NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. ___ $__________
FUSION NETWORKS HOLDINGS INC.
6% SECURED CONVERTIBLE DEBENTURE
DUE JUNE 13, 2001
THIS DEBENTURE is one of a series of duly authorized and issued debentures
of Fusion Networks Holdings Inc., a Delaware corporation, having a principal
place of business at 8115 NW 29th Street, Miami, FL 33122 (the "Company"),
designated as its 6% Secured Convertible Debentures, due June 13, 2001, in the
aggregate principal amount of Four Million Dollars ($4,000,000) (the
"Debentures").
FOR VALUE RECEIVED, the Company promises to pay to [ ], or its registered
assigns (the "Holder"), the principal sum of One Million Dollars ($1,000,000),
on June 13, 2001 or such earlier date as the Debentures are required or
permitted to be repaid as provided hereunder (the "Maturity Date") and to pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture at the rate of 6% per annum, payable on each
Conversion Date (as defined herein) and on the Maturity Date, in cash or shares
of Common Stock (as defined in Section 6). The Company may not prepay any
portion of the principle amount or interest on this Debenture. Subject to the
terms and conditions herein, the decision whether to pay interest hereunder in
shares of Common Stock or cash shall be at the discretion of the Company. Not
less than ten Trading Days (as defined in Section 6) prior to each Conversion
Date, the Company shall provide the Holder with written notice of its election
to pay interest hereunder either in cash or shares of Common Stock pursuant to
the terms of Section 4(a)(i) (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Failure to timely provide such written notice shall be deemed an
election by the Company to pay the interest on such Conversion Date in shares of
Common Stock pursuant to the terms of Section 4(a)(i). Interest shall be
calculated on the basis on a 360-day year and shall accrue daily commencing on
the Original Issue Date (as defined in Section 6) until payment in full of the
principal sum, together with all accrued and unpaid interest and other amounts
which may become due hereunder, has been made. Interest hereunder will be paid
to the Person (as defined in Section 6) in whose name this Debenture is
registered on the records of the Company regarding registration and transfers of
Debentures (the "Debenture Register"). All overdue accrued and unpaid interest
to be paid in cash hereunder shall entail a late fee at the rate of 18% per
annum (or such lower maximum amount of interest permitted to be charged under
applicable law) (to accrue daily, from the date such interest is due hereunder
through and including the date of payment), payable in cash. This Debenture is
subject to the following additional provisions:
<PAGE>
Section 1. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 6) and may be transferred or exchanged only in compliance
with the Purchase Agreement and the legend set forth on the face of this
Debenture. Prior to due presentment to the Company for transfer of this
Debenture, the Company and any agent of the Company may treat the Person (as
defined in Section 6) in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of the principal of, interest on
or liquidated damages in respect of, any Debentures, free of any claim
of subordination, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by acceleration
or otherwise);
(ii) the Company shall fail to observe or perform any other
material covenant or agreement contained in, or otherwise commit any
breach of any of the Transaction Documents (as defined in Section 6),
and such failure or breach shall not have been remedied within five
days after the date on which notice of such failure or breach shall
have been given, or any representation or warranty of the Company in a
Transaction Document shall prove to have been false or incorrect at
the Closing Date;
(iii) the Company, Marketing Services Group ("MSGI"), or any of
their respective subsidiaries shall commence, or there shall be
commenced against any of them a case under any applicable bankruptcy
or insolvency laws as now or hereafter in effect or any successor
thereto, or the Company, MSGI or any of their respective subsidiaries
commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company, MSGI or any of their
respective subsidiaries or there is commenced against the Company,
MSGI or any of their respective subsidiaries any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period
of 60 days; or the Company, MSGI or any of their respective
subsidiaries is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is
entered; or the Company, MSGI or any of their respective subsidiaries
suffers any appointment of any custodian or the like for it or any
substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or the Company, MSGI or any of their
respective subsidiaries makes a general assignment for the benefit of
creditors; or the Company, MSGI or any of their respective
subsidiaries shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become
due; or the Company, MSGI or any of their respective subsidiaries
shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or the Company,
MSGI or any of their respective subsidiaries shall by any act or
failure to act expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate or other action
is taken by the Company, MSGI or any of their respective subsidiaries
for the purpose of effecting any of the foregoing;
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<PAGE>
(iv) the Company (or any subsidiary thereof if guaranteed by the
Company) shall default in any of its obligations under any other
Debenture or any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an amount
exceeding an aggregate of one hundred thousand dollars ($100,000),
whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise
become due and payable;
(v) either the Common Stock or the Common Stock of MSGI shall be
delisted from the Nasdaq National Market ("NASDAQ") or suspended from
trading on the NASDAQ without resuming trading and/or being relisted
or thereon or listed on the New York Stock Exchange, American Stock
Exchange or Nasdaq SmallCap Market (each, a "Subsequent Market") or
having such suspension lifted, in either case, for more than ten
Trading Days (which need not be consecutive Trading Days);
(vi) the Company shall be a party to any Change of Control
Transaction (as defined in Section 6), shall agree to sell or dispose
all or in excess of 40% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction), or shall redeem or repurchase more than a de minimis
number of shares of Common Stock or other equity securities of the
Company (other than redemptions of Underlying Shares (as defined in
Section 6));
(vii) an Underlying Shares Registration Statement (as defined in
Section 6) shall not have been declared effective by the Commission
(as defined in Section 6) by the 240th day after the Original Issue
Date;
3
<PAGE>
(viii) if, during the Effectiveness Period (as defined in the
Registration Rights Agreement (as defined in Section 6)), the
effectiveness of the Underlying Shares Registration Statement lapses
for any reason or the Holder shall not be permitted to resell
Registrable Securities (as defined in the Registration Rights
Agreement) under the Underlying Shares Registration Statement, in
either case, for more than twenty Trading Days;
(ix) an Event (as defined in the Registration Rights Agreement)
shall not have been cured to the satisfaction of the Holder prior to
the expiration of thirty days from the Event Date (as defined in the
Registration Rights Agreement) relating thereto (other than an Event
resulting from a failure of an Underlying Shares Registration
Statement to be declared effective by the Commission on or prior to
the 240th day after the Original Issue Date, which shall be covered by
Section 3(a)(vii));
(x) the Company shall fail for any reason to deliver certificates
to a Holder prior to the tenth day after a Conversion Date pursuant to
and in accordance with Section 4(b) or the Company shall provide
notice to the Holder, including by way of public announcement, at any
time, of its intention not to comply with requests for conversions of
any Debentures in accordance with the terms hereof; or
(xi) the Company shall fail for any reason to deliver the payment
in cash pursuant to a Buy-In (as defined herein) within seven days
after notice is delivered hereunder.
(b) During the time that any portion of this Debenture remains outstanding,
if any Event of Default occurs and is continuing, the full principal amount of
this Debenture (and, at the Holder's option, all other Debentures then held by
such Holder), together with interest and other amounts owing in respect thereof,
to the date of acceleration shall become, at the Holder's election immediately
due and payable in cash. The aggregate amount payable upon an Event of Default
shall be equal to the sum of (i) the Mandatory Prepayment Amount (as defined in
Section 6) plus (ii) the product of (A) the number of Underlying Shares issued
in respect of conversions hereunder within thirty days of the date of a
declaration of an Event of Default and then held by the Holder and (B) the
Closing Price (as defined in Section 6) on the date prepayment is due or the
date the full prepayment price is paid, whichever is greater. Interest shall
accrue on the prepayment amount hereunder from the seventh day after such amount
is due (being the date of an Event of Default) through the date of prepayment in
full thereof at the rate of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law), to accrue daily from the date such
payment is due hereunder through and including the date of payment. All
Debentures and Underlying Shares for which the full prepayment price hereunder
shall have been paid in accordance herewith shall promptly be surrendered to or
as directed by the Company. The Holder need not provide and the Company hereby
waives any presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon. Section 4. Conversion.
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<PAGE>
(a) (i) Conversion at Option of Holder. (A) This Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in
whole or in part at any time and from time to time, after the Original
Issue Date (subject to the limitations on conversion set forth in Section
4(a)(ii) hereof). The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by adding the sum of (i) the
quotient obtained by dividing (x) the outstanding principal amount of this
Debenture to be converted and (y) the Conversion Price (as defined herein),
and (ii) the amount equal to (I) the product of (x) the outstanding
principal amount of this Debenture to be converted and (y) the product of
(1) the quotient obtained by dividing .06 by 360 and (2) the number of days
for which such principal amount was outstanding, divided by (II) the
Conversion Price on the Conversion Date, provided, that if the Company
shall have timely elected to pay the interest due on a Conversion Date in
cash pursuant to the terms hereof, subsection (ii) shall not be used in the
calculation of the number of shares of Common Stock issuable upon a
conversion hereunder.
(B) Notwithstanding anything to the contrary contained herein, if
on any Conversion Date:
(1) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay interest hereunder in shares of Common Stock;
(2) such shares of Common Stock (x) are not registered for resale
pursuant to an effective Underlying Shares Registration Statement and
(y) may not be sold without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act (as defined in Section 6),
as determined by counsel to the Company pursuant to a written opinion
letter, addressed to the Company's transfer agent in the form and
substance acceptable to the applicable Holder and such transfer agent
(if the shares of Common Stock are permitted by the Holder to be
delivered under this clause (2) prior to the Effectiveness Date (as
defined in the Registration Rights Agreement) and thereafter an
Underlying Shares Registration Statement shall be declared effective
by the Commission, the Company shall, within three Trading Days after
the date of such declaration of effectiveness, exchange such shares
for shares of Common Stock that are free of restrictive legends of any
kind);
(3) the Common Stock is not listed or quoted on the NASDAQ or on
a Subsequent Market;
(4) the Company has failed to timely satisfy its conversion
obligations hereunder; or
5
<PAGE>
(5) the issuance of such shares of Common Stock would result in a
violation of Sections 4(a)(ii)(A) and (B),
then, at the option of the Holder, the Company, in lieu of delivering
shares of Common Stock pursuant to Section 4(a)(i)(A)(ii), shall
deliver, within three Trading Days of each applicable Conversion Date,
an amount in cash equal to the product of (a) the outstanding
principal amount of the Debentures to be converted on such Conversion
Date and (b) the product of (x) the quotient obtained by dividing .06
by 360 and (y) the number of days for which such principal amount was
outstanding.
(C) The Holder shall effect conversions by surrendering the
Debentures (or such portions thereof) to be converted, together with
the form of conversion notice attached hereto as Exhibit A (a
"Conversion Notice") to the Company. Each Conversion Notice shall
specify the principal amount of Debentures to be converted, the
applicable Conversion Price and the date on which such conversion is
to be effected, which date may not be prior to the date such
Conversion Notice is deemed to have been delivered hereunder (a
"Conversion Date"). If no Conversion Date is specified in a Conversion
Notice, the Conversion Date shall be the date that such Conversion
Notice is deemed delivered hereunder. Subject to Section 4(b), each
Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all of the principal amount represented by the
Debenture(s) tendered by the Holder with the Conversion Notice, or if
a conversion hereunder cannot be effected in full for any reason, the
Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and
within the time set forth in Section 4(b)) a new Debenture for such
principal amount as has not been converted.
(ii) Certain Conversion Restrictions.
(A) A Holder may not convert Debentures or receive shares of
Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the
Holder, together with any affiliate thereof, beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act (as
defined in Section 6) and the rules promulgated thereunder) in excess
of 4.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of interest
on, the Debentures held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the
Company the number of shares of Common Stock it may hold at the time
of a conversion hereunder, unless the conversion at issue would result
in the issuance of shares of Common Stock in excess of 4.999% of the
then outstanding shares of Common Stock without regard to any other
shares which may be beneficially owned by the Holder or an affiliate
thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit
any particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Debentures
are convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a
principal amount of Debentures that, without regard to any other
shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder,
the Company shall notify the Holder of this fact and shall honor the
conversion for the maximum principal amount permitted to be converted
on such Conversion Date in accordance with the periods described in
Section 4(b) and, at the option of the Holder, either retain any
principal amount tendered for conversion in excess of the permitted
amount hereunder for future conversions or return such excess
principal amount to the Holder. The provisions of this Section may be
waived by a Holder (but only as to itself and not to any other Holder)
upon not less than 61 days prior notice to the Company. Other Holders
shall be unaffected by any such waiver.
6
<PAGE>
(B) A Holder may not convert Debentures or receive shares of
Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the
Holder, together with any affiliate thereof, beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and
the rules promulgated thereunder) in excess of 9.999% of the then
issued and outstanding shares of Common Stock, including shares
issuable upon conversion of, and payment of interest on, the
Debentures held by such Holder after application of this Section.
Since the Holder will not be obligated to report to the Company the
number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in
the issuance of shares of Common Stock in excess of 9.999% of the then
outstanding shares of Common Stock without regard to any other shares
which may be beneficially owned by the Holder or an affiliate thereof,
the Holder shall have the authority and obligation to determine
whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Debentures
are convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a
principal amount of Debentures that, without regard to any other
shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder,
the Company shall notify the Holder of this fact and shall honor the
conversion for the maximum principal amount permitted to be converted
on such Conversion Date in accordance with the periods described in
Section 4(b) and, at the option of the Holder, either retain any
principal amount tendered for conversion in excess of the permitted
amount hereunder for future conversions or return such excess
principal amount to the Holder. The provisions of this Section may be
waived by a Holder (but only as to itself and not to any other Holder)
upon not less than 61 days prior notice to the Company. Other Holders
shall be unaffected by any such waiver.
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<PAGE>
(b) (i) Not later than three Trading Days after any Conversion
Date, the Company will deliver to the Holder (i) a certificate or
certificates which shall be free of restrictive legends and trading
restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of Debentures (subject to the
limitations set forth in Section 4(a)(ii) hereof), (ii) Debentures in
a principal amount equal to the principal amount of Debentures not
converted, and (iii) a bank check in the amount of accrued and unpaid
interest (if the Company has timely elected or is required to pay
accrued interest in cash), provided, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon conversion of the principal amount of Debentures until
Debentures are delivered for conversion to the Company, or the Holder
notifies the Company that such Debentures have been lost, stolen or
destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. The Company shall, upon
request of the Holder, if available, use its best efforts to deliver
any certificate or certificates required to be delivered by the
Company under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing
similar functions. If in the case of any Conversion Notice such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the third Trading Day after a Conversion Date,
the Holder shall be entitled by written notice to the Company at any
time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company
shall immediately return the certificates representing the principal
amount of Debentures tendered for conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) by the third
Trading Day after the Conversion Date, the Company shall pay to such
Holder, in cash, as liquidated damages and not as a penalty, $5,000
for each Trading Day after such third Trading Day until such
certificates are delivered. Nothing herein shall limit a Holder's
right to pursue actual damages or declare an Event of Default pursuant
to Section 3 herein for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period
specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
The exercise of any such rights shall not prohibit the Holders from
seeking to enforce damages pursuant to any other Section hereof or
under applicable law. Further, if the Company shall not have delivered
any cash due in respect of conversions of Debentures or as payment of
interest thereon by the third Trading Day after the Conversion Date,
the Holder may, by notice to the Company, require the Company to issue
shares of Common Stock pursuant to Section 4(c), except that for such
purpose the Conversion Price applicable thereto shall be the lesser of
the Conversion Price on the Conversion Date and the Conversion Price
on the date of such Holder demand. Any such shares will be subject to
the provision of this Section.
(iii) In addition to any other rights available to the Holder, if
the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i) by the third Trading Day
after the Conversion Date, and if after such third Trading Day the
Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by such Holder of the
Underlying Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Company shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so
purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the market price of the Common
Stock at the time of the sale giving rise to such purchase obligation
and (B) at the option of the Holder, either reissue Debentures in
principal amount equal to the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Company timely complied with
its delivery requirements under Section 4(b)(i). For example, if the
Holder purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of
Debentures with respect to which the market price of the Underlying
Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In. Notwithstanding anything contained herein to
the contrary, if a Holder requires the Company to make payment in
respect of a Buy-In for the failure to timely deliver certificates
hereunder and the Company timely pays in full such payment, the
Company shall not be required to pay such Holder liquidated damages
under Section 4(b)(ii) in respect of the certificates resulting in
such Buy-In.
8
<PAGE>
(c) (i)(A) The conversion price in effect on any Conversion Date shall be
$1.75 (subject to adjustments as set forth herein) (the "Conversion Price").
(ii) If the Company, at any time while any Debentures are outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c)
combine (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of the Common Stock any shares of capital stock
of the Company, then the Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights, options or warrants to all holders of
Common Stock (and not to Holders) entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Closing
Price at the record date mentioned below, then the Conversion Price shall
be multiplied by a fraction, of which the denominator shall be the number
of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the
Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at such Closing Price. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive
such rights, options or warrants. However, upon the expiration of any such
right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price
pursuant to this Section, if any such right, option or warrant shall expire
and shall not have been exercised, the Conversion Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Conversion Price made pursuant to
the provisions of this Section after the issuance of such rights or
warrants) had the adjustment of the Conversion Price made upon the issuance
of such rights, options or warrants been made on the basis of offering for
subscription or purchase only that number of shares of the Common Stock
actually purchased upon the exercise of such rights, options or warrants
actually exercised.
9
<PAGE>
(iv) If the Company or any subsidiary thereof, as applicable with
respect to Common Stock Equivalents (as defined below), at any time while
Debentures are outstanding, shall issue shares of Common Stock or rights,
warrants, options or other securities or debt that are convertible into or
exchangeable for shares of Common Stock ("Common Stock Equivalents")
entitling any Person to acquire shares of Common Stock at a price per share
less than the Conversion Price (if the holder of the Common Stock or Common
Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise
or exchange prices or otherwise, or due to warrants, options or rights
issued in connection with such issuance, be entitled to receive shares of
Common Stock at a price less than the Conversion Price, such issuance shall
be deemed to have occurred for less than the Conversion Price), then, at
the sole option of the Holder, either (1) the Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of
such shares of Common Stock or such Common Stock Equivalents plus the
number of shares of Common Stock which the offering price for such shares
of Common Stock or Common Stock Equivalents would purchase at the
Conversion Price, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock so issued or issuable,
or (2) the Conversion Price shall be replaced with the conversion, exchange
or purchase price for such Common Stock Equivalents (including any reset
provisions thereof), provided, that for purposes hereof, all shares of
Common Stock that are issuable upon conversion, exercise or exchange of
Common Stock Equivalents shall be deemed outstanding immediately after the
issuance of such Common Stock Equivalents. Such adjustment shall be made
whenever such shares of Common Stock or Common Stock Equivalents are
issued. However, upon the expiration of any Common Stock Equivalents the
issuance of which resulted in an adjustment in the Conversion Price
pursuant to this Section, if any such Common Stock Equivalents shall expire
and shall not have been exercised, the Conversion Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Conversion Price made pursuant to
the provisions of this Section after the issuance of such Common Stock
Equivalents) had the adjustment of the Conversion Price made upon the
issuance of such Common Stock Equivalents been made on the basis of
offering for subscription or purchase only that number of shares of Common
Stock actually purchased upon the exercise of such Common Stock Equivalents
actually exercised.
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(v) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of Common Stock (and not to Holders)
evidences of its indebtedness or assets or rights or warrants to subscribe
for or purchase any security, then in each such case the Conversion Price
at which Debentures shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect immediately prior to the record
date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Closing
Price determined as of the record date mentioned above, and of which the
numerator shall be such Closing Price on such record date less the then
fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share
of the Common Stock as determined by the Board of Directors in good faith.
In either case the adjustments shall be described in a statement provided
to the Holders of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned
above.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holders shall have the right
thereafter to, at their option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts
then owing hereunder in respect of this Debenture only into the shares of
stock and other securities, cash and property receivable upon or deemed to
be held by holders of the Common Stock following such reclassification or
share exchange, and the Holders of the Debentures shall be entitled upon
such event to receive such amount of securities, cash or property as the
shares of the Common Stock of the Company into which the then outstanding
principal amount, together with all accrued but unpaid interest and any
other amounts then owing hereunder in respect of this Debenture could have
been converted immediately prior to such reclassification or share exchange
would have been entitled or (B) require the Company to prepay the aggregate
of its outstanding principal amount of Debentures, plus all interest and
other amounts due and payable thereon, at a price determined in accordance
with Section 3(b). The entire prepayment price shall be paid in cash. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(vii) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. No
adjustments in the Conversion Price shall be required if such adjustment is
less than $0.01, provided, however, that any adjustments which by reason of
this Section are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
(viii) Whenever either the Conversion Price is adjusted pursuant to
any of Section 4(c)(ii) - (v), the Company shall promptly mail to each
Holder a notice setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
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(ix) If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock
of any class or of any rights; (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the
Common Stock, any consolidation or merger to which the Company is a party,
any sale or transfer of all or substantially all of the assets of the
Company, of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding
up of the affairs of the Company; then, in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of the Debentures, and shall cause to be mailed to the Holders
at their last addresses as they shall appear upon the stock books of the
Company, at least 20 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange, provided, that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
Holders are entitled to convert Debentures during the 20-day period
commencing the date of such notice to the effective date of the event
triggering such notice.
(x) In case of any (1) merger or consolidation of the Company with or
into another Person, or (2) sale by the Company of more than one-half of
the assets of the Company (on an as valued basis) in one or a series of
related transactions, a Holder shall have the right to (A) if permitted
under Section 3(b) hereof, exercise its rights of prepayment under Section
3(a) with respect to such event, (B) convert its aggregate principal amount
of Debentures then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale, and
such Holder shall be entitled upon such event or series of related events
to receive such amount of securities, cash and property as the shares of
Common Stock into which such aggregate principal amount of Debentures could
have been converted immediately prior to such merger, consolidation or
sales would have been entitled, or (C) in the case of a merger or
consolidation, (x) require the surviving entity to issue shares of
convertible preferred stock or convertible debentures with such aggregate
stated value or in such face amount, as the case may be, equal to the
aggregate principal amount of Debentures then held by such Holder, plus all
accrued and unpaid interest and other amounts owing thereon, which newly
issued shares of preferred stock or debentures shall have terms identical
(including with respect to conversion) to the terms of this Debenture
(except, in the case of preferred stock, as may be required to reflect the
differences between equity and debt) and shall be entitled to all of the
rights and privileges of a Holder of Debentures set forth herein and the
agreements pursuant to which the Debentures were issued (including, without
limitation, as such rights relate to the acquisition, transferability,
registration and listing of such shares of stock other securities issuable
upon conversion thereof), and (y) simultaneously with the issuance of such
convertible preferred stock or convertible debentures, shall have the right
to convert such instrument only into shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common
Stock following such merger or consolidation. In the case of clause (C),
the conversion price applicable for the newly issued shares of convertible
preferred stock or convertible debentures shall be based upon the amount of
securities, cash and property that each share of Common Stock would receive
in such transaction and the Conversion Price in effect immediately prior to
the effectiveness or closing date for such transaction. The terms of any
such merger, sale or consolidation shall include such terms so as to
continue to give the Holders the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption
following such event. This provision shall similarly apply to successive
such events.
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(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement has
been declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of the Common Stock, but may
if otherwise permitted, make a cash payment in respect of any final fraction of
a share based on the Closing Price at such time. If the Company elects not, or
is unable, to make such a cash payment, the Holder shall be entitled to receive,
in lieu of the final fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
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(g) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the Company, at 8115 NW 29th
Street, Miami, FL 33122 , Facsimile No.: (305) 477-6703, attention Chief
Financial Officer, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holders delivered in accordance with
this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to each Holder at
the facsimile telephone number or address of such Holder appearing on the books
of the Company, or if no such facsimile telephone number or address appears, at
the principal place of business of the Holder. Any notice or other communication
or deliveries hereunder shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
6:30 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) four days after deposit in the United States mail, (iv) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (v) upon actual receipt by the party to whom such notice is
required to be given.
Section 5. Prepayment at the Option of the Company.
(a) The Company shall have the right at any time after the Effective Date
(as defined in Section 6), upon ten Trading Days' notice to the Holders (an
"Optional Prepayment Notice" and the date such notice is received by the
Holders, the "Notice Date"), to prepay, in each 30 calender day period, no less
than $500,000 of the principal amount of the Debentures then held by the Holders
and up to $1,000,000 of the principal amount of the Debentures then held by the
Holders, at a cash price equal to the Optional Prepayment Price (as defined
below). The prepayment contemplated by this Section (and the threshold and
maximum set forth in the immediately preceding sentence) shall occur pro rata
among the Holders by reference to the original principal amount of Debentures
acquired by all Holders on the Original Issue Date. The Company may only deliver
an Optional Prepayment Notice to the Holders if, on the Notice Date: (i) either
there is an effective Underlying Shares Registration Statement pursuant to which
the Holders are permitted to utilize the prospectus thereunder to resell all of
the issued Underlying Shares and all of the Underlying Shares as are issuable
upon conversion in full of the Debentures subject to the Optional Prepayment
Notice nor may all of such issued or issuable Underlying Shares be sold without
volume restrictions pursuant to Rule 144 promulgated under the Securities Act,
as determined by counsel to the Company pursuant to a written opinion letter,
addressed and delivered prior to the Notice Date to the Company's transfer agent
in the form and substance acceptable to the Holders and such transfer agent and
(ii)the Common Stock is listed for trading on the NASDAQ or on a Subsequent
Market. If any of the foregoing conditions shall cease to be in effect during
the period between the Notice Date and the date the Optional Prepayment Date is
paid in full, then the Holders subject to such prepayment may elect, by written
notice to the Company given at any time after any of the foregoing conditions
shall cease to be in effect, to invalidate ab initio such prepayment,
notwithstanding anything herein contained to the contrary. The Holders may
convert any portion of the outstanding principal amount of the Debentures
subject to an Optional Redemption Notice prior to the date that the Optional
Prepayment Price is due and paid in full.
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(b) The Optional Prepayment Price is due on the tenth Trading Day following
the Notice Date. If any portion of the Optional Prepayment Price shall not be
paid by the Company by expiration of such tenth Trading Day, interest shall
accrue thereon at the rate of 18% per annum (or the maximum rate permitted by
applicable law, whichever is less) until the Optional Prepayment Price plus all
such interest is paid in full. In addition, if any portion of the Optional
Prepayment Price remains unpaid after such date, the Holders subject to such
prepayment may elect, by written notice to the Company given at any time
thereafter, to invalidate ab initio such prepayment, notwithstanding anything
herein contained to the contrary. If a Holder elects to invalidate such
prepayment the Company shall promptly, and, in any event, not later than three
Trading Days from receipt of such Holder's notice of such election, return to
such Holder all of the Debentures for which the Optional Prepayment Price shall
not have been paid in full.
(c) The "Optional Prepayment Price" for the principal amount of the
Debentures to be prepaid shall equal the sum of (i) 120% of the principal amount
of the Debentures to be prepaid, and (ii) all interest, other amounts, costs,
expenses and liquidated damages due in respect of such Debentures.
Section 6. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York or the State of Florida are authorized or required by law or other
government action to close.
"Change of Control Transaction" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 40% of the
voting securities of the Company in a transaction or series of transactions not
approved by the Board of directors of the Company, (ii) a replacement at one
time or over time of more than one-half of the members of the Company's board of
directors which is not approved by a majority of those individuals who are
members of the board of directors on the date hereof (or by those individuals
who are serving as members of the board of directors on any date whose
nomination to the board of directors was approved by a majority of the members
of the board of directors who are members on the date hereof), (iii) the merger
of the Company with or into another entity that is not wholly-owned by the
Company, consolidation or sale of 50% or more of the assets of the Company in
one or a series of related transactions, or (iv) the execution by the Company of
an agreement to which the Company is a party or by which it is bound, providing
for any of the events set forth above in (i), (ii) or (iii).
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"Closing Price" means on any particular date (a) the closing sales price
per share of Common Stock on such date on the NASDAQ or on such Subsequent
Market on which the shares of Common Stock are then listed or quoted, or if
there is no such price on such date, then the closing sales price on the NASDAQ
or on such Subsequent Market on the date nearest preceding such date, or (b) if
the shares of Common Stock are not then listed or quoted on the NASDAQ or a
Subsequent Market, the closing sales price for a share of Common Stock in the
OTC Bulletin Board, as reported by the National Quotation Bureau Incorporated or
similar organization or agency succeeding to its functions of reporting prices)
at the close of business on such date, or (c) if the shares of Common Stock are
not then reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices), then
the average of the "Pink Sheet" quotes for the relevant conversion period, as
determined in good faith by the Holder, or (d) if the shares of Common Stock are
not then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
in interest of the principal amount of Debentures then outstanding.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $.00001 par value per share, of the
Company and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Effective Date" shall mean the date that an Underlying Shares Registration
Statement is declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum of (i)
the greater of (A) 120% of the principal amount of Debentures to be prepaid,
plus all accrued and unpaid interest thereon, and (B) the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon, divided
by the Conversion Price on the date of acceleration multiplied by the Closing
Price on (x) the date the Mandatory Prepayment Amount is demanded or otherwise
due or (y) the date the Mandatory Prepayment Amount is paid in full, whichever
is greater, and (ii) all other amounts, costs, expenses and liquidated damages
due in respect of such Debentures.
"Original Issue Date" shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase Agreement,
dated as of the Original Issue Date, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
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"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Original Issue Date, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Day" means (a) a day on which the shares of Common Stock are
traded on the NASDAQ or on such Subsequent Market on which the shares of Common
Stock are then listed or quoted, or (b) if the shares of Common Stock are not
listed on the NASDAQ or a Subsequent Market, a day on which the shares of Common
Stock are traded in the over-the-counter market, as reported by the OTC Bulletin
Board, or (c) if the shares of Common Stock are not quoted on the OTC Bulletin
Board, a day on which the shares of Common Stock are quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, that in the event that the shares of Common Stock
are not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading
Day shall mean any day except Saturday, Sunday and any day which shall be a
legal holiday or a day on which banking institutions in the State of New York
are authorized or required by law or other government action to close.
"Transaction Documents" shall have the meaning set forth in the Purchase
Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of Debentures or as payment of interest in accordance with the terms
hereof.
"Underlying Shares Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement,
covering among other things the resale of the Underlying Shares and naming the
Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as there are
Debentures outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holders, (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holders; (ii) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock or other equity securities other
than as to the Underlying Shares to the extent permitted or required under the
Transaction Documents; or (iii) enter into any agreement with respect to any of
the foregoing. The Company may only voluntarily prepay the outstanding principal
amount on the Debentures in accordance with Section 5 hereof.
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Section 8. 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 9. If this Debenture shall be mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Company.
Section 10. No indebtedness of the Company is senior to this Debenture in
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution or otherwise. The Company will not and will not permit any of its
subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any indebtedness of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom that is senior to or pari passu with the
indebtedness under this Debenture. Notwithstanding the foregoing, IDM
Environmental Corp. may incur indebtedness which is not guaranteed by the
Company.
Section 11. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to conflicts of
laws thereof. The Company and the Holder hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
Section 12. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
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Section 13. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on the Debentures as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
Section 14. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
Section 15. The payment obligations under this Debenture and the
obligations of the Company to the Holder arising upon the conversion of all or
any of the Debentures in accordance with the provisions hereof are secured
pursuant to the Pledge Agreement (as defined in the Purchase Agreement).
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date first
above indicated.
FUSION NETWORKS HOLDINGS INC..
By:
Name:
Title:
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $.00001 par value per share (the "Common Stock"), of Fusion
Networks Holdings Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Number of shares of Common Stock to be Issued
Conversion Price
Signature
Name
Address
21
