THIS CONVERTIBLE DEBENTURE 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.
Closing Date: As set forth in the Share Purchase Agreement, made as of , 202
Maturity Date: One year from the date of the Closing upon the Share Purchase Agreement
Interest Rate: 10% per annum payable in full on the Maturity Date
Conversion Ratio: One (1) share of common stock for every $__ .00 of Debt
For value received, , a 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”), hereby promises to pay to the Holder, , or such other person or entity upon order of the Holder, on the Maturity Date, the Principal Amount of Dollars (US $ ), as such sum may be adjusted pursuant to this Convertible Debenture, and to pay interest thereon from the Closing Date, at the rate of Ten Percent (10.0%) 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 principal or interest or both 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).
SECTION 1 -- DEFINITIONS
SECTION 1.1 Definitions. Whenever used in this Debenture, the following terms shall have the following meanings, unless the context indicated otherwise:
(1) “Bankruptcy Code” shall mean the United States Bankruptcy Code of 1986, as amended (11 U.S.C. §§ 101 et. seq.).
(2) “Business Day” shall mean a day other than Saturday, Sunday or any day on which banks located in the State of are authorized or obligated to close.
(3) "Capital Shares” shall mean 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.
(4) “Common Shares” or “Common Stock” shall mean shares of the Company's Common Stock.
(5) "Common Stock Issued at Conversion,” when used with reference to the securities deliverable upon conversion of this Debenture, shall mean 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.
(6) “Conversion” or “conversion” shall mean the repayment, by the Company, of the Principal Amount of this Debenture by delivery, to the Holder, of Common Stock on the terms provided for in Section 3 hereof.
(7) "Conversion Date” shall mean any day on which all or any portion of the Principal Amount of this Debenture is converted in accordance with the provisions hereof.
(8) “Conversion Notice” shall mean a written notice of conversion substantially in the form annexed hereto as Exhibit A.
(9) “Conversion Ratio” on any Conversion Date shall mean the applicable ration for the conversion of this Debenture into Common Shares on such day, as set forth in Section 3
(10) “Debenture” or “Debentures” shall mean this Convertible Debenture or such other convertible debenture(s) of the Company exchanged therefor, as provided for in Section 2.1 hereof.
(11) “Event of Default” shall have the meaning set forth in Section 6.1 hereof.
(12) "Holder” shall mean the , the person to whom this Debenture is issued, or any other person or entity to whom this Debenture is transferred or assigned pursuant to the provisions hereof.
(13) “Principal Amount” shall mean, for any date of calculation, the principal sum set forth in the first paragraph of this Debenture.
(14) “SEC” shall mean the United States Securities and Exchange Commission.
(15) “Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
(16) “Subsidiary” shall mean 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.
SECTION 2 -- EXCHANGES, TRANSFER AND REPAYMENT
SECTION 2.1 Registration or Transfer of Debenture. This Debenture, when presented for registration or transfer, shall, if required by the Company, be duly endorsed and accompanied by a written instrument of transfer, in form reasonably satisfactory to the Company, duly executed by the Holder. This Debenture may be transferred or exchanged only in compliance with the Securities Act and other applicable Federal or state securities laws.
SECTION 2.2 Loss, Theft or Destruction of Debenture. Upon receipt, by the Company, of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Debenture, or, in the case of any such mutilation, upon surrender and cancellation of this Debenture, and upon receipt, by the Company, of indemnity or security reasonably satisfactory to it, 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. Any new Debenture made, issued and delivered in accordance with the provisions of this Section shall be dated as of the date from which unpaid interest has then accrued on the Debenture so lost, stolen, destroyed or mutilated. Any new 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 lost, stolen, destroyed or mutilated Debenture and shall preclude any and all other rights and remedies of the Holder, 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 Absolute Owner. The Company may deem any person or entity in whose name this Debenture is registered in the Company's records as the absolute owner of this Debenture for the purpose of making payments and giving notices hereunder, and for all other purposes. The Company shall not be affected by any notice to the contrary. A holder of this Debenture, or such person's address of record, may be changed only upon written notice to the Company and, to the extent relevant, upon a showing of compliance with the provisions of Section 2.2 above. The Company shall reflect any such ownership change no later than ten (10) business days following its receipt of such written notice or showing of compliance, whichever is the last to occur.
SECTION 2.4 Unsecured Obligation. This Debenture constitutes an unsecured, obligation of the Company. The payment of any amounts due and owing on this Debenture shall be in pari passu in right of payment to the payment in full of all other unsecured debt of the Company, whether outstanding as of the date of issuance of this Debenture (the “Issuance Date”) or thereafter incurred or guaranteed.
SECTION 2.5 Repayment at Maturity. At the Maturity Date, the Company, in its sole and absolute discretion, may either repay the outstanding Principal Amount then due and owing on this Debenture, in cash, together with all accrued and unpaid interest thereon, or convert the outstanding Principal Amount then due and owing, together with all accrued and unpaid interest thereon, into shares of the Company's Common Stock at the Conversion Ratio provided in Section 3.1 hereof.
SECTION 3 -- CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Ratio; Valuation Event. At any time from the Issuance Date through the Maturity Date, the Holder may opt to convert all or any portion of the Principal Amount of this Debenture, plus accrued interest, into shares of Common Stock of the Company by submitting the original Debenture for cancellation on the books and records of the Company, together with a Conversion Notice, subject to compliance with the provisions of Section 3.2 hereof. The number of Common Shares into which this Debenture may be converted shall be equal to the dollar amount of the Debenture being converted multiplied by one (1) (the “Conversion Ratio”). In the event of any recapitalization or reorganization of the Company, the Conversion Ratio shall be adjusted accordingly.
SECTION 3.2 Exercise of Conversion Option. Conversion of this Debenture may be exercised on any Business Day by the Holder upon submission, to the Company, of an executed and completed Conversion Notice (the “Conversion Date”). Upon receipt of any Conversion Notice, the Company shall convert this Debenture into shares of the Company's Common Stock at the Conversion Ratio set forth in Section 3.1 above. All voting and other rights associated with the beneficial ownership of the Common Stock issued to the Holder upon conversion shall vest with the Holder, effective as of the Conversion Date. The Conversion Notice shall set forth the name or names (with addresses) of the Holder or any persons who are to become Holders of the converted shares. Not more than five (5) Business Days following receipt of any Conversion Notice, the Company shall, at its expense, take all actions and use all means necessary to transmit the certificates representing the Common Stock issuable upon conversion to the Holder via express courier, by electronic transfer or otherwise. In the event of a partial conversion of this Debenture, the Company shall also deliver a new Debenture to the Holder, in an amount equal to the principal balance less the amount converted under the Conversion Notice. The maturity date of any such new Debenture shall be the same as the Maturity Date. 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 the Holder will be entitled to receive upon conversion and, in payment and satisfaction of such subscription, 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.
SECTION 3.3 Reservation of Shares. The Company covenants and agrees that any Common Shares which may be issued upon the exercise of the conversion rights provided for in this Debenture will, upon issuance, be validly issued and outstanding, fully paid and non-assessable, free and clear from all taxes, liens and charges. The Company further covenants and agrees that it will, at all times material, reserve and keep available, free from preemptive rights, such number of shares of its Common Stock as shall then be issuable upon conversion of this Debenture.
SECTION 3.4 Fractional Shares. No fractional Common Shares or scrip representing fractional Common Shares shall be delivered upon conversion of this Debenture. In lieu of any fraction of a share which otherwise would be subject of delivery upon conversion of this Debenture, the Company shall round up to the next whole share. No cash payment of less than $1.00 shall be required to be given unless specifically requested by the Holder.
SECTION 3.5 Merger, Consolidation or Sale. If the Company merges or consolidates with another corporation or sells or transfers all or substantially all of its assets to another person or entity and the holders of the Common Stock are entitled to receive stock, securities or property in respect of or in exchange for Common Stock, then, as a condition of such merger, consolidation, sale or transfer, the Company, for itself, and any successor, purchaser or transferee agrees, that the Debenture may thereafter be converted, on the terms and subject to the conditions set forth above, into the kind and amount of stock, securities or property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock into which this Debenture might have been converted immediately before such merger, consolidation, sale or transfer, subject to adjustments which shall be as nearly equivalent as is practicable.
SECTION 3.6 Surrender of Debenture. Upon any redemption of this Debenture or upon maturity, the Holder shall either deliver this Debenture, in hand, to the Company at its principal executive offices or surrender the same to the Company at such address by overnight courier. Payment of the redemption price or the amount due on maturity shall be made by the Company to the Holder via wire transfer of immediately available funds to such account(s) as the Holder shall specify by written notice to the Company (if the Company has not elected to repay the Principal Amount due and owing on this Debenture, together with all accrued and unpaid interest thereon, with shares of its Common Stock).
SECTION 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. By accepting this Debenture, the Holder agrees that this Debenture and the shares of Common Stock to be delivered 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 requirements of 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.”
SECTION 5 -- COVENANTS
SECTION 5.1 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 the Holder and/or the Holder's representatives, at the Holder's expense, to visit and inspect any of its respective properties, to examine and make abstracts from any of its books and records not reasonably deemed confidential by the Company, and to discuss the Company's affairs, finances and accounts with its officers and independent public accountants, all at such reasonable times and as often as reasonably may be desired.
SECTION 6 -- EVENTS OF DEFAULT; REMEDIES
SECTION 6.1 Event of Default. “Event of Default” wherever used herein means any one of the following events:
A. The Company shall default in the payment of principal or interest on this Debenture and same shall continue for a period of thirty (30) Business Days after its receipt of written notice thereof; or,
B. The Company shall fail to perform or observe, in any material respect, any other covenant, provision, condition, agreement or obligation of this Debenture, and such failure shall continue uncured for a period of twenty (20) Business Days after its receipt of written notice from the Holder of such failure; or,
C. The Company fails to issue shares of Common Stock to the Holder upon exercise, by the Holder, of the conversion rights of the Holder in accordance with the terms of this Debenture, fails to transfer any certificate(s) for shares of Common Stock issued to the Holder upon conversion of this Debenture, when such transfer is required by this Debenture and is otherwise lawful, and such failure continues uncured for a period of ten (10) Business Days; or,
D. The company shall (i) admit in writing that it is unable to pay its debts generally as they mature, (ii) make an assignment for the benefit of creditors or commence proceedings for its dissolution, or, (iii) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or,
E. The appointment of a trustee, liquidator or receiver for the Company or for a substantial part of its business or property without the Company's consent, which trustee, liquidator or receiver shall not be discharged within sixty (60) days after the date of any such appointment; or,
F. The institution, by the Company, 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 appointment of a trustee, receiver, liquidator or assignee; or,
G. The entry of a decree or order by a court of competent jurisdiction adjudging the Company a bankrupt or insolvent, or approving, as properly filed, a petition seeking reorganization, arrangement, adjustment or composition of the Company under the Bankruptcy Code or any other applicable Federal or state law; or,
H. The assumption by any governmental agency or any court of competent jurisdiction of custody or control of all or a substantial portion of the assets or property of the Company and such custody or control is not reacquired by the Company within sixty (60) days after the date of any such assumption; or,
I. The entry or filing against the Company or any of its properties or assets of a final money judgment, writ or warrant of attachment or similar process in excess of Two Hundred Thousand Dollars ($200,000.00), in the aggregate, which judgment, writ or warrant of attachment or similar process shall remain unpaid, un-vacated, un-bonded or un-stayed for a period of sixty (60) days or, in any event, more than five (5) days prior to any proposed sale or auction thereunder; or,
J. It becomes unlawful for the Company to perform or comply with its obligations under this Debenture, in whole or in part.
Then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default), at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Debenture immediately due and payable in cash (and not by conversion into Common Stock), without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived.
SECTION 6.2 Maximum Interest Rate. If, at any time following the issuance and delivery of this Debenture to the Holder, 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.
SECTION 6.3 Remedies Not Waived. No course of dealing or conduct between the Company and the Holder or any delay in exercising any rights hereunder shall be construed as a waiver of such rights by the Holder.
SECTION 6.4 Remedies. The Company acknowledges that a breach by it of its obligations to the Holder under this Debenture may cause irreparable harm to the Holder. As such, the Company acknowledges that, in addition to whatever remedies the Holder may have at law, the Holder may also be entitled to certain equitable remedies, including, without limitation, declaratory and/or injunctive relief and specific performance. Should it become necessary for the Holder to pursue any such remedies, the Holder may do so without the need to post a bond or similar undertaking.
SECTION 7 -- MISCELLANEOUS
SECTION 7.1 Withholding. The Company shall be entitled to withhold from all payments of principal and interest on this Debenture, at the time such payments become due, 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.
SECTION 7.2 Payment Dates. Whenever any payment under this Debenture shall become due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
SECTION 7.3 No Shareholder Rights. Nothing contained in this Debenture shall be construed to confer upon the Holder any rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends or to consent to or receive notice, as a shareholder, of any meeting of shareholders, unless and to the extent this Debenture is converted into shares of Common Stock in accordance with the provisions hereof.
SECTION 7.4 Severability. In case any provision of this Debenture shall be deemed or found to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not, in any way, be affected or impaired thereby.
SECTION 7.5 Amendment. This Debenture may not be amended or supplemented except by an instrument in writing signed by the Company and the Holder.
SECTION 7.6 Binding Effect. The terms and conditions of this Debenture shall be binding upon the Company and the Holder, their respective heirs, successors and/or assigns.
SECTION 7.7 Notices. All notices or other communications which are required or permitted hereunder shall be in writing and shall be sufficient if delivered personally, by electronic mail, by overnight courier or by registered or certified mail, postage prepaid, return receipt requested, to the Company and the Holder at their respective places of business or residence or to such other address as the party to whom notice is to be given may have furnished to the other in writing. All such notices or communications shall be deemed to be received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of overnight courier, on the next Business Day after the date when sent, (c) in the case of electronic mail, on the date sent, and, (d) in the case of regular mail, on the second Business Day following the date on which the mailing containing such communication was posted for delivery. Both the Company and the Holder may change their respective addresses upon notice, one to the other, in the manner or by the means set forth above.
SECTION 7.8 Attorney Fees. Should a dispute arise from or out of this Debenture, the parties agree that the prevailing party or parties shall be entitled to recover from the non-prevailing party or parties their costs and expenses, including, without limitation, reasonable attorney fees and expert witness fees.
SECTION 7.9 Waiver of Jury Trial. To the fullest extent permitted by law, both the Company and the Holder knowingly, voluntarily and intentionally waive their respective rights to a jury trial with respect to any claim or cause of action based upon or arising out of this Debenture or any other document, agreement or dealings between them relating to or concerning the subject matter hereof.
SECTION 7.10 Governing Law; Venue. This Debenture shall be governed by the laws of the State of without giving effect to any choice of law or conflict of law provision or rule. All Actions arising out of or relating to this Debenture shall be heard and determined in a state or Federal court sitting in the State of ________ . The Company irrevocably submits to the exclusive jurisdiction of the state and Federal courts of ________ for the purpose of any Action arising out of or relating to this Debenture.
SECTION 7.11 Headings. The section headings herein set forth are intended for convenience only and do not constitute a part of this Debenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed by its duly authorized officer on the date of this Debenture.
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in Order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ of the principal amount of the above Debenture No. __ , dated ________ , 202 __, into shares of Common Stock of ___________________ , a Corporation (the “Company”), according to the conditions hereof, as of the date written below.
Fill in for registration of Debenture:
Please print name and address (including ZIP code number):
* The original Debenture must be received by the Company by the third Business Day following the Conversion Date.