THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND IS
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.
7 % CONVERTIBLE DEBENTURE
COMPANY: Invicta Group Inc.
COMPANY ADDRESS: 9553 Harding Avenue, Suite 301, Miami Beach, FL 33154
CLOSING DATE: April 27, 2004
MATURITY DATE: April 27, 2006
PRINCIPAL AMOUNT: $300,000
FIRST PAYMENT DUE DATE: June 15, 2004
Invicta Group Inc., a Nevada corporation, and any successor or resulting
corporation by way of merger, consolidation, sale or exchange of all or
substantially all of the assets or otherwise (the "COMPANY"), for value
received, hereby promises to pay to the Holder (as such term is hereinafter
defined), or such other Person (as such term is hereinafter defined) upon order
of the Holder, on the Maturity Date, the Principal Amount (as such term is
hereinafter defined), as such sum may be adjusted pursuant to Article 3, and to
pay interest thereon from the Closing Date, monthly in arrears, on the 15th day
of each month (each an "INTEREST PAYMENT DUE DATE" and collectively, the
"INTEREST PAYMENT DUE DATES"), commencing on the First Payment Due Date, at the
rate of seven and three-quarter percent (7 %) per annum (the "DEBENTURE
INTEREST RATE"), until the Principal Amount of this Debenture has been paid in
full. All interest payable on the Principal Amount of this Debenture shall be
calculated on the basis of a 360-day year for the actual number of days elapsed.
Payment of interest on this Debenture shall be in cash or, at the option of the
Holder, in shares of Common Stock of the Company valued at the then applicable
Conversion Price (as defined herein). This Debenture may not be prepaid without
the written consent of the Holder.
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used in
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this Debenture have the following respective meanings:
(I) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended.
(II) "BANKRUPTCY CODE" means the United States Bankruptcy Code of 1986, as
amended (11 U.S.C. 101 et. seq.).
-- ---
(III)"BUSINESS DAY" means a day other than Saturday, Sunday or any day on which
banks located in the State of California are authorized or obligated to
close.
(IV) "CAPITAL SHARES" means the Common Stock and any other shares of any other
class or series of capital stock, whether now or hereafter authorized and
however designated, which have the right to participate in the distribution
of earnings and assets (upon dissolution, liquidation or winding-up) of the
Company.
(V) "COMMON SHARES" or "COMMON STOCK" means shares of the Company's Common
Stock.
(VI) "COMMON STOCK ISSUED AT CONVERSION", when used with reference to the
securities deliverable upon conversion of this Debenture, means all Common
Shares now or hereafter Outstanding and securities of any other class or
series into which this Debenture hereafter shall have been changed or
substituted, whether now or hereafter created and however designated.
(VII)"CONVERSION" or "CONVERSION" means the repayment by the Company of the
Principal Amount of this Debenture (and, to the extent the Holder elects as
permitted by Section 3.1, accrued and unpaid interest thereon) by the
delivery of Common Stock on the terms provided in Section 3.2, and
"CONVERT," "CONVERTED," "CONVERTIBLE" and like words shall have a
corresponding meaning.
(VIII) "CONVERSION DATE" means any day on which all or any portion of the
Principal Amount of this Debenture is converted in accordance with the
provisions hereof.
(IX) "CONVERSION NOTICE" means a written notice of conversion substantially in
the form annexed hereto as Exhibit A.
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(X) "CONVERSION PRICE" on any date of determination means the applicable price
for the conversion of this Debenture into Common Shares on such day as set
forth in Section 3.1(a).
(XI) "CURRENT MARKET PRICE" on any date of determination means the closing price
of a Common Share on such day as reported on the NASDAQ OTCBB Exchange;
provided that, if such security is not listed or admitted to trading on the
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NASDAQ OTCBB, as reported on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the closing bid price of such
security on the over-the-counter market on the day in question as reported
by Bloomberg LP or a similar generally accepted reporting service, as the
case may be.
(XII)"DEADLINE" means the date that is the 90th day from the Closing Date.
(XIII) "DEBENTURE" or "DEBENTURES" means this Convertible Debenture of the
Company or such other convertible debenture(s) exchanged therefor as
provided in Section 2.1.
(XIV)"DISCOUNT MULTIPLIER" has the meaning set forth in Section 3.1(a).
(XV) "EVENT OF DEFAULT" has the meaning set forth in Section 6.1.
(XVI)"HOLDER" means Golden Gate Investors, Inc., any successor thereto, or any
Person to whom this Debenture is subsequently transferred in accordance
with the provisions hereof.
(XVII) "INTEREST PAYMENT DUE DATE" has the meaning set forth in the opening
paragraph of this Debenture.
(XVIII) "MARKET DISRUPTION EVENT" means any event that results in a material
suspension or limitation of trading of the Common Shares.
(XIX) "MARKET PRICE" per Common Share means the lowest price of the Common
Shares during any Trading Day as reported on the NASDAQ OTCBB; provided
--------
that, if such security is not listed or admitted to trading on the NASDAQ
OTCBB, as reported on the principal national security exchange or quotation
system on which such security is quoted or listed or admitted to trading,
or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the lowest price of the Common
Shares during any Trading Day on the over-the-counter market as reported by
Bloomberg LP or a similar generally accepted reporting service, as the case
may be.
(XX) "MAXIMUM RATE" has the meaning set forth in Section 6.4.
(XXI)"OUTSTANDING" when used with reference to Common Shares or Capital Shares
(collectively, "SHARES") means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in
such Shares; provided, however, that any such Shares directly or indirectly
-------- -------
owned or held by or for the account of the Company or any Subsidiary of the
Company shall not be deemed "OUTSTANDING" for purposes hereof.
(XXII) "PERSON" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government
or political subdivision or any agency or instrumentality thereof.
(XXIII) "PRINCIPAL AMOUNT" means, for any date of calculation, the principal sum
set forth in the first paragraph of this Debenture (but only such principal
amount as to which the Holder has (a) actually advanced pursuant to the
Securities Purchase Agreement, and (b) not theretofore furnished a
Conversion Notice in compliance with Section 3.2).
(XXIV) "REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement of even date herewith by and between the Company and Holder, as
the same may be amended from time to time.
(XXV) "SEC" means the United States Securities and Exchange Commission.
(XXVI) "SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
(XXVII) "SECURITIES PURCHASE AGREEMENT" means that certain Securities Purchase
Agreement of even date herewith by and among the Company and Holder, as the
same may be amended from time to time.
(XXVIII) "SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly
or indirectly by the Company.
(XXIX) "TRADING DAY" means any day on which (i) purchases and sales of
securities on the principal national security exchange or quotation system
on which the Common Shares are traded are reported thereon, or, if not
quoted or listed or admitted to trading on any national securities exchange
or quotation system, as reported by Bloomberg LP or a similar generally
accepted reporting service, as the case may be, (ii) at least one bid for
the trading of Common Shares is reported and (iii) no Market Disruption
Event occurs.
All references to "cash" or "$" herein means currency of the United States
of America.
ARTICLE 2
EXCHANGES, TRANSFER AND REPAYMENT
SECTION 2.1 Registration of Transfer of Debentures. This Debenture, when
-----------------------------------------
presented for registration of transfer, shall (if so required by the Company) be
duly endorsed, or be accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company duly executed, by the Holder duly
authorized in writing.
SECTION 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of evidence
-------------------------------------
satisfactory to the Company of the loss, theft, destruction or mutilation
of this Debenture and, in the case of any such loss, theft or destruction, upon
receipt of indemnity or security reasonably satisfactory to the Company, or, in
the case of any such mutilation, upon surrender and cancellation of this
Debenture, the Company shall make, issue and deliver, in lieu of such lost,
stolen, destroyed or mutilated Debenture, a new Debenture of like tenor and
unpaid Principal Amount dated as of the date hereof (which shall accrue interest
from the most recent Interest Payment Due Date on which an interest payment was
made in full). This Debenture shall be held and owned upon the express
condition that the provisions of this Section 2.2 are exclusive with respect to
the replacement of a mutilated, destroyed, lost or stolen Debenture and shall
preclude any and all other rights and remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without the surrender
thereof.
SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the Person in
-------------------------
whose name this Debenture shall be registered upon the registry books of the
Company to be, and may treat it as, the absolute owner of this Debenture
(whether or not this Debenture shall be overdue) for the purpose of receiving
payment of or on account of the Principal Amount of this Debenture, for the
conversion of this Debenture and for all other purposes, and the Company shall
not be affected by any notice to the contrary. All such payments and such
conversions shall be valid and effectual to satisfy and discharge the liability
upon this Debenture to the extent of the sum or sums so paid or the conversion
or conversions so made.
SECTION 2.4 Repayment at Maturity. At the Maturity Date, the Company shall
---------------------
repay the outstanding Principal Amount of this Debenture in whole in cash,
together with all accrued and unpaid interest thereon, in cash, to the Maturity
Date.
ARTICLE 3
CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Price; Valuation Event.
-------------------------------------------------
(a) At the option of the Holder, this Debenture may be converted, either in
whole or in part, up to the full Principal Amount hereof (in increments of
$1,000 in Principal Amount) into Common Shares (calculated as to each such
conversion to the nearest 1/100th of a share), at any time and from time to
time on any Business Day, subject to compliance with Section 3.2. The
number of Common Shares into which this Debenture may be converted is equal
to the dollar amount of the Debenture being converted multiplied by eleven,
minus the product of the Conversion Price multiplied by ten times the
dollar amount of the Debenture being converted, and the entire foregoing
result shall be divided by the Conversion Price. In addition, the Company
shall pay to the Holder on the Conversion Date, in cash, any accrued and
unpaid interest on the Debenture being converted not included at the option
of the Holder in clause (i) of the immediately preceding sentence. The
"CONVERSION PRICE" shall be equal to the lesser of (i) $0.25, or (ii)
eighty percent (80%) of the average of the 3 lowest Volume Weighted Average
Prices during the twenty (20) Trading Days prior to Holder's election to
convert (a "DISCOUNT MULTIPLIER"); provided, that in the
--------
event the Registration Statement has not been declared effective by the SEC
by the Deadline or, if the Registration Statement has theretofore been
declared effective but is not thereafter effective, then the applicable
Discount Multiplier shall decrease by three percentage points (3%) for each
month or partial month occurring after the Deadline that the Registration
Statement is not effective.
Beginning in the first full calendar month after the Registration Statement
is declared effective, Holder shall convert at least 5%, but no more than
15% (such 15% maximum amount to be cumulative from the Deadline), of the
face value of the Debenture per calendar month into Common Shares of the
Company, provided that the Common Shares are available, registered and
freely tradable. If Holder converts more than 5% of the face value of the
Debenture in any calendar month, the excess over 5% shall be credited
against the next month's minimum conversion amount. The 15% monthly maximum
amount shall not be applicable if the Current Market Price of the Common
Stock at anytime during the applicable month is higher than the Current
Market Price of the Common Stock on the Closing Date. In the event Holder
does not convert at least 5% of the Debenture in any particular calendar
month, Holder shall not be entitled to collect interest on the Debenture
for that month if the Company gives Holder written notice, at least 5
business days prior to the end of the month, of Holder's failure to convert
the minimum required amount for that month.
If the Holder elects to convert a portion of the Debenture and, on the day
that the election is made, the Volume Weighted Average Price is below
$0.10, the Company shall have the right to prepay that portion of the
Debenture that Holder elected to convert, plus any accrued and unpaid
interest, at 150% of such amount. In the event that the Company elects to
prepay that portion of the Debenture, Holder shall have the right to
withdraw its Conversion Notice. If, at anytime during the month, the Volume
Weighted Average Price is below $0.10, Holder shall not be obligated to
convert any portion of the Debenture during that month.
(b) Notwithstanding the provisions of Section 3.1(a), in the event the
Company's Registration Statement has not been declared effective by the
Deadline or, if the Registration Statement has theretofore been declared
effective but is not thereafter effective, the following will also apply in
addition to any damages incurred by the Holder as a result thereof:
(i) The Holder may demand repayment of one hundred and fifty percent
(150%) of the Principal Amount of the Debenture, together with all accrued and
unpaid interest thereon, in cash, at any time prior to the Company's
Registration Statement being declared effective by the SEC or during the period
that the Company's Registration Statement is not effective, such repayment to be
made within three (3) business days of such demand. In the event that the
Debenture is so accelerated, in addition to the repayment of one hundred and
fifty percent (150%) of the Principal Amount together with accrued interest as
aforesaid, the Company shall immediately issue and pay, as the case may be, to
the Holder 50,000 Shares of Common Stock and $15,000 for each thirty (30) day
period, or portion thereof, during which the Principal Amount, including
interest thereon, remains unpaid, with the monthly payment amount to increase to
$20,000 for each thirty (30) day period, or portion thereof, after the first
ninety (90) day period;
(ii) If the Holder does not elect to accelerate the Debenture, the
Company shall immediately issue or pay, as the case may be, to Holder 50,000
Shares of Common Stock and $15,000 for each thirty (30) day period, or portion
thereof, that the Registration Statement is not effective, with the monthly
payment amount to increase to $20,000 for each thirty (30) day period, or
portion thereof, after the first ninety (90) day period.
(iii) If the SEC indicates that the Company's Registration Statement
will be declared effective upon request by the Company, and the Company does
not, within 3 business days of the SEC indication, request that the Registration
Statement become effective, the amounts set forth in subsections (ii) and (iii)
above shall double.
SECTION 3.2 Exercise of Conversion Privilege. (a) Conversion of this
-----------------------------------
Debenture may be exercised on any Business Day by the Holder by telecopying an
executed and completed Conversion Notice to the Company. Each date on which a
Conversion Notice is telecopied to the Company in accordance with the provisions
of this Section 3.2 shall constitute a Conversion Date. The Company shall
convert this Debenture and issue the Common Stock Issued at Conversion in the
manner provided below in this Section 3.2, and all voting and other rights
associated with the beneficial ownership of the Common Stock Issued at
Conversion shall vest with the Holder, effective as of the Conversion Date at
the time specified in the Conversion Notice. The Conversion Notice also shall
state the name or names (with addresses) of the persons who are to become the
holders of the Common Stock Issued at Conversion in connection with such
conversion. As promptly as practicable after the receipt of the Conversion
Notice as aforesaid, but in any event not more than three (3) Business Days
after the Company's receipt of such Conversion Notice, the Company shall (i)
issue the Common Stock Issued at Conversion in accordance with the provisions of
this Article 3 and (ii) cause to be mailed for delivery by overnight courier, or
if a Registration Statement covering the Common Stock has been declared
effective by the SEC cause to be electronically transferred, to Holder (x) a
certificate or certificate(s) representing the number of Common Shares to which
the Holder is entitled by virtue of such conversion, (y) cash, as provided in
Section 3.3, in respect of any fraction of a Common Share deliverable upon such
conversion and (z) cash or shares of Common Stock, as applicable, representing
the amount of accrued and unpaid interest on this Debenture as of the Conversion
Date. Such conversion shall be deemed to have been effected at the time at which
the Conversion Notice indicates, and at such time the rights of the Holder of
this Debenture, as such (except if and to the extent that any Principal Amount
thereof remains unconverted), shall cease and the Person and Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby, and all voting and other rights associated with the
beneficial ownership of such Common Shares shall at such time vest with such
Person or Persons. The Conversion Notice shall constitute a contract between the
Holder and the Company, whereby the Holder shall be deemed to subscribe for the
number of Common Shares which it will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription (and for any
cash adjustment to which it is entitled pursuant to Section 3.4), to surrender
this Debenture and to release the Company from all liability thereon (except if
and to the extent that any Principal Amount thereof remains unconverted). No
cash payment aggregating less than $1.00 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time after the date of this Debenture, (i) the Company
challenges, disputes or denies the right of the Holder hereof to effect the
conversion of this Debenture into Common Shares or otherwise dishonors or
rejects any Conversion Notice delivered in accordance with this Section 3.2
or (ii) any third party who is not and has never been an Affiliate of the
Holder commences any lawsuit or legal proceeding or otherwise asserts any
claim before any court or public or governmental authority which seeks to
challenge, deny, enjoin, limit, modify, delay or dispute the right of the
Holder hereof to effect the conversion of this Debenture into Common
Shares, then the Holder shall have the right, by written notice to the
Company, to require the Company to promptly redeem this Debenture for cash
at one hundred and fifty (150%) of the Principal Amount thereof, together
with all accrued and unpaid interest thereon to the date of redemption.
Under any of the circumstances set forth above, the Company shall be
responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred in
defending itself in any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under the Bankruptcy Code. In
the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives to the fullest extent permitted any rights to relief it may
have under 11 U.S.C. 362 in respect of the Holder's conversion privilege.
The Company hereby waives to the fullest extent permitted any rights to
relief it may have under 11 U.S.C. 362 in respect of the conversion of this
Debenture. The Company agrees, without cost or expense to the Holder, to
take or consent to any and all action necessary to effectuate relief under
11 U.S.C. 362.
SECTION 3.3 Fractional Shares. No fractional Common Shares or scrip
------------------
representing fractional Common Shares shall be delivered upon conversion of this
Debenture. Instead of any fractional Common Shares which otherwise would
be delivered upon conversion of this Debenture, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
multiplied by the Current Market Price on the Conversion Date. No cash payment
of less than $1.00 shall be required to be given unless specifically requested
by the Holder.
SECTION 3.4 Adjustments. The Conversion Price and the number of shares
-----------
deliverable upon conversion of this Debenture are subject to adjustment from
time to time as follows:
(i) Reclassification, Etc. In case the Company shall reorganize its
----------------------
capital, reclassify its capital stock, consolidate or merge with or into another
Person (where the Company is not the survivor or where there is a change in
or distribution with respect to the Common Stock of the Company), sell, convey,
transfer or otherwise dispose of all or substantially all its property, assets
or business to another Person, or effectuate a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of (each, a "FUNDAMENTAL CORPORATE CHANGE") and, pursuant to
the terms of such Fundamental Corporate Change, shares of common stock of the
successor or acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common stock of
the successor or acquiring corporation ("OTHER PROPERTY") are to be received by
or distributed to the holders of Common Stock of the Company, then the Holder of
this Debenture shall have the right thereafter, at its sole option, to (x)
require the Company to prepay this Debenture for cash at one hundred and fifty
percent (150%) of the Principal Amount thereof, together with all accrued and
unpaid interest thereon to the date of prepayment, (y) receive the number of
shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property as is receivable
upon or as a result of such Fundamental Corporate Change by a holder of the
number of shares of Common Stock into which the outstanding portion of this
Debenture may be converted at the Conversion Price applicable immediately prior
to such Fundamental Corporate Change or (z) require the Company, or such
successor, resulting or purchasing corporation, as the case may be, to, without
benefit of any additional consideration therefor, execute and deliver to the
Holder a debenture with substantial identical rights, privileges, powers,
restrictions and other terms as this Debenture in an amount equal to the amount
outstanding under this Debenture immediately prior to such Fundamental Corporate
Change. For purposes hereof, "COMMON STOCK OF THE SUCCESSOR OR ACQUIRING
CORPORATION" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to prepayment and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions shall similarly apply to successive Fundamental Corporate
Changes.
SECTION 3.5 Certain Conversion Limits.
---------------------------
Notwithstanding anything herein to the contrary, if and to the extent that,
on any date, the holding by the Holder of this Debenture would result in the
Holder's being deemed the beneficial owner of more than 4.99% of the then
Outstanding shares of Common Stock, then the Holder shall not have the right,
and the Company shall not have the obligation, to convert any portion of this
Debenture as shall cause such Holder to be deemed the beneficial owner of more
than 4.99% of the then Outstanding shares of Common Stock. If any court of
competent jurisdiction shall determine that the foregoing limitation is
ineffective to prevent a Holder from being deemed the beneficial owner of more
than 4.99% of the then Outstanding shares of Common Stock, then the Company
shall prepay such portion of this Debenture as shall cause such Holder not to be
deemed the beneficial owner of more than 4.99% of the then Outstanding shares of
Common Stock. Upon such determination by a court of competent jurisdiction, the
Holder shall have no interest in or rights under such portion of the Debenture.
Any and all interest paid on or prior to the date of such determination shall be
deemed interest paid on the remaining portion of this Debenture held by the
Holder. Such prepayment shall be for cash at a prepayment price of one hundred
and fifty percent (150%) of the Principal Amount thereof, together with all
accrued and unpaid interest thereon to the date of prepayment.
SECTION 3.6 Surrender of Debentures. Upon any redemption of this Debenture
-----------------------
pursuant to Sections 3.2, 3.5 or 6.2, or upon maturity pursuant to Section 2.4,
the Holder shall either deliver this Debenture by hand to the Company at its
principal executive offices or surrender the same to the Company at such address
by nationally recognized overnight courier. Payment of the redemption price or
the amount due on maturity specified in Section 2.4, shall be made by the
Company to the Holder against receipt of this Debenture (as provided in this
Section 3.5) by wire transfer of immediately available funds to such account(s)
as the Holder shall specify by written notice to the Company. If payment of such
redemption price is not made in full by the redemption date, or the amount due
on maturity is not paid in full by the Maturity Date, the Holder shall again
have the right to convert this Debenture as provided in Article 3 hereof or to
declare an Event of Default.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Debenture. This Debenture constitutes a legal, valid
-------------------
and binding obligation of the Company, enforceable in accordance with its terms
subject, as to enforceability, to general principles of equity and to principles
of bankruptcy, insolvency, reorganization and other similar laws of general
applicability relating to or affecting creditors' rights and remedies generally.
SECTION 4.2 Restrictions on Transfer. This Debenture, and any Common Shares
------------------------
deliverable upon the conversion hereof, have not been registered under the
Securities Act. The Holder by accepting this Debenture agrees that this
Debenture and the shares of Common Stock to be acquired as interest on and upon
conversion of this Debenture may not be assigned or otherwise transferred unless
and until (i) the Company has received the opinion of counsel for the Holder
that this Debenture or such shares may be sold pursuant to an exemption from
registration under the Securities Act or (ii) a registration statement relating
to this Debenture or such shares has been filed by the Company and declared
effective by the SEC.
Each certificate for shares of Common Stock deliverable hereunder shall
bear a legend as follows unless and until such securities have been sold
pursuant to an effective registration statement under the Securities Act:
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"). The securities
may not be offered for sale, sold or otherwise transferred except (i) pursuant
to an effective registration statement under the Securities Act or (ii) pursuant
to an exemption from registration under the Securities Act in respect of which
the issuer of this certificate has received an opinion of counsel satisfactory
to the issuer of this certificate to such effect. Copies of the agreement
covering both the purchase of the securities and restrictions on their transfer
may be obtained at no cost by written request made by the holder of record of
this certificate to the Secretary of the issuer of this certificate at the
principal executive offices of the issuer of this certificate."
ARTICLE 5
COVENANTS
SECTION 5.1 Conversion. The Company shall cause the transfer agent, not
----------
later than three (3) Business Days after the Company's receipt of a Conversion
Notice, to issue and deliver to the Holder the requisite shares of Common Stock
Issued at Conversion. Such delivery shall be by electronic transfer if a
Registration Statement covering the Common Stock has been declared effective by
the SEC.
SECTION 5.2 Notice of Default. If any one or more events occur which
-------------------
constitute or which, with notice, lapse of time, or both, would constitute an
Event of Default, the Company shall forthwith give notice to the Holder,
specifying the nature and status of the Event of Default or such other event(s),
as the case may be.
SECTION 5.3 Payment of Obligations. So long as this Debenture shall be
----------------------
outstanding, the Company shall pay, extend, or discharge at or before maturity,
all its respective material obligations and liabilities, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings.
SECTION 5.4 Compliance with Laws. So long as this Debenture shall be
----------------------
outstanding, the Company shall comply with all applicable laws, ordinances,
rules, regulations and requirements of governmental authorities, except for such
noncompliance which would not have a material adverse effect on the
business, properties, prospects, condition (financial or otherwise) or results
of operations of the Company and the Subsidiaries.
SECTION 5.5 Inspection of Property, Books and Records. So long as this
---------------------------------------------
Debenture shall be outstanding, the Company shall keep proper books of record
and account in which full, true and correct entries shall be made of all
material dealings and transactions in relation to its business and activities
and shall permit representatives of the Holder at the Holder's expense to visit
and inspect any of its respective properties, to examine and make abstracts from
any of its respective books and records, not reasonably deemed confidential
by the Company, and to discuss its respective affairs, finances and accounts
with its respective officers and independent public accountants, all at such
reasonable times and as often as may reasonably be desired.
SECTION 5.6 Right of First Refusal on Other Financing. In the event that
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the Company obtains any other financing (either debt, equity, or a combination
thereof) which is to close during the term of this Debenture, Holder shall be
entitled to a right of first refusal to enable it to, at Holder's option,
either: (i) match the terms of the other financing, or (ii) add additional
principal to this Debenture, in the amount of such other financing, on the same
terms and conditions as this Debenture. The Company shall deliver to Holder, at
least 10 days prior to the proposed closing date of such transaction, written
notice describing the proposed transaction, including the terms and conditions
thereof, and providing Holder an option during the 10 day period following
delivery of such notice to either provide the financing being offered in such
transaction on the same terms as contemplated by such transaction, or to add
additional principal to this Debenture, in the amount of such other financing,
on the same terms and conditions as this Debenture.
ARTICLE 6
EVENTS OF DEFAULT; REMEDIES
SECTION 6.1 Events of Default. "EVENT OF DEFAULT" wherever used herein
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means any one of the following events:
(i) the Company shall default in the payment of principal of or interest on
this Debenture as and when the same shall be due and payable and, in the
case of an interest payment default, such default shall continue for five
(5) Business Days after the date such interest payment was due, or the
Company shall fail to perform or observe any other covenant, agreement,
term, provision, undertaking or commitment under this Debenture, the
Conversion Warrants (as defined in the Securities Purchase Agreement), the
Securities Purchase Agreement or the Registration Rights Agreement and such
default shall continue for a period of ten (10) Business Days after the
delivery to the Company of written notice that the Company is in default
hereunder or thereunder;
(ii) any of the representations or warranties made by the Company herein, in the
Securities Purchase Agreement, the Registration Rights Agreement or in any
certificate or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in connection with the
execution and delivery of this Debenture, the Warrants, the Securities
Purchase Agreement or the Registration Rights Agreement shall be false or
misleading in a material respect on the Closing Date;
(iii)under the laws of any jurisdiction not otherwise covered by clauses (iv)
and (v) below, the Company or any Subsidiary (A) becomes insolvent or
generally not able to pay its debts as they become due, (B) admits in
writing its inability to pay its debts generally or makes a general
assignment for the benefit of creditors, (C) institutes or has instituted
against it any proceeding seeking (x) to adjudicate it a bankrupt or
insolvent, (y) liquidation, winding-up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors
including any plan of compromise or arrangement or other corporate
proceeding involving or affecting its creditors or (z) the entry of an
order for relief or the appointment of a receiver, trustee or other similar
person for it or for any substantial part of its properties and assets, and
in the case of any such official proceeding instituted against it (but not
instituted by it), either the proceeding remains undismissed or unstayed
for a period of sixty (60) calendar days, or any of the actions sought in
such proceeding (including the entry of an order for relief against it or
the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its properties and assets) occurs or
(D) takes any corporate action to authorize any of the above actions;
(iv) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company or any Subsidiary a bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company
under the Bankruptcy Code or any other applicable Federal or state law, or
appointing a receiver, liquidator, assignee, trustee or sequestrator (or
other similar official) of the Company or of any substantial part of its
property, or ordering the winding-up or liquidation of its affairs, and any
such decree or order continues and is unstayed and in effect for a period
of sixty (60) calendar days;
(v) the institution by the Company or any Subsidiary of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or
relief under the Bankruptcy Code or any other applicable federal or state
law, or the consent by it to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee or sequestrator
(or other similar official) of the Company or of any substantial part of
its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as and when they become due, or the taking of corporate
action by the Company in furtherance of any such action;
(vi) a final judgment or final judgments for the payment of money shall have
been entered by any court or courts of competent jurisdiction against the
Company and remains undischarged for a period (during which execution shall
be effectively stayed) of thirty (30) days, provided that the aggregate
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amount of all such judgments at any time outstanding (to the extent not
paid or to be paid, as evidenced by a written communication to that effect
from the applicable insurer, by insurance) exceeds One Hundred Thousand
Dollars ($100,000);
(vii) it becomes unlawful for the Company to perform or comply with its
obligations under this Debenture, the Conversion Warrant, the Securities
Purchase Agreement or the Registration Rights Agreement in any respect;
(viii) the Common Shares shall be delisted from the NASDAQ OTCBB (the "TRADING
MARKET" or, to the extent the Company becomes eligible to list its Common
Stock on any other national security exchange or quotation system, upon
official notice of listing on any such exchange or system, as the case may
be, it shall be the "TRADING MARKET") or suspended from trading on the
Trading Market, and shall not be reinstated, relisted or such suspension
lifted, as the case may be, within five (5) days or;
(ix) the Company shall default (giving effect to any applicable grace period) in
the payment of principal or interest as and when the same shall become due
and payable, under any indebtedness, individually or in the aggregate, of
more than One Hundred Thousand Dollars ($100,000);
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. If an Event
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of Default occurs and is continuing, then and in every such case the Holder may,
by a notice in writing to the Company, rescind any outstanding Conversion Notice
and declare that all amounts owing or otherwise outstanding under this Debenture
are immediately due and payable and upon any such declaration this Debenture
shall become immediately due and payable in cash at a price of one hundred and
fifty percent (150%) of the Principal Amount thereof, together with all accrued
and unpaid interest thereon to the date of payment; provided, however, in the
--------
case of any Event of Default described in clauses (iii), (iv), (v) or (vii) of
Section 6.1, such amount automatically shall become immediately due and payable
without the necessity of any notice or declaration as aforesaid.
SECTION 6.3 Late Payment Penalty. If any portion of the principal of or
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interest on this Debenture shall not be paid within ten (10) days of when it is
due, the Discount Multiplier under this Debenture, and under all warrants
granted by the Company to the Holder, shall decrease by one percentage point
(1%) for all conversions of this Debenture and warrant exercises thereafter.
SECTION 6.4 Maximum Interest Rate. Notwithstanding anything herein to
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the contrary, if at any time the applicable interest rate as provided for herein
shall exceed the maximum lawful rate which may be contracted for, charged, taken
or received by the Holder in accordance with any applicable law (the "MAXIMUM
RATE"), the rate of interest applicable to this Debenture shall be limited to
the Maximum Rate. To the greatest extent permitted under applicable law, the
Company hereby waives and agrees not to allege or claim that any provisions of
this Note could give rise to or result in any actual or potential violation of
any applicable usury laws.
SECTION 6.5 Remedies Not Waived. No course of dealing between the Company
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and the Holder or any delay in exercising any rights hereunder shall operate as
a waiver by the Holder.
SECTION 6.6 Remedies. The Company acknowledges that a breach by it of its
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obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Debenture will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Debenture, that the
Holder shall be entitled to all other available remedies at law or in equity,
and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Debenture and
to enforce specifically the terms and provisions thereof, without the necessity
of showing economic loss and without any bond or other security being required.
SECTION 6.7 Payment of Certain Amounts. Whenever pursuant to this Debenture
--------------------------
the Company is required to pay an amount in excess of the Principal Amount plus
accrued and unpaid interest, the Company and the Holder agree that the actual
damages to the Holder from the receipt of cash payment on this Debenture may be
difficult to determine and the amount to be so paid by the Company represents
stipulated damages and not a penalty and is intended to compensate the Holder in
part for loss of the opportunity to convert this Debenture and to earn a return
from the sale of shares of Common Stock acquired upon conversion of this
Debenture at a price in excess of that price paid for such shares pursuant to
this Debenture. The Company and the Holder hereby agree that such amount of
stipulated damages is not disproportionate to the possible loss to the Holder
from the receipt of a cash payment without the opportunity to convert this
Debenture into shares of Common Stock.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Notice of Certain Events. In the case of the occurrence of any
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event described in Section 3.4 of this Debenture, the Company shall cause to be
mailed to the Holder of this Debenture at its last address as it appears in the
Company's security registry, at least twenty (20) days prior to the applicable
record, effective or expiration date hereinafter specified (or, if such twenty
(20) days' notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice thereof, including, if
applicable, a statement of (y) the date on which a record is to be taken for the
purpose of such dividend, distribution, issuance or granting of rights, options
or warrants, or if a record is not to be taken, the date as of which the holders
of record of Common Stock to be entitled to such dividend, distribution,
issuance or granting of rights, options or warrants are to be determined or (z)
the date on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of record of Common Stock will be
entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
SECTION 7.2 Register. The Company shall keep at its principal office a
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register in which the Company shall provide for the registration of this
Debenture. Upon any transfer of this Debenture in accordance with Articles 2
and 4 hereof, the Company shall register such transfer on the Debenture
register.
SECTION 7.3 Withholding. To the extent required by applicable law, the
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Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction
over the Company from any payments made pursuant to this Debenture.
SECTION 7.4 Transmittal of Notices. Except as may be otherwise provided
----------------------
herein, any notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally, or sent by
telecopier machine or by a nationally recognized overnight courier service, and
shall be deemed given when so delivered personally, or by telecopier machine or
overnight courier service as follows:
(1) if to the Company, to:
Invicta Group Inc.
9553 Harding Avenue, Suite 301
Miami, Florida 33154
Telephone: 305-866-6525
Facsimile:
(2) if to the Holder, to:
Golden Gate Investors, Inc.
7817 Herschel Avenue, Suite 200
La Jolla, California 92037
Telephone: 858-551-8789
Facsimile: 858-551-8779
Each of the Holder or the Company may change the foregoing address by notice
given pursuant to this Section 7.4.
SECTION 7.5 Attorneys' Fees. Should any party hereto employ an attorney for
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the purpose of enforcing or construing this Debenture, or any judgment based on
this Debenture, in any legal proceeding whatsoever, including insolvency,
bankruptcy, arbitration, declaratory relief or other litigation, the prevailing
party shall be entitled to receive from the other party or parties thereto
reimbursement for all reasonable attorneys' fees and all reasonable costs,
including but not limited to service of process, filing fees, court and court
reporter costs, investigative costs, expert witness fees, and the cost of any
bonds, whether taxable or not, and that such reimbursement shall be included in
any judgment or final order issued in that proceeding. The "prevailing party"
means the party determined by the court to most nearly prevail and not
necessarily the one in whose favor a judgment is rendered.
SECTION 7.6 Governing Law. This Debenture shall be governed by, and
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construed in accordance with, the laws of the State of California (without
giving effect to conflicts of laws principles). With respect to any suit, action
or proceedings relating to this Debenture, the Company irrevocably submits to
the exclusive jurisdiction of the courts of the State of California sitting in
San Diego and the United States District Court located in the City of San Diego
and hereby waives, to the fullest extent permitted by applicable law, any claim
that any such suit, action or proceeding has been brought in an inconvenient
forum. Subject to applicable law, the Company agrees that final judgment against
it in any legal action or proceeding arising out of or relating to this
Debenture shall be conclusive and may be enforced in any other jurisdiction
within or outside the United States by suit on the judgment, a certified copy of
which judgment shall be conclusive evidence thereof and the amount of its
indebtedness, or by such other means provided by law.
SECTION 7.7 Waiver of Jury Trial. To the fullest extent permitted by law,
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each of the parties hereto hereby knowingly, voluntarily and intentionally
waives its respective rights to a jury trial of any claim or cause of action
based upon or arising out of this Debenture or any other document or any
dealings between them relating to the subject matter of this Debenture and other
documents. Each party hereto (i) certifies that neither of their respective
representatives, agents or attorneys has represented, expressly or otherwise,
that such party would not, in the event of litigation, seek to enforce the
foregoing waivers and (ii) acknowledges that it has been induced to enter into
this Debenture by, among other things, the mutual waivers and certifications
herein.
SECTION 7.8 Headings. The headings of the Articles and Sections of this
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Debenture are inserted for convenience only and do not constitute a part of this
Debenture.
SECTION 7.9 Payment Dates. Whenever any payment hereunder shall be due
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on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
SECTION 7.10 Binding Effect. Each Holder by accepting this Debenture agrees
--------------
to be bound by and comply with the terms and provisions of this Debenture.
SECTION 7.11 No Stockholder Rights. Except as otherwise provided herein,
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this Debenture shall not entitle the Holder to any of the rights of a
stockholder of the Company, including, without limitation, the right to vote, to
receive dividends and other distributions, or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company, unless
and to the extent converted into shares of Common Stock in accordance with the
terms hereof.
SECTION 7.12 Facsimile Execution. Facsimile execution shall be deemed
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originals.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed by
its duly authorized officer on the date of this Debenture. Invicta Group Inc.
By:
Title: _____________________________________
EXHIBIT A
DEBENTURE CONVERSION NOTICE
---------------------------
TO: Invicta Group Inc.
The undersigned owner of this Convertible Debenture due April ___, 2006
(the "DEBENTURE") issued by Invicta Group Inc. (the "COMPANY") hereby
irrevocably exercises its option to convert $__________ Principal Amount of the
Debenture into shares of Common Stock in accordance with the terms of the
Debenture. The undersigned hereby instructs the Company to convert the portion
of the Debenture specified above into shares of Common Stock Issued at
Conversion in accordance with the provisions of Article 3 of the Debenture. The
undersigned directs that the Common Stock and certificates therefor deliverable
upon conversion, the Debenture reissued in the Principal Amount not being
surrendered for conversion hereby, [the check or shares of Common Stock in
payment of the accrued and unpaid interest thereon to the date of this Notice,]
together with any check in payment for fractional Common Stock, be registered in
the name of and/or delivered to the undersigned unless a different name has been
indicated below. All capitalized terms used and not defined herein have the
respective meanings assigned to them in the Debenture. The conversion pursuant
hereto shall be deemed to have been effected at the date and time specified
below, and at such time the rights of the undersigned as a Holder of the
Principal Amount of the Debenture set forth above shall cease and the Person or
Persons in whose name or names the Common Stock Issued at Conversion shall be
registered shall be deemed to have become the holder or holders of record of the
Common Shares represented thereby and all voting and other rights associated
with the beneficial ownership of such Common Shares shall at such time vest with
such Person or Persons.
Date and time: __________________
____________________________________
By: ____________________________
Title: ____________________________
Fill in for registration of Debenture:
Please print name and address
(including ZIP code number):
____________________________________
____________________________________
____________________________________