AVENSYS INC.
(constituted under the laws of Quebec)
$487,500 No.: 2005-1
UNSECURED CONVERTIBLE DEBENTURE
AT 15% INTEREST
MATURING SEPTEMBER 1, 2007
1. PROMISE TO PAY
1.1 AVENSYS INC. (the "Company"), for value received, hereby
acknowledges that it owes and promises to pay to FONDACTION (the
"Holder") or to its rightful claimants:
1.1.1. the principal amount of four hundred and eighty-seven
thousand five hundred dollars ($487,500) in legal tender of
Canada (the "Principal Amount"), upon presentation and
surrender of this debenture at the Holder's address indicated
in section 9 hereof; plus
1.1.2. subject to subsection 1.2, the interest on the Principal
Amount at the rate of fifteen percent (15%) per annum
effective herefrom or from the last date of payment of
interest on which the interest was paid or made available for
payment, whichever of these dates is most recent, up to
payment in full of the Principal Amount. The Company shall
send a cheque for this amount of interest to the Holder's
address indicated in section 9 hereof, no less than three (3)
days prior to each payment date, by postage-paid mail. The
sending of such a cheque shall discharge the obligation to pay
the interest on this debenture up to the amount it represents,
unless this cheque is dishonoured upon presentation for
payment.
1.2 The interest shall be payable monthly on the first day of each month
effective from April 1, 2005 until September 1, 2007 (the "Maturity
Date").
1.3 Subject to a case of default, as stipulated in section 7 hereof, the
Principal Amount shall be due and payable by the Company on the
Maturity Date. Any balance, if one exists, shall be payable no later
than the Maturity Date in legal tender of Canada.
1.4 In case of default, the interest on the Principal Amount on the
interest payable shall accrue throughout the period of the said
default at the rate of 18% per annum, computed daily and compounded
annually, and such interest shall be payable on demand.
1
2. REPAYMENT OF THE DEBENTURE
2.1. The Holder shall be entitled to require repayment of the debenture
before the Maturity Date in case of default, as stipulated in
section 7 hereof.
2.2. At any time, the Company or C-CHIP TECHNOLOGIES CORPORATION
("C-CHIP") may prepay the debenture, but only in full, including the
Principal Amount and the interest, before the Maturity Date without
penalty ("Prepayment"), on condition that it honours all of the
following conditions:
2.2.1. the Company or C-CHIP shall notify the Holder, by registered
mail, no less than forty-five (45) days prior to the
Prepayment Date, of its intention to exercise its right of
Prepayment, which notice shall specify the exact Prepayment
Date; ("Notice of Prepayment")
2.2.2. the Prepayment shall cover the totality of the Principal
Amount and the Interest Owing and shall not be partial.
2.3. In such case, the Holder, within thirty (30) days preceding the
deemed Prepayment Date stipulated in the Notice of Prepayment, may
convert the amount of the Principal Amount and the Interest Owing
into Restricted C-Chip Shares ("Notice of Conversion"), the whole
according to the terms, conditions and provisions of the right
conferred on the Holder under the terms of section 3 of this
debenture. In such case, the provisions of section 3 of the
debenture shall apply.
2.4. In the event that FONDACTION does not send the Notice of Conversion,
the Company or C-CHIP may repay the totality of the debenture in
principal and interest without penalty on the Prepayment Date.
3. RIGHT OF CONVERSION AT THE HOLDER'S OPTION
3.1. For the purposes hereof:
3.1.1. "Restricted C-CHIP Share(s)" means the C-CHIP voting and
participating common shares traded on the OTCBB;
3.1.2. "C-CHIP" means C-CHIP TECHNOLOGIES CORPORATION or any entity
succeeding it by merger or otherwise;
2
3.1.3. "Conversion Date" means the date when the Holder sends its
notice accompanied by the debenture in accordance with
subsection 3.2;
3.1.4. "Interest Owing" means the amount of interest stipulated in
paragraph 1.1.2 due on the Conversion Date;
3.1.5. "OTCBB" means the American Over-the-Counter Bulletin Board
exchange;
3.1.6. "Conversion Price" means the average price in US dollars of
the voting and participating share of C-CHIP's share capital
weighted by volume, traded on the Over-the-Counter Bulletin
Board exchange or any other exchange during the ten (10) days
preceding the Conversion Date, from which a discount shall be
deducted representing 17.5% of the said weighted average per
share;
3.1.7. "Exchange Rate" means the price payable in Canadian dollars
to purchase one (1) US dollar according to the closing price
the date before the conversion as determined by the Bank of
Canada.
3.2. The Holder shall be entitled, at its option and at any time, to
convert this debenture or any portion thereof (and the interest due)
into a number of Restricted C-Chip Shares that it determines
according to the Conversion Price, by surrendering the debenture,
accompanied by a duly completed Notice of Conversion, to the Company
with a copy to C-CHIP at any time, during normal business hours, at
the address indicated in section 9 hereof. The number of Restricted
C-Chip Shares ("A") to which the Holder will be entitled shall be
determined by adding the Principal Amount of the debenture ("C") and
the Interest Owing ("I") multiplied by the Exchange Rate ("T")
divided by the Conversion Price ("P"), as presented by the following
formula:
A = [(C+I) X T] / P
The Company and C-CHIP acknowledge that the conversion mechanism
stipulated herein constitutes a stipulation for another party for
the sole benefit of the Holder, which formally accepts it.
3.3. Once the Holder complies with the provisions of subsection 3.2, the
number of Restricted C-Chip Shares that must be issued following the
Notice of Conversion shall be deemed to have been issued and the
Holder shall be deemed to become the registered holder of these
Restricted C-Chip Shares as at the date of the Notice of Conversion.
3
3.4. C-CHIP, subject to the conditions applicable in securities matters,
and no later than ten (10) days after the Conversion Date, shall
remit to the Holder a share certificate registered in the Holder's
name or in the name of any other person indicated in the Notice of
Conversion for the number of Restricted C-Chip Shares to which the
Holder is entitled.
3.5. If the Holder elects to convert the totality of the Principal Amount
then outstanding and the unpaid Interest Owing, if applicable, the
issuance of the share certificates registered in the Holder's name
or in the name of any other person indicated in the Notice of
Conversion for the number of Restricted C-Chip Shares to which the
Holder is entitled, subject to the conditions applicable in
securities matters, shall constitute the fulfillment of all the
obligations of the Company and of C-CHIP hereunder, such that any
amount payable pursuant to this debenture shall be deemed to have
been paid.
3.6. The Holder may elect to convert less than the totality of the
Principal Amount then outstanding and the interest accrued and
unpaid. In such a case, upon conversion of this debenture, the
Holder shall also be entitled to receive a new debenture in respect
of the Principal Amount of this unconverted debenture, on the same
terms and conditions as those hereof.
3.7. The Company and C-CHIP undertake to the Holder, as long as a right
to the conversion pertaining to this debenture can be exercised, to
ensure that all the Restricted C-Chip Shares issued upon conversion
of this debenture are duly and validly issued as Restricted C-Chip
Shares, fully paid-up and non-callable, free of any preferred
subscription or other right, and to keep available for purposes of
issuance, free of any preferred subscription or other right, a
sufficient number of authorized but unissued Restricted C-Chip
Shares.
3.8. No fractional Restricted C-Chip Shares shall be issued upon
conversion and the number of Restricted C-Chip Shares issuable upon
conversion shall be rounded to the nearest whole number of
Restricted C-Chip Shares (one half of a Restricted C-Chip Share
being rounded upward).
3.9. Effective from the date of signing and execution hereof and as long
as the Holder will be a creditor or shareholder of C-CHIP, C-CHIP
undertakes the following:
3.9.1. if the Holder converts this debenture, at its option, into
Restricted C-Chip Shares, then C-CHIP undertakes, if the
Holder makes a written application to C-CHIP for this purpose,
to prepare and file an SB-2 form and any other document with
the competent securities authorities to which C-CHIP is
subject, at the Holder's expense, within forty-five (45) days
of the Holder's application, in accordance with the applicable
laws, and to commit any other necessary act so that the
Restricted C-Chip Shares held by the Holder can be traded and
transacted freely on the OCTBB. In such case, the Holder shall
not be required to assume fees of more than twenty-five
thousand Canadian dollars (CA$25,000); and
4
3.9.2. C-CHIP undertakes to keep the Holder regularly informed of
the filing by C-CHIP of the next SB-2 form that will be filed
with the regulators, so as to enable it to convert this
debenture so that the Restricted C-Chip Shares that will then
be issued are presented immediately to the securities
regulators to which C-CHIP is subject under the SB-2
application in preparation. If the Holder gives C-CHIP written
notice that it wishes to subject the Restricted C-Chip Shares
to this new SB-2 form, then C-CHIP undertakes to take all the
necessary steps, at its own expense, so that the Restricted
C-Chip Shares held by the Holder are included in this SB-2
form in order that the Restricted C-Chip Shares held by the
Holder can be traded and transacted freely on the OCTBB; and
3.9.3. if C-CHIP or the Company proceeds with Prepayment of this
debenture and the Holder thereby exercises the right of
conversion to Restricted C-Chip Shares under the terms of the
debenture, then C-CHIP undertakes, if the Holder so requests
in writing, at C-CHIP's expense, to prepare and file an SB-2
form and any other document with the competent securities
authorities to which C-CHIP is subject, within forty-five (45)
days of the Holder's application, in accordance with the
applicable laws, and to commit any act necessary so that the
Restricted C-Chip Shares held by the Holder that will be
issued can be traded and transacted freely on the OCTBB after
the filing of the SB-2 form.
3.10. In the event that C-CHIP goes beyond the forty-five (45) day
time limit granted for it to finalize and file an SB-2 form as
described in subsection 3.9 or defaults on any of the
obligations incumbent on it under the terms of subsection 3.9,
then C-CHIP shall pay on demand to FONDACTION the punitive
damages payable, which shall be equivalent to one percent (1%)
of the value of the Restricted C-Chip Shares which are or
should have been the object of the SB-2 form for each
successive period of thirty (30) late days computed from the
date when the SB-2 form should have been filed with the
regulators. As it chooses, C-CHIP shall have the option to pay
the punitive damages payable to FONDACTION, either in cash or
in totally negotiable C-CHIP shares.
5
4. ADJUSTMENT
4.1. If any of the following events (an "Operation") occurs at any time
prior to the Conversion Date:
a) an amendment of C-CHIP's share capital by way of a subdivision
or a split of the outstanding Restricted C-Chip Shares, an
exchange for outstanding Restricted C-Chip Shares for shares
of any other class of C-CHIP's share capital, or a
consolidation of the outstanding Restricted C-Chip Shares into
a smaller number;
b) a combination or a merger of C-CHIP with any other company or
entity (other than a combination or a merger which does not
result in a reclassification of C-CHIP's outstanding
Restricted C-Chip Shares or a change of C-CHIP's outstanding
Restricted C-Chip Shares or a change of the Restricted C-Chip
Shares into other shares or securities;
c) a declaration by C-CHIP of a dividend on C-CHIP's Restricted
C-Chip Shares payable in Restricted C-Chip Shares or in
securities convertible into Restricted C-Chip Shares;
d) any other event concerning any C-CHIP's shares of any class,
including C-CHIP's Restricted C-Chip Shares, then outstanding
and capable of adversely affecting or altering the rights
attached to the Restricted C-Chip Shares;
then the Holder shall be entitled, after the Operation, to convert
the debenture into shares, securities, cash or other assets of the
same kind and for the same amounts receivable as if the Holder had
exercised its conversion right immediately prior to the Operation
and participated in the Operation subsequently.
5. ISSUE IN REPLACEMENT UPON LOSS OF THE DEBENTURE
5.1 In case of deterioration, loss, destruction or theft of the
debenture, the Company, subject to subsection 5.2, shall issue, sign
and deliver a new debenture having the same date, the same Principal
Amount and the same content as the deteriorated, lost, destroyed or
stolen debenture, in exchange for and in replacement of the
deteriorated debenture and its cancellation, or in replacement of
the lost, destroyed or stolen debenture.
5.2 The Holder shall assume the cost of issuance and also, as a
precondition to the issuance of the debenture, shall furnish the
Company with proof of deterioration, loss, destruction or theft of
the debenture thus deteriorated, lost, destroyed or stolen that is
reasonably acceptable to the Company, and the Holder may be required
to furnish to the Company, at the Company's option, an indemnity in
the amount and form satisfactory to it and to pay the reasonable
expenses incurred by the Company in this regard.
6
6. GENERAL COMMITMENTS OF THE COMPANY AND C-CHIP
The Company agrees and undertakes to the Holder:
6.1 to pay or order payment of the Principal Amount on the Maturity
Date;
6.2 to pay punctually or order punctual payment of the accrued interest
(including, in case of default, the interest on all the outstanding
amounts) on the dates, at the place and in the manner mentioned
herein;
6.3 to maintain its existence at all times and carry on its activities
in a correct, efficient and regular manner in accordance with sound
business practices for a similar enterprise.
The Company and C-CHIP agree and undertake jointly and severally to the
Holder:
6.4 to obtain all the necessary authorizations from the regulators
having jurisdiction over the Company's securities, so that the
Holder can benefit from its rights under the terms of this debenture
and, without limiting the generality of the foregoing, so that the
Holder can benefit from the conversion and adjustment rights
stipulated in sections 3 and 4 of this debenture;
6.5 to pay all the issue expenses of Restricted C-Chip Shares under the
terms of this debenture and, without limiting the generality of the
foregoing, all the legal fees and all the fees required to obtain
the necessary authorizations from the regulators having jurisdiction
over the C-CHIP securities so that the Holder can benefit from its
rights under the terms of this debenture;
6.6 to take all the necessary steps so that the delivery to the Holder
of any certificate representing C-CHIP's Restricted C-Chip Shares
pursuant to the provisions of this debenture includes the warranty
that these Restricted C-Chip Shares have been validly issued and are
outstanding, fully paid-up and non-callable.
7. DEFAULT AND EXECUTION
7.1 A case of default will occur if:
7.1.1 the Company does not pay the Principal Amount or the Penalty
when these amounts become payable pursuant to the provisions
hereof and this default continues for a period of ten (10)
days after the Company has received a notice to this effect;
7
7.1.2 the Company omits the payment of any interest payable on the
debenture and this default continues for a period of ten (10)
days after the Company has received a notice to this effect;
7.1.3 an order is issued or a resolution is adopted for the winding
up or liquidation of the Company or one of its major
subsidiaries, or if the Company or one of its subsidiaries
makes a proposal or assigns its property for the benefit of
its creditors, or if a petition in bankruptcy is filed against
the Company or one of its subsidiaries, or a trustee is
appointed for it under the Bankruptcy and Insolvency Act
(Canada) or the Companies' Creditors Arrangements Act (Canada)
or under any insolvency legislation, or if a seizure (unless
the seizure is validly contested by the Company or, as the
case may be, the subsidiary) or a judgment is executed against
all or any material portion of the property of the Company or,
as the case may be, of one of its subsidiaries;
7.1.4 the Company omits to perform or observe any other commitment
or condition hereof or of the debenture purchase agreement
entered into on the same day with the Holder and this default
continues for a period of ten (10) days after the Company has
received a notice to this effect;
7.1.5 the Company or one of its subsidiaries loses its legal
existence or ceases to operate, in the normal course of its
business, a substantial part of its enterprise, except with
the Holder's prior consent;
7.1.6 a case of default, within the meaning defined in any contract
or commitment of the Company or of one of its subsidiaries,
occurs and continues, which may materially and adversely
affect the property of the Company or of one of its
subsidiaries, its activities or its financial position;
provided, however, that if the Company remedies such case of default
or if there is a waiver by the beneficiary, then the case of default
hereunder shall also be deemed to have been remedied.
7.2 Subject to subsection 7.3, if a case of default occurs or continues,
the Holder, at its option, by written notice given to the Company
and to C-CHIP in the manner stipulated in section 9, may (i) request
repayment of the debenture, and the Company then shall pay a price
equivalent to the total of the Principal Amount then outstanding
plus the interest accrued and unpaid as at that date, or (ii)
request the conversion of the debenture according to the conditions
of section 3. When it occurs, the payment or the conversion
stipulated in this section shall be deemed to release the Company
from its obligations hereunder, such that any amount payable
pursuant to this debenture shall be deemed to have been paid.
8
7.3 When a case of default has occurred, the Holder, at its option, may
exercise its rights by any recourse, action, suit or proceeding
authorized or permitted by law and may produce its evidence or other
documents necessary or desirable so that the Holder's claims are
considered in any winding-up or liquidation or other proceeding in
respect of the Company.
7.4 No waiver of a case of default by the Holder shall have effect
unless the Holder has consented to and signed this waiver. The
exercise by the Holder of a right or remedy stipulated herein or
otherwise does not imply a waiver by the Holder of this default or a
waiver of the exercise of any other right or remedy. In delaying to
exercise or in not exercising a right or a remedy granted hereby,
the Holder shall not thereby waive this right or remedy, and the
occasional or partial exercise of such right or remedy shall not
prevent the Holder from availing itself of such right or remedy
again or from exercising all the other rights and remedies granted
to it under the terms hereof or otherwise.
7.5 The rights and remedies granted to the Holder hereunder are
cumulative and are simply added to the other rights and remedies
that the laws of Quebec or of any other jurisdiction confer on it.
The exercise by the Holder of a right or a remedy following a
default or following the non-performance of a commitment or an
obligation stipulated herein shall not imply any waiver and shall
not affect or exclude any other right or remedy then open to the
Holder.
8. ASSIGNABILITY OF THE DEBENTURE
Subject to the conditions stipulate din this debenture and the applicable
provisions in securities matters, the Holder may sell, transfer, dispose
of, pledge, alienate or otherwise assign the debenture in any manner
whatsoever on simple notice to the Company.
9. NOTICE
Every notice or every other communication that must be given hereunder
shall be given in writing and transmitted by registered or certified mail
or by fax (on condition that it is followed by a copy by courier and that
its receipt is assured) or delivered in person to the addresses mentioned
hereinafter or to any other address or other fax number that may be
designated by one of the parties in a written notice delivered to all the
other parties:
9
9.1 to the Holder:
FONDACTION, Le Fonds de developpement
de la Confederation des syndicates nationaux
pour la cooperation et l'emploi
2175 Boul. de Maisonneuve Est, Suite 103
Montreal (Quebec) H2K 4S3
To the attention of the Chief Investment Officer
Telephone: (514) 525-5505 or (800) 253-6665
Fax: (514) 525-0863
9.2 to the Company:
AVENSYS INC.
880 Selkirk
Pointe-Claire (Quebec) H9R 3S3
To the attention of the President
Telephone: (514) 428-6766 #222
Fax: (514) 428-1433
9.2.1 to C-CHIP TECHNOLOGIES CORPORATION
C-CHIP TECHNOLOGIES CORPORATION
4710 Rue St-Ambroise, Suite 227
Montreal (Quebec) H4C 2C7
To the attention of Mr. Stephane Solis
Telephone: (514) 337-2447
Fax: (514) 397-0985
Every notice or document given or transmitted hereunder shall be deemed
delivered and received upon its delivery or its transmittal by fax during
business hours or on the third business day following its mailing, when
the postal service is operating normally, as the case may be.
10. INTERPRETATION
The division of the debenture into sections and the insertion of headings
only serve for the purposes of consultation and shall have no effect on
the interpretation hereof.
11. SUBJECTION
The debenture shall be governed and interpreted in accordance to the law
applicable in Quebec.
10
12. EFFECTIVE DATE
Notwithstanding the date of signing and execution of this debenture, the
parties agree that the effective date of this debenture is February 28,
2005.
IN WITNESS WHEREOF, this debenture has been duly signed, executed and delivered
by the Company on April .... 2005.
AVENSYS INC.
Per: /s/ Martin D'Amours
--------------------------------
Martin D'AMOURS
President
INTERVENING HEREIN is C-CHIP, which declares that it has taken cognizance of
this debenture and is bound by each of the terms, commitments and obligations
stipulated in this debenture.
C-CHIP TECHNOLOGIES CORPORATION
Per: /s/ Stephane Solis
--------------------------------
Stephane SOLIS
11
TRANSFER
For value received, the undersigned hereby assigns and transfers to
_________________________ this debenture, as well as the Principal Amount then
outstanding and the interest accrued and unpaid, and hereby irrevocably
constitutes and appoints _______________________________ as proxy to transfer
the debenture in the ledgers kept by the Company with full powers of
substitution in this regard.
(Date) _________________________________
In the presence of: _____________________________
NOTICE OF CONVERSION
The undersigned hereby elects to convert _________________ dollars (indicate the
Principal Amount then outstanding and the interest and the Penalty, if any) into
Restricted C-Chip Shares (or any other share arising from the redesignation or
reclassification of these shares) on the conditions set out in the debenture
according to the conditions stipulated:
o in section 3 of the debenture
(Print the name in which the shares issued upon conversion must be issued,
delivered and registered)
- ---------------------------------------
(Name)
- ---------------------------------------
(Address)
- ---------------------------------------
(City, Province and Postal Code)
12