) 10 Business Days after notice of such default sent
by the Holder or by any other Holder and (B) 10 Business Days after the
Company shall become or should have 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 or (B) any other
material agreement, lease, document or instrument to which the Company or
any Subsidiary is bound and not cured;
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;
Page 15
v. there shall have occurred a Bankruptcy Event;
vi. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which
there may be issued, or by which there may be secured or evidenced any
indebtedness for borrowed money or money due under any long term leasing
or factoring arrangement of the Company in an amount exceeding $100,000,
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 Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or dispose of
all or in excess of 33% of its assets in one or more transactions (whether
or not such sale would constitute a Change of Control Transaction) or
shall redeem or repurchase any its outstanding shares of Common Stock or
Common Stock Equivalents;
viii. the Company shall fail for any reason to pay in full the
amount of cash due pursuant to a Buy-In of the Warrant within 5 Business
Days after notice therefor is delivered hereunder or shall fail to pay all
amounts owed on account of an Event of Default within 5 Business Days of
the date due;
ix. the Company shall fail to have available a sufficient number of
authorized and unreserved shares of Common Stock to issue to such Holder
upon exercise of the Warrants in full and not remedied as permitted in the
Transaction Documents;
x. the Company shall redeem any of the Common Stock Equivalents;
xi. upon the reasonable determination by the Holder that there has
been a Material Adverse Effect; or
xii. the occurrence of an Activity Event of Default (as defined in
Section 5.1(f)(ii) of the Purchase Agreement);
Page 16
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. 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 while such
Event of Default is continuing shall accrue at the rate of 18% per annum, or
such lower maximum amount of interest permitted to be charged under applicable
law. All Debentures for which the full principal amount hereunder shall have
been paid in accordance herewith shall promptly be surrendered 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 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 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.
Section 8. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to
be provided by the Holders hereunder shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address or facsimile number set forth
on the signature page hereto, or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders 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, sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address of
such Holder appearing herein, or such other address or facsimile number as such
Holder may specify in accordance with this Section. 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. (Dallas, Texas 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.
(Dallas, Texas time) on any date and earlier than 11:59 p.m. (Dallas, Texas
time) on such 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.
Page 17
b) Absolute Obligation. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, 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 under the terms set forth herein.
c) Security Interest. This Debenture is a direct debt obligation of the
Company and, pursuant to the Security Documents, is secured by a first priority
security interest in all of the assets of the Company and certain other
collateral for the benefit of the Holders.
d) 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.
e) 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
Texas, 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 Dallas, Texas (the "Dallas Courts"). Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
Dallas 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 Dallas 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 attorneys fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.
Page 18
f) 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.
g) 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 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.
h) 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.
i) 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.
Page 19
j) Usury. To the extent it may lawfully do so, the Company hereby agrees
not to insist upon or plead or in any manner whatsoever claim, and will resist
any and all efforts to be compelled to take the benefit or advantage of, usury
laws wherever enacted, now or at any time hereafter in force, in connection with
any claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Documents. Notwithstanding any
provision to the contrary contained in any Transaction Documents, it is
expressly agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the Maximum Rate, and, without limiting the foregoing, in no event shall any
rate of interest or default interest, or both of them, when aggregated with any
other sums in the nature of interest that the Company may be obligated to pay
under the Transaction Documents exceed such Maximum Rate. It is agreed that if
the maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date of such increase or decrease
forward, unless such application is precluded by applicable law. If under any
circumstances whatsoever, interest in excess of the Maximum Rate is paid by the
Company to any Purchaser with respect to indebtedness, if any, evidenced by the
Transaction Documents, such excess shall be applied by such Purchaser to the
unpaid principal balance of any such indebtedness or be refunded to the Company,
the manner of handling such excess to be at such Purchaser's election in the
event any principal amount remains outstanding.
(k) Amendment. This Agreement may not be amended, supplemented or
modified, except by an agreement in writing signed by each of the parties
hereto.
[Signature Page Follows]
Page 20
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.
COMPANY
BPK RESOURCES, INC. Address for Notice and Delivery:
--------------------------------
264 Union Boulevard, First Floor
Totowa, New Jersey 07512
Telephone: (____) ____-_______
Facsimile: (____) ____-________
Attn: Christopher H. Giordano, CEO
By: /s/Christopher H. Giordano
--------------------------------------
Name: Christopher H. Giordano
Title: Chief Executive Officer
Page 21
EXHIBIT A
I, the undersigned, hereby represent that BPK Resources, Inc. is in
compliance with all of its covenants specified in Sections 5 and 6 of that
certain 12% Secured Convertible Debenture originally dated as of January 30,
2006, executed by BPK Resources, Inc., in favor of Trident Growth Fund, L.P.
BPK RESOURCES, INC.
By:___________________________________
Name:
Title: