NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
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 RULE 506 OF REGULATION D PROMULGATED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION OR EXCLUSION FROM THE
REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. _________
US $750,000
3% CONVERTIBLE DEBENTURE DUE _______, 200_
THIS DEBENTURE is one of a duly authorized issue of Debentures of
Fusion Networks Holdings, Inc., a Delaware corporation (the "Company"),
designated as its 3% Convertible Debentures, due ________, 200__ (the
"Debentures"), in an aggregate principal amount of up to US$750,000.
FOR VALUE RECEIVED, the Company promises to pay to [Name], or its
registered assigns (the "Holder"), the principal sum of Seven Hundred Fifty
Thousand Dollars (US $750,000), on or prior to [Due Date], 200_ (the "Maturity
Date") and to pay interest to the Holder on the principal sum at the rate of
three percent (3%) per annum. Interest shall accrue daily commencing on the date
twelve (12) months after the Original Issue Date (as defined in Section 1 below)
and be payable quarterly on the first day of each _____, ____, ____ and ____
[insert months], commencing ___________, 200__ in the form of cash, common stock
of the Company or additional Debentures selected by the Company subject to the
provisions of Section 2(b) hereof, until payment in full of the principal sum,
together with all accrued and unpaid interest, has been made or duly provided
for. If at any time after the Original Issue Date an Event of Default has
occurred and is continuing, interest shall accrue at the rate of fifteen percent
(15%) per annum from the date of the Event of Default and the applicable cure
period through and including the date of payment. Interest due and payable
hereunder shall be paid to the person in whose name this Debenture (or one or
more successor Debentures) is registered on the records of the Company regarding
registration and transfers of the Debentures (the "Debenture Register");
provided, however, that the Company's obligation to a transferee of this
Debenture shall arise only if such transfer, sale or other disposition is made
in accordance with the terms and conditions hereof and of the Convertible
Debenture Purchase Agreement by and between the Company and the Holder, dated as
of December __, 2000, as amended from time to time (the "Purchase Agreement"),
executed by the original Holder. A transfer of the right to receive principal
and interest under this Debenture shall be transferable only through an
appropriate entry in the Debenture Register as provided herein.
<PAGE>
This Debenture is subject to the following additional provisions:
Section 1. Definitions. Capitalized terms used and not
otherwise defined herein shall have the meanings given such terms in thePurchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
"Adjusted Conversion Price" means the lesser of the Fixed
Conversion Price or the Floating Conversion Price one day prior to the record
date set for the determination of stockholders entitled to receive dividends,
distributions, rights or warrants as provided for in Sections 4(c)(ii), (iii)
and (iv) or on the day on which a quarterly interest payment is due.
"Attorney-in-Fact" shall have the same meaning ascribed to it
in the Purchase Agreement.
"Conversion Date" means the date on which a Notice of
Conversion is dated.
"Conversion Ratio" means, at any time, a fraction, the
numerator of which is the principal amount represented by any Debenture plus
accrued but unpaid interest thereon, and the denominator of which is the
Conversion Price at such time.
"Escrow Agent" shall have the meaning ascribed to it in the
Purchase Agreement.
"Fixed Conversion Price" means the lesser of (i) US$0.932 and
(ii) one hundred thirty percent (130%) of the average of the two lowest closing
prices for the five Trading Days immediately prior to the date of the Purchase
Agreement.
"Floating Conversion Price" means eighty-five percent (85%) of
the average of the three (3) lowest volume weighted average prices during the
thirty (30) Trading Days prior to the applicable Conversion Date.
"Junior Securities" means the Common Stock, all other equity
securities of the Company and all other debt that is subordinated to the
Debenture by its terms.
"Maximum Conversion Shares" means twelve million (12,000,000)
shares of Common Stock, as such number is adjusted pursuant to Section 4(c)
hereof.
"Original Issue Date" shall mean the date of the first
issuance of this Debenture regardless of the number of transfers hereof.
Section 2.Denominations of Debentures; Interest on Debentures.
(a) The Debentures are issuable in denominations of One
Thousand Dollars (US$1,000.00) and integral multiples of One Thousand Dollars
(US$1,000.00) in excess thereof. The Debentures are exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same, but shall not be issuable in
denominations of less than integral multiplies of One Thousand Dollars
(US$1,000.00). No service charge to the Holder will be made for such
registration of transfer or exchange.
2
<PAGE>
(b) The Company may elect to make any payment of interest due
hereunder in Common Stock or Debentures, provided, that (i) there shall not have
occurred or be continuing any Event of Default (as defined in Section 3.I
hereof) and (ii) the Registration Statement is effective on the date of payment;
in the event that the Company makes so elects, shares of Common Stock shall be
valued for such purpose at ninety-five percent (95%) of the closing sale price
per share thereof on the Nasdaq National Market System on the Business Day
immediately preceding the date of payment.
Section 3. Events of Default and Remedies.
I. "Event of Default," when used herein, means any one of the following
events (whatever the reason and whether any such event 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):
(a) any default in the payment of the principal of or interest
on this Debenture as and when the same shall become due and payable either at
the Maturity Date, by acceleration, conversion, or otherwise, and such default
shall not have been remedied within ten (10) Business Days after the date on
which written notice of such default shall have been given;
(b) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any breach of,
this Debenture, and such failure or breach shall not have been remedied within
twenty (20) Business Days after the date on which written notice of such failure
or breach shall have been given;
(c) the occurrence of any event or breach or default by the
Company under the Purchase Agreement or any other Transaction Document and such
failure or breach shall not have been remedied within twenty (20) Business Days
after the date on which written notice of such failure or breach shall have been
given by the Purchaser;
(d) the Company or any of its subsidiaries shall commence a
voluntary case under the United States Bankruptcy Code as now or hereafter in
effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case
is commenced against the Company under the Bankruptcy Code and the petition is
not controverted within thirty (30) days, or is not dismissed within sixty (60)
days, after commencement of the case; or a "custodian" (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or any substantial
part of the property of the Company or the Company 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 or there
is commenced against the Company any such proceeding which remains undismissed
for a period of sixty (60) days; or the Company is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company 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 thirty (30) days; or the Company makes
a general assignment for the benefit of creditors; or the Company 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 shall call a meeting of its
creditors with a view to arranging a composition or adjustment of its debts; or
the Company shall by any act or failure to act indicate its consent to, approval
of or acquiescence in any of the foregoing; or any corporate or other action is
taken by the Company for the purpose of effecting any of the foregoing;
3
<PAGE>
(e) the Company shall default in any of its obligations under
any mortgage, indenture or instrument under which there may be issued, or by
which there may be secured or evidenced, any indebtedness of the Company in an
amount exceeding One Hundred Thousand Dollars ($100,000.00), 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;
(f) the Company shall voluntarily have its Common Stock
deleted or delisted, as the case may be, from the Nasdaq National Market or
other national securities exchange or market on which such Common Stock is
listed for trading or suspended from trading thereon, and shall not have its
Common Stock relisted or have such suspension lifted, as the case may be, within
five (5) Trading Days of such deletion or delisting;
(g) notwithstanding anything herein to the contrary, the
Company shall fail to deliver to the Escrow Agent share certificates
representing the shares of Common Stock to be issued upon conversion of the
Debentures within ten (10) Business Days pursuant to written notice by the
Escrow Agent to the Company that additional shares of Common Stock are required
to be placed in escrow pursuant to Section 4.14 of the Purchase Agreement,
Article 2 of the Escrow Agreement, and/or Section 4(b) of this Debenture;
(h) the Company shall issue a press release, or otherwise make
publicly known, that it is not honoring a properly executed Holder Notice of
Conversions for any reason whatsoever;
(i) the Registration Statement which is the subject of the
Registration Rights Agreement annexed as Exhibit C to the Purchase Agreement is
no longer effective as required under the Registration Rights Agreement and the
Company does not cause such Registration Statement to become effective within
twenty (20) Business Days of its not being effective;
(j) the Company issues or enters into an agreement to issue
any equity or equity equivalent security with a floating conversion price
substantially similar to the Debentures other than any securities issued at any
time or from time to time to the Purchasers or any of their respective
Affiliates or assigns including, without limitation, GEM and GEM A, during the
period commencing on the date hereof and ending on the first anniversary of the
date hereof.
II. (a) If any Event of Default occurs and continues, beyond any cure
period, if any, then the Holder may, by notice to the Company, accelerate all of
the payments due under this Debenture by declaring all amounts due under this
Debenture, to be, whereupon the same shall become, immediately due and payable
without presentment, demand, protest or other notice of any kind, all of which
are waived by the Company, notwithstanding anything herein contained to the
contrary, 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 [in full] hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon. This shall include, but not be limited to the
right to temporary, preliminary and permanent injunctive relief without the
requirement of posting any bond or undertaking.
4
<PAGE>
(b) Holder may thereupon proceed to protect and enforce its
rights either by suit in equity and/or by action at law or by other appropriate
proceedings whether for the specific performance (to the extent permitted by
law) of any covenant or agreement contained in this Debenture or in aid of the
exercise of any power granted in this Debenture, and proceed to enforce the
payment of any of the Debentures held by it, and to enforce any other legal or
equitable right of such Holder.
(c) Except as expressly provided for herein, the Company
specifically (i) waives all rights it may have (A) to notice of nonpayment,
notice of default, demand, presentment, protest and notice of protest with
respect to any of the obligations hereunder or the shares of Common Stock and
(B) notice of acceptance hereof or of any other action taken in reliance hereon,
notice and opportunity to be heard before the exercise by Holder of the remedies
of self-help, set-off, or other summary procedures and all other demands and
notices of any type or description except for cure periods; and (ii) releases
Holder, its officers, directors, agents, employees and attorneys from all claims
for loss or damage caused by any act or failure to act on the part of Holder,
its officers, attorneys, agents, directors and employees except for gross
negligence or willful misconduct.
(d) As a non-exclusive remedy, upon the occurrence of an Event
of Default, the Holder may convert the remaining principal amount of the
Debenture and accrued interest thereon at the lesser of the Fixed Conversion
Price or the Floating Conversion Price upon giving a notice of conversion to the
Company. [Except as otherwise provided herein,] the Company shall not have the
right to object to the conversion or the calculation of the applicable
Conversion Price, and the Escrow Agent shall release the shares of Common Stock
from escrow upon notifying the Company of the conversion.
III. To effectuate the terms and provision of this Debenture, the
Holder may give notice of any default to the Company's attorney-in-fact (the
"Attorney-in-Fact") as set forth herein and give a copy of such notice to the
Company and its counsel, simultaneously, and request the Attorney-in-Fact to
comply with the terms of this Debenture and the Purchase Agreement and all
agreements entered into pursuant to the Purchase Agreement on behalf of the
Company.
5
<PAGE>
Section 4. Conversion
(a) The unpaid principal amount of this Debenture shall be
convertible into shares of Common Stock at the Conversion Ratio as defined
below, and subject to the Limitation on Conversion described in Section 4.19 of
the Purchase Agreement, at the option of the Holder in whole or in part, at any
time, commencing on the Original Issue Date. The resale of such shares of Common
Stock has been registered under the Securities Act of 1933, as amended, pursuant
to the Registration Rights Agreement. Any conversion under this Section 4(a)
shall be for a minimum principal amount of $10,000.00 of Debentures plus the
interest accrued and due thereon. The Holder shall effect conversions by
surrendering the Debenture to be converted to the Escrow Agent, together with
the form of conversion notice attached hereto as Exhibit A (a "Holder Notice of
Conversion") in the manner set forth in Section 4(j) hereof. Each Holder Notice
of Conversion shall specify the principal amount of Debenture to be converted,
and the date on which such conversion is to be effected (the "Holder Conversion
Date"). Subject to Section 4 hereof, each Holder Notice of Conversion, 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 in the
Holder Notice of Conversion, the Company shall deliver to the Holder a new
Debenture for such principal amount as has not been converted within two (2)
Business Days of the Holder Conversion Date. In the event that the Escrow Agent
holds the Debentures on behalf of the Holder, the Company agrees that in lieu of
surrendering the Debenture upon every partial conversion, the Escrow Agent shall
give the Company and the Holder written notice of the amount of the Debenture
left unconverted. Upon conversion in full of the Debenture or upon the Maturity
Date, the Escrow Agent shall return the Debenture to the Company for
cancellation.
(b) Not later than two (2) Business Days after the Conversion
Date, the Escrow Agent shall deliver to the Holder (i) a certificate or
certificates which shall be free of restrictive legends and trading
restrictions, representing the number of shares of Common Stock being acquired
upon the conversion of the Debenture, and once the Debenture so converted in
part shall have been surrendered to the Company, the Company shall deliver to
the Holder a Debenture in the principal amount of the Debenture not yet
converted; provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion of
the Debenture, until the Debenture is either delivered for conversion to the
Escrow Agent or the Company or any transfer agent for the Debentures or Common
Stock, or the Holder notifies the Company that such Debenture has been lost,
stolen or destroyed and provides an affidavit of loss and an agreement
reasonably acceptable to the Company indemnifying the Company from any loss
incurred by it in connection with such loss, theft or destruction. In the case
of a conversion pursuant to a Holder Notice of Conversion, if such certificate
or certificates are not delivered by the date required under this Section 4(b),
the Holder shall be entitled, upon providing 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 Debenture tendered for conversion.
The Company agrees that at any time the conversion price
of the Debentures is such that the number of shares of Common Stock in escrow
(the "Debenture Escrow Shares") is less than 200% of the number of shares of
Common Stock that would be needed to satisfy full conversion of all of the
Debentures given the then current conversion price (the "Full Conversion
Shares"), upon five (5) days written notice of such circumstance to the Company
by the Purchaser and/or the Escrow Agent, the Company shall issue share
certificates in the names of each of the Purchasers in denominations of 10,000
shares and deliver the same to the Escrow Agent, in such number that the new
number of Debenture Escrow Shares is equal to 200%of the Full Conversion Shares.
6
<PAGE>
(c) (i) The Conversion Price for each Debenture in effect on
any Conversion Date shall be the lesser of the Fixed Conversion Price or the
Floating Conversion Price. The conversion of the Debentures is subject to the
Limitation on Conversion set forth in Section 4.19 of the Purchase Agreement, as
set forth below.
"In addition to and not in lieu of the limitations on
conversion set forth in the Debentures, the conversion and
exercise rights of each of the Purchasers set forth in the
Debentures and the Warrants, as applicable, shall be limited,
solely to the extent required, from time to time, such that,
unless a Purchaser gives written notice 75 days in advance to
the Company of such Purchaser's intention to exceed the
Limitation on Conversions as defined herein, with respect to
all or a specified amount of the Debentures and the
corresponding number of the Underlying Shares, in no instance
shall the maximum number of shares of Common Stock which the
Purchasers (singularly, together with any Persons who in the
determination of such Purchasers, together with such
Purchasers, constitute a group as defined in Rule 13d-5 of the
Exchange Act) may receive in respect of any conversion of the
Debentures or exercise of the Warrants, exceed, at any one
time, an amount equal to the remainder of (i) 4.99% of the
then issued and outstanding shares of Common Stock of the
Company following such conversion or exercise minus (ii) the
number of shares of Common Stock of the Company then owned by
any of the Purchasers (including any shares of Common Stock
deemed beneficially owned due to ownership of the Debentures
and Warrants) (the foregoing being herein referred to as the
"Limitation on Conversion"); provided, however, that the
Limitation on Conversion shall not apply to any forced or
automatic conversion by the Company pursuant to Section 4(i)
and Section 5 of the Debentures; and, provided further, that
if ten (10) Business Days shall have elapsed from the time any
Purchaser shall have declared an Event of Default (as that
term is defined in the Debenture) and the Company shall not
have cured such Event of Default, the provisions of this
Section 4.19 shall be null and void from and after such date.
The Company shall, promptly upon its receipt of a Notice of
Conversion tendered by any of the Purchasers (or its sole
designee) under the Debentures, as applicable, and upon its
receipt of a notice of exercise under the terms of the
Warrants, notify such Purchaser by telephone and by facsimile
of the number of shares of Common Stock outstanding on such
date and the number of Underlying Shares which would be
issuable to such Purchaser (or its sole designee, as the case
may be) if the conversion requested in such Notice of
Conversion or exercise requested in such Notice of Exercise
were effected in full, whereupon, notwithstanding anything to
the contrary set forth in the Debentures or the Warrants, such
Purchaser may within one (1) Business Day of its receipt of
the Company notice required by this Section 4.19 by facsimile
revoke such conversion or exercise to the extent (in whole or
in part) that such purchaser determines that such conversion
or exercise would result in the ownership by such Purchaser of
shares of Common Stock in excess of the Limitation on
Conversion."
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<PAGE>
(ii) If the Company, at any time while any of
the Debentures is outstanding, (a) shall pay a stock dividend or otherwise make
a distribution or distributions on shares of its Common Stock payable in shares
of its capital stock (whether payable in shares of its Common Stock or of
capital stock of any class), (b) subdivide outstanding shares of Common Stock
into a larger number of shares, (c) combine outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
Common Stock any shares of capital stock of the Company, the Fixed Conversion
Price as applied in Section 4(c)(i) shall be multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock of the Company
outstanding before such event and the denominator of which shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 4(c)(ii) 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, at any time while any Debentures are
outstanding, the Company issues or sells shares of Common Stock, or options,
warrants or other rights to subscribe for or purchase shares of Common Stock
(excluding shares of Common Stock issuable upon exercise of options, warrants
or conversion rights granted prior to the date hereof) and at a price per share
less than the Per Share Market Value of Common Stock at the issue date mentioned
below, the Fixed Conversion Price designated in Section 4(c)(i) shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding on the date
of issuance of such shares, options, warrants or rights plus the number of
shares which the aggregate offering price of the total number of shares so
offered would purchase at such Per Share Market Value, and the denominator
of which shall be the number of shares of 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. 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 or warrants.
However, upon the expiration of any right or warrant to purchase Common Stock,
the issuance of which resulted in an adjustment in the Conversion Price
designated in Section 4(c)(i) pursuant to this Section 4(c)(iii), if any such
right or warrant shall expire and shall not have been exercised, the Fixed
Conversion Price designated in Section 4(c)(i) 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 4 after the issuance of such rights or warrants) had the adjustment of
the Conversion Price made upon the issuance of such rights or warrants 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 rights or
warrants actually exercised.
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<PAGE>
(iv) If, at any time while Debentures are
outstanding, the Company distributes to all holders of Common Stock (and not
to holders of Debentures) evidences of Company indebtedness or assets, or
rights or warrants to subscribe for or purchase any security (excluding those
referred to in Section 4(c)(iii) above), then, in each such case, the Conversion
Price at which each Debenture shall thereafter be convertible shall be
determined by multiplying (A) the Fixed Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled
to receive such distribution by a fraction, the numerator of which shall
be the Per Share Market Value of the Common Stock determined as of the record
date mentioned above 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 Common Stock as determined by the Board of Directors
in good faith and the denominator of which shall be the Per Share Market Value
of Common Stock on such record date; provided, however, that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Company,
such fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majorityof the principal amount of the Debentures
then outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case the fair market value shall be equal to the average
of the determinations by each such Appraiser. In either case the adjustments
shall be described in a statement provided to the Holder and all other holders
of Debentures 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.
(v) All calculations under this Section 4 shall
be made to the nearest 1/1000th of a cent or the nearest 1/1000th of a share,
as the case may be. Any calculation over .005 shall be rounded up to the next
cent or share and any calculation less than .005 shall be rounded down to the
previous cent or share.
(vi) In the event the Conversion Price is not
adjusted pursuant to Section 4(c)(ii), (iii), (iv), or (v), within two (2)
Business Days following the occurrence of an event described therein, the
Holder shall have the right to require the Company to redeem the Debentures
at 135% of par value and simultaneously pay such amount and all accrued
interest and dividends to the Holder pursuant to the written instructions
provided by the Holder.
(vii) Whenever the Fixed Conversion Price is
adjusted pursuant to Section 4(c)(ii),(iii), (iv) or (v), or this Debenture
is redeemed pursuant to Section 4(c)(vi), the Company shall within two (2) days
after the determination of the new Fixed Conversion Price mail and fax to the
Holder and to each other holder of Debentures, a notice ("Company Notice of
Conversion") setting forth the Fixed Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
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<PAGE>
(viii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company
or any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then each holder of Debentures then
outstanding shall have the right thereafter to convert such Debentures only into
the shares of stock and other securities and property receivable upon or deemed
to be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange (except in the event
the property is cash, then the Holder shall have the right to convert the
Debentures and receive cash in the same manner as other stockholders), and the
Holder shall be entitled upon such event to receive such amount of securities
or property as the holder of shares of the Common Stock into which such
Debentures could have been converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange would have been
entitled. The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the Holder the
right to receive the securities or property set forth in this Section 4(c)(viii)
upon any conversion following such consolidation, merger, sale, transfer or
share exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
(ix) If:
(A) the Company shall declare a dividend
(or any other distribution) on
its Common Stock; or
(B) the Company shall declare a special
non-recurring cash dividend on or
a redemption of its Common Stock; or
(C) the Company shall authorize the
grant 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; or
(D) the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock of the
Company (other than a subdivision or
combination of the outstanding
shares of 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,
or any compulsory share exchange
whereby the Common Stock is converted
into other securities, cash or
property; or
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(E) the Company shall authorize the
voluntary or involuntary dissolution,
liquidation or winding-up of the affairs
of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Debentures, and shall cause to be mailed and faxed
to the Holder and each other holder of Debentures at their last addresses
appearing in the Debenture Register at least thirty (30) 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 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, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up; provided, however, 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.
(x) [In the event that any adjustment is made
pursuant to this Section 4 resulting in an increase in the number of shares of
Common Stock into which this Debenture may be converted, the number of shares of
Common Stock constituting the Maximum Conversion Shares shall be adjusted pro
rata.]
(d) If at any time conditions shall arise by reason of action
or inaction taken by the Company, which action or inaction, in the opinion of
the Board of Directors of the Company, is not adequately covered by the other
provisions hereof and which might materially and adversely affect the rights of
the Holder and all other holders of Debentures (different or distinguishable
from the effect generally on rights of holders of any class of the Company's
capital stock), the Company shall, at least thirty (30) calendar days prior to
the effective date of such action, mail and fax a written notice to each holder
of Debentures briefly describing the action contemplated and the material
adverse effects of such action on the rights of such holders, and an Appraiser
selected by the holders of majority in principal amount of the outstanding
Debentures shall give its opinion as to the adjustment, if any (not inconsistent
with the standards established in this Section 4), of the Conversion Price
(including, if necessary, any adjustment as to the securities into which
Debentures may thereafter be convertible) and any distribution which is or would
be required to preserve without diluting the rights of the holders of
Debentures; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case the adjustment shall be equal to the average of the
adjustments recommended by each such Appraiser. The Board of Directors of the
Company shall make the adjustment recommended forthwith upon the receipt of such
opinion or opinions or the taking of any such action contemplated, as the case
may be; provided, however, that no such adjustment of the Conversion Price shall
be made which, in the opinion of the Appraiser(s) giving the aforesaid opinion
or opinions, would result in an increase of the Conversion Price above the
Conversion Price then in effect.
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(e) The Company covenants and agrees that it shall, at all
times, reserve and keep available out of its authorized and unissued Common
Stock solely for the purpose of issuance upon conversion of Debentures as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the holders of Debentures, such number of shares of
Common Stock as shall be issuable (taking into account the adjustments and
restrictions of Section 4(c) and Section 4(d) hereof) upon the conversion of the
aggregate principal amount of all outstanding Debentures. The Company covenants
that all shares of Common Stock that shall be so issuable shall, upon issuance,
be duly and validly authorized and issued and fully paid and non-assessable.
(f) No fractional shares of Common Stock shall be issuable
upon a conversion hereunder and the number of shares to be issued shall be
rounded up to the nearest whole share. If a fractional share interest arises
upon any conversion hereunder, the Company shall eliminate such fractional share
interest by issuing to the Holder an additional full share of Common Stock.
(g) The issuance of a certificate or certificates for shares
of Common Stock upon conversion of Debentures shall be made without charge to
the Holder for any documentary stamp or similar taxes that may be payable in
respect of the issuance 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 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.
(h) Debentures converted into Common Stock shall be canceled
upon conversion.
(i) On the Maturity Date, the unconverted principal amount of
the Debentures and all interest due thereon shall either be paid off in full by
the Company or, if payment in full is not received within ten (10) Business Days
after the Maturity Date, convert automatically into shares of Common Stock at
the lesser of the Fixed Conversion Price and the Floating Conversion Price as
set forth in Section 4(c)(i).
(j) Each Notice of Conversion shall be given by facsimile to
the Escrow Agent no later than 4:00 pm New York Time. Upon receipt of such
Notice of Conversion, the Escrow Agent shall forward such Notice of Conversion
to the Company by facsimile by the end of the Business Day on which such Notice
is received by the Escrow Agent, assuming such receipt by 4:00 pm New York Time,
and if received by the Escrow Agent thereafter, on the next Business Day, at the
facsimile number and address of the Company set forth in Section 10 hereof. Any
such Notice or notice shall be deemed given and effective upon the transmission
of such facsimile at the facsimile number specified in this Section 4(j) (with
printed confirmation of transmission), and if to the Company, with a copy to the
Escrow Agent. In the event that the Escrow Agent receives a Notice of Conversion
after 4:00 p.m. New York Time on any Business Day or at any time on a day that
is not a Business Day, the Conversion Date shall be deemed to be the next
following Business Day. In the event that a Notice of Conversion is sent after
4:00 p.m. on any Business Day or at any time on a day that is not a Business
Day, notice will be deemed to have been given the next following Business Day.
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Section 4.A. Compliance with Nasdaq Rule 4350(i). In order to
assure the Company's compliance with Nasdaq Rule 4350(i)(1)(D) requiring
stockholder approval of any sale, issuance or potential issuance by a Nasdaq
listed company of common stock (or securities convertible into or exercisable
common stock) equal to 20% or more of the common stock or 20% or more of the
voting power outstanding before the issuance for less than the greater of book
or market value of the stock, the Company and Holder agree as follows:
(a) The maximum number of shares which will be issued on
conversion of the Debentures and exercise of the Warrants, if any, is 19.999% of
the outstanding shares of Common Stock of the Company on the date hereof (the
"Share Cap") unless and until the stockholders of the Company shall have
approved the issuance of shares of Common Stock in excess of the Share Cap.
(b) The Company covenants and agrees to call a special meeting
of its stockholders, no later than ten days following the date of the Purchase
Agreement, to be held as soon as practicable, but not later than seventy-five
(75) days following the date of the Purchase Agreement for the purpose of
approving, and shall recommend approval of, the issuance of shares in excess of
the Share Cap on conversion of the Debentures and exercise of the Warrants.
(c) If the stockholders shall not have approved issuances in
excess of the Share Cap and shares of Common Stock shall have been issued in an
amount equal to the Share Cap, the holders of the Debentures shall be entitled
to demand redemption, pro rata, of up to all of the remaining unconverted
Debentures at the Redemption Price set forth in Section 5(a) hereof.
Section 5. Redemption of Debentures If at any time after the
Closing Date and prior to the Maturity Date, (i) any Debenture remains
outstanding after the Holders shall have received the Maximum Conversion Shares
upon conversion of any portion of the Debentures and (ii) no Event of Default
shall have occurred that has not been cured, then the Company shall have the
option (A) to increase the number of the Maximum Conversion Shares or (B) redeem
the remaining Debentures in accordance with the following:
(a) The Company may, upon no less that thirty (30) days
written notice given to the Holder with a copy to the Escrow Agent (a "Notice of
Redemption"), redeem the Debentures at one hundred thirty percent (130%) of the
Per Debenture Consideration plus accrued interest (the "Redemption Price").
(b) Within five (5) Business Days after giving the Notice of
Redemption, the Company shall deposit the Redemption Price by wire transfer to
the IOLA account of the Escrow Agent. Upon receipt of the Redemption Price, the
Escrow Agent shall release the Redemption Price to the Holder and return the
remaining Debentures and Underlying Shares to the Company.
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(c) In the event that the Company fails to deposit the
Redemption Price in the Escrow Agent's IOLA account within the time allocated in
section (b) above, then the redemption shall be declared null and void.
(d) The number of Maximum Conversion Shares shall be subject
to adjustment as provided in Section 4(c) hereof.
Section 6. Absolute Payment Obligation; Limitation on
Prepayment. 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, and interest on, this Debenture at the
time, place, and rate, and in the coin or currency, herein prescribed; provided,
however, that the Company shall have the right to prepay this Debenture, but
solely (a) upon at least three (3) days' prior written notice to the Holder and
(b) by payment of the principal amount then outstanding plus thirty percent
(30%) of such amount, plus all interest accrued thereon through the date of
prepayment. 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. The Company may not prepay any portion of the
outstanding principal amount on the Debentures.
Section 7. No Rights of Stockholders. Except as otherwise
provided herein, 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 8. Loss, Theft, Mutilation or Destruction. 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 an affidavit of
such loss, theft or destruction of such Debenture, and, if requested by the
Company, an agreement to indemnity the Company in form reasonably acceptable to
the Company.
Section 9. Governing Law. This Debenture shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York without regard to the principles of conflicts of law thereof. Any
action to enforce the terms of this Debenture, the Purchase Agreement or any
other Transaction Document shall be exclusively brought in the state and/or
federal courts in the State and County of New York. Service of process in any
action by the Holder to enforce the terms of this Debenture may be made by
serving a copy of the summons and complaint, in addition to any other relevant
documents, by commercial overnight courier to the Company at its address set
forth in the Purchase Agreement.
Section 10. Notices. Except as otherwise provided in Section
4(j) hereof, all notices or other communications required or permitted to be
given hereunder shall be deemed duly given and received if in writing upon
facsimile transmission (with written transmission confirmation report) at the
number designated below for the Company and at the facsimile number for the
Holder set forth in the Company register of Debenture Holders (in each case, if
delivered on a Business Day during normal business hours where such notice is to
be received), or the first Business Day following such delivery (if delivered
other than on a Business Day during normal business hours where such notice is
to be received) whichever shall first occur. The addresses for such
communications shall be:
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If to the Company: Fusion Networks Holdings, Inc.
8115 NW 29th Street
Miami, FL 33122
Attn: Gary Goldfarb, President
Tel: (305) 477-6701
Fax: (305) 477-6703
With copies to: Vanderkam & Sanders
440 Louisiana, Suite 475
Houston, TX 77002
Attn: Michael Sanders, Esq.
Tel: (713) 547-8900
Fax: (713) 547-8910
If to the Holder: To the address or facsimile number
set forth in the Company's register
of Debenture Holders
With copies to: Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, NY 10017-6705
Attn: Adam S. Gottbetter, Esq.
Tel: (212) 983-6900
Fax: (212) 983-9210
If to Escrow Agent: Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, NY 10017-6705
Attn: Adam S. Gottbetter, Esq.
Tel: (212) 983-6900
Fax: (212) 983-9210
or such other address as may be designated hereafter by notice given pursuant to
the terms of this Section 10.
Section 11. Waiver. Any waiver by the Company or the Holder of
a breach of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Debenture. Any waiver must be in writing.
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Section 12. Invalidity. If any provision of this Debenture is
held to be invalid, illegal or unenforceable, the balance of this Debenture
shall remain in effect, and if any provision is held to be inapplicable to any
person or circumstance, it shall nevertheless remain applicable to all other
persons and circumstances.
Section 13. Payment Dates. 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 following Business Day.
Section 14. Transfer; Assignment. This Debenture may not be
transferred or assigned, in whole or in part, at any time, except in compliance
by the transferor and the transferee with applicable federal and state
securities laws.
Section 15. Fees of Enforcement. In the event any Party
commences legal action to enforce its rights under this Debenture, the
non-prevailing party shall pay all reasonable costs and expenses (including but
not limited to reasonable attorney's fees, accountant's fees, appraiser's fees
and investigative fees) incurred in enforcing such rights.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by an officer thereunto duly authorized as of the date first
above indicated.
FUSION NETWORKS HOLDINGS, INC.
Attest: ______________________ By:______________________________
Name:
Title:
