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Exhibit 4.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS
SECURITY 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 AS EVIDENCED BY
A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. UNLESS
PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THIS
SECURITY MAY NOT TRADE THIS SECURITY OR ANY SECURITY ISSUED IN
RESPECT OF THIS SECURITY IN CANADA BEFORE 4 MONTHS AFTER THE DATE
OF THIS AGREEMENT.
Original Issue Date: __________________
Original Conversion Price (subject to adjustment herein):
$0.09
$_______________
8% SENIOR SECURED CONVERTIBLE
DEBENTURE
DUE ________________, 2009
THIS 8% SENIOR SECURED DEBENTURE is one of a series of duly
authorized and validly issued Secured Convertible Debentures of
Unity Wireless Corporation, a Delaware corporation, having its
principal place of business at 7438 Fraser Park Drive, Burnaby,
British Columbia, Canada V5J 5B9 (the " Company "),
designated as its 8% Senior Secured Convertible Debenture, due
______________, 2009 (this debenture, the " Debenture " and
collectively with the other such series of debentures, the "
Debentures ").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "
Holder "), or shall have paid pursuant to the terms
hereunder, the principal sum of $_______________ by ____________,
2009, or such earlier date as this Debenture is 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
in accordance with the provisions hereof. This Debenture is
subject to the following additional provisions:
Section 1 .
Definitions . For the purposes hereof, in addition
to the terms defined elsewhere in this Debenture, (a) capitalized
terms not otherwise defined herein shall have the meanings set
forth in the Purchase Agreement and (b) the following terms shall
have the following meanings:
" Alternate Consideration " shall have the meaning set
forth in Section 5(d).
" Bankruptcy Event " means any of the following events:
(a) the Company or any Significant Subsidiary (as such term is
defined in Rule 1-02(w) of Regulation S-X) thereof commences a case
or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction
relating to the Company or any Significant Subsidiary thereof; (b)
there is commenced against the Company or any Significant
Subsidiary thereof any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any
Significant Subsidiary thereof is adjudicated insolvent or bankrupt
or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Significant
Subsidiary thereof suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not
discharged or stayed within 60 calendar days after such
appointment; (e) the Company or any Significant Subsidiary thereof
makes a general assignment for the benefit of creditors; (f) the
Company or any Significant Subsidiary thereof calls a meeting of
its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any Significant
Subsidiary thereof, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of
effecting any of the foregoing.
" Base Conversion Price " shall have the meaning set
forth in Section 5(b).
" Business Day " means any day except Saturday, Sunday,
any day which shall be a federal legal holiday in the United States
or any day on which banking institutions in the State of New York
are authorized or required by law or other governmental action to
close.
" Buy-In " shall have the meaning set forth in Section
4(d)(v).
" Cash Sale Redemption Amount " shall equal the sum of
(i) 200% of the principal amount of this Debenture to be prepaid,
plus all accrued and unpaid interest thereon, (ii) the product of
(A) the quotient obtained by dividing (1) the principal amount of
this Debenture to be prepaid, plus all other accrued and unpaid
interest hereon by (2) the Conversion Price on the closing date of
the applicable event and (B) the "Effective Price" (defined below),
and (iii) all other amounts, costs, expenses and liquidated damages
due in respect of this Debenture. The " Effective
Price " shall be the fair market value of the consideration
paid by the acquirer in such event (less the amount set forth in
clause (i) above) divided by the sum of; (x) the issued and
outstanding shares of Common Stock of the Company then outstanding
and (y) the shares of Common Stock into which the outstanding
Debentures may be converted on the day immediately preceding the
record date fixed for determining the holders of shares of Common
Stock eligible to receive a distribution (or if no such date has
been fixed, the date of the day immediately preceding the closing
of the transaction) and (z) the number of shares deemed issuable to
the Warrant holders pursuant to the mandatory redemption provisions
in the Warrants which take effect upon sale of assets for cash
consideration whether or not any Warrant holder shall have elected
to have their Warrants Redeemed; provided , however
, that the number of shares of Common Stock issuable on
conversion of the Debentures and issuable upon exercise of the
Warrants for this purpose shall be determined on a fully converted
or exercised basis and ignoring any conversion or exercise
limitations therein).
" Change of Control Transaction " means the occurrence
after the date hereof 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 33%
of the voting securities of the Company (other than by means of
conversion or exercise of the Debentures and the Securities issued
together with the Debentures), or (ii) the Company merges into or
consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such
transaction, the stockholders of the Company immediately prior to
such transaction own less than 66% of the aggregate voting power of
the Company or the successor entity of such transaction, or (iii)
the Company sells or transfers all or substantially all of its
assets to another Person and the stockholders of the Company
immediately prior to such transaction own less than 66% of the
aggregate voting power of the acquiring entity immediately after
the transaction, or (iv) a replacement at one time or within a
three year period 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), or (v) 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 in clauses (i) through
(iv) above.
" Common Stock " means the common stock, par value $.001
per share, of the Company and stock of any other class of
securities into which such securities may hereafter be reclassified
or changed into.
" Conversion Date " shall have the meaning set forth in
Section 4(a).
" Conversion Price " shall have the meaning set forth in
Section 4(b).
" Conversion Shares " means, collectively, the shares of
Common Stock issuable upon conversion of this Debenture in
accordance with the terms hereof.
" Debenture Register " shall have the meaning set forth
in Section 2(c).
" Dilutive Issuance " shall have the meaning set forth in
Section 5(b).
" Dilutive Issuance Notice " shall have the meaning set
forth in Section 5(b).
" Effectiveness Period " shall have the meaning set forth
in the Registration Rights Agreement.
" Equity Conditions " shall mean, during the period in
question, (i) the Company shall have duly honored all conversions
and redemptions scheduled to occur or occurring by virtue of one or
more Notices of Conversion of the Holder, if any, (ii) the Company
shall have paid all liquidated damages and other amounts owing to
the Holder in respect of this Debenture, (iii) there is an
effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the
shares issuable pursuant to the Transaction Documents (and the
Company believes, in good faith, that such effectiveness will
continue uninterrupted for the foreseeable future), (iv) the Common
Stock is trading on a Trading Market and all of the shares issuable
pursuant to the Transaction Documents are listed for trading on
such Trading Market (and the Company believes, in good faith, that
trading of the Common Stock on a Trading Market will continue
uninterrupted for the foreseeable future), (v) there is a
sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock for the issuance of all of the
shares issuable pursuant to the Transaction Documents, (vi) there
is no existing Event of Default or no existing event which, with
the passage of time or the giving of notice, would constitute an
Event of Default, (vii) the issuance of the shares in question (or,
in the case of an Optional Redemption, the shares issuable upon
conversion in full of the Optional Redemption Amount) to the Holder
would not violate the limitations set forth in Section 4(c) herein,
(viii) there has been no public announcement of a pending or
proposed Fundamental Transaction or Change of Control Transaction
that has not been consummated and (ix) the Holder is not in
possession of any information that constitutes, or may constitute,
material non-public information.
" Event of Default " shall have the meaning set forth in
Section 8.
" Exchange Act " means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder.
" Forced Conversion " shall have the meaning set forth in
Section 6(c).
" Forced Conversion Date " shall have the meaning set
forth in Section 6(c).
" Forced Conversion Notice " shall have the meaning set
forth in Section 6(c).
" Forced Conversion Notice Date " shall have the meaning
set forth in Section 6(c).
" Fundamental Transaction " shall have the meaning set
forth in Section 5(d).
" Interest Conversion Rate " means 85% of the lesser of
(i) the average of the VWAPs for the 20 consecutive Trading Days
ending on the Trading Day that is immediately prior to the
applicable Interest Payment Date or (ii) the average of the VWAPs
for the 20 consecutive Trading Days ending on the Trading Day that
is immediately prior to the date the applicable Interest Conversion
Shares are issued and delivered if after the Interest Payment
Date.
" Interest Conversion Shares " shall have the meaning set
forth in Section 2(a).
" Interest Notice Period " shall have the meaning set
forth in Section 2(a).
" Interest Payment Date " shall have the meaning set
forth in Section 2(a).
" Interest Share Amount " shall have the meaning set
forth in Section 2(a).
" Late Fees " shall have the meaning set forth in Section
2(d).
" Mandatory Default Amount " means the sum of (i)
the greater of (A) 130% of the outstanding principal amount of this
Debenture, plus all accrued and unpaid interest hereon, or (B) the
outstanding principal amount of this Debenture, plus all accrued
and unpaid interest hereon, divided by the Conversion Price on the
date the Mandatory Default Amount is either (a) demanded (if demand
or notice is required to create an Event of Default) or otherwise
due or (b) paid in full, whichever has a lower Conversion Price,
multiplied by the VWAP on the date the Mandatory Default Amount is
either (x) demanded or otherwise due or (y) paid in full, whichever
has a higher VWAP, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Debenture.
" New York Courts " shall have the meaning set forth in
Section 9(d).
" Notice of Conversion " shall have the meaning set forth
in Section 4(a).
" Optional Redemption " shall have the meaning set forth
in Section 6(a).
" Optional Redemption Amount " means the sum of (i) (A)
as to Optional Redemptions in part or in full occurring after the
Effective Date but prior to the 6 month anniversary of the
Effective Date, 110% of the principal amount of the Debenture then
redeemed or (B) as to Optional Redemptions in part or in full
occurring on or after the 6 month anniversary of the Effective
Date, 120% of the principal amount of the Debenture then redeemed,
(ii) accrued but unpaid interest and (iii) all liquidated damages
and other amounts due in respect of the Debenture.
" Optional Redemption Date " shall have the meaning set
forth in Section 6(a).
" Optional Redemption Notice " shall have the meaning set
forth in Section 6(a).
" Optional Redemption Notice Date " shall have the
meaning set forth in Section 6(a).
" Original Issue Date " means the date of the first
issuance of the Debentures, regardless of any transfers of any
Debenture and regardless of the number of instruments which may be
issued to evidence such Debentures.
" Permitted Indebtedness " mean s (a) the Indebtedness
existing on the Original Issue Date and set forth on Schedule
3.1(aa) attached to the Purchase Agreement, (b) lease
obligations and purchase money indebtedness of up to $1,000,000, in
the aggregate, incurred in connection with the acquisition of
capital assets and lease obligations with respect to newly acquired
or leased assets and (c) additional non-equity linked Indebtedness
up to an aggregate of $1,500,000, provided that such Indebtedness
(i) is provided by a reputable commercial lender whose primary
business is not investing in securities, (ii) has an initial
maturity date that is no earlier than the Maturity Date hereof and
(iii) has such other terms and conditions as are satisfactory to
each Holder in each such Holder’s sole discretion.
" Permitted Lien " means the individual and collective
reference to the following: (a) Liens for taxes, assessments and
other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being
contested in good faith and by appropriate proceedings for which
adequate reserves (in the good faith judgment of the management of
the Company) have been established in accordance with GAAP; (b)
Liens imposed by law which were incurred in the ordinary course of
the Company’s business, such as carriers’,
warehousemen’s and mechanics’ Liens, statutory
landlords’ Liens, and other similar Liens arising in the
ordinary course of the Company’s business, and which (x) do
not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use
thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) are being contested in good faith
by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the
property or asset subject to such Lien; (c) Liens incurred in
connection with Permitted Indebtedness under clause (a) thereunder;
(d) Liens incurred in connection with Permitted Indebtedness under
clause (b) thereunder, provided that such Liens are not secured by
assets of the Company or its Subsidiaries other than the assets so
acquired or leased; and (e) Liens with the consent of the Holders
of a majority of the aggregate principal amount of the then
outstanding Debentures, provided that such Liens are expressly
subordinated to the security interest of the Holders pursuant to a
written subordination agreement satisfactory to the Holders.
" Person " means an individual or corporation,
partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of
any kind.
" Purchase Agreement " means the Additional Issuance
Agreement among the Company and the original Holders, dated as of
__________, 2006 as amended, modified or supplemented from time to
time in accordance with its terms.
" Registration Rights Agreement " means the Registration
Rights Agreement among the Company and the original Holders, dated
as of the date of the Purchase Agreement, as amended, modified or
supplemented from time to time in accordance with its terms.
" Registration Statement " means a registration statement
that registers the resale of all Conversion Shares and Interest
Conversion Shares of the Holder, who shall be named as a "selling
stockholder" therein, and meets the requirements of the
Registration Rights Agreement.
" Securities Act " means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
" Share Delivery Date " shall have the meaning set forth
in Section 4(d).
" Subsidiary " shall have the meaning set forth in the
Purchase Agreement.
" Threshold Period " shall have the meaning set forth in
Section 6(c).
" Trading Day " means a day on which the principal
Trading Market is open for business.
" Trading Market " means the following markets or
exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq National Market, the New York Stock
Exchange or the OTC Bulletin Board.
" Transaction Documents " shall have the meaning set
forth in the Purchase Agreement.
" VWAP " means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common
Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by
Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York
City time) to 4:02 p.m. (New York City time); (b) if the OTC
Bulletin Board is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding
date) on the OTC Bulletin Board; (c) if the Common Stock is not
then quoted for trading on the OTC Bulletin Board and if prices for
the Common Stock are then reported in the "Pink Sheets" published
by Pink Sheets, LLC (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent bid price
per share of the Common Stock so reported; or (d) in all other
cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by
the Holder and reasonably acceptable to the Company.
" Warrants " shall have the meaning set forth in the
Purchase Agreement.
Section 2 .
Interest .
a)
Payment of Interest in Cash or Kind . The Company shall pay
interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 8%
per annum, payable quarterly on January 1, April 1, July 1 and
October 1, beginning on April 1, 2007, on each Optional Redemption
Date (as to that principal amount then being redeemed) and on the
Maturity Date (except that, if any such date is not a Business Day,
then such payment shall be due on the next succeeding Business Day)
(each such date, an " Interest Payment Date "), in cash or
duly authorized, validly issued, fully paid and non-assessable
shares of Common Stock at the Interest Conversion Rate (the amount
to be paid in shares, the " Interest Share Amount "), or a
combination thereof; provided , however , that
payment in shares of Common Stock may only occur if (i) during the
20 Trading Days immediately prior to the applicable Interest
Payment Date (the " Interest Notice Period ") and
through and including the date such shares of Common Stock are
issued to the Holder all of the Equity Conditions have been met
(unless waived by the Holder in writing), (ii) Authorized Share
Approval has been obtained and deemed effective, (iii) the Company
shall have given the Holder notice in accordance with the notice
requirements set forth below, (iv) such payment in shares of Common
Stock shall not violate the limitations set forth in Section
4(c)(i) of this Debenture and (v) as to such Interest Payment Date,
prior to such Interest Notice Period (but not more than 5 Trading
Days prior to the commencement of such Interest Notice Period), the
Company shall have delivered to the Holder’s account with The
Depository Trust Company the requisite number of shares of Common
Stock (the " Interest Conversion Shares ").
b)
Company’s Election to Pay Interest in Kind . Subject
to the terms and conditions herein, the decision whether to pay
interest hereunder in cash or shares of Common Stock shall be at
the discretion of the Company. Prior to the commencement of
any Interest Notice Period, the Company shall deliver to the Holder
a written notice of its election to pay interest hereunder on the
applicable Interest Payment Date either in cash, shares of Common
Stock or a combination thereof and the Interest Share Amount as to
the applicable Interest Payment Date, provided that the Company may
indicate in such notice that the election contained in such notice
shall apply to future Interest Payment Dates until revised by a
subsequent notice. During any Interest Notice Period, the
Company’s election (whether specific to an Interest Payment
Date or continuous) shall be irrevocable as to such Interest
Payment Date. Subject to the aforementioned conditions,
failure to timely provide such written notice shall be deemed an
election by the Company to pay the interest on such Interest
Payment Date in cash. At any time the Company delivers a
notice to the Holder of its election to pay the interest in shares
of Common Stock, the Company shall timely file a prospectus
supplement pursuant to Rule 424 disclosing such election. The
aggregate number of shares of Common Stock otherwise issuable to
the Holder on an Interest Payment Date shall be reduced by the
number of Interest Conversion Shares previously issued to the
Holder in connection with such Interest Payment Date.
c)
Interest Calculations . Interest shall be calculated on the
basis of a 360-day year and shall accrue daily commencing on the
Original Issue Date until payment in full of the principal sum,
together with all accrued and unpaid interest, liquidated damages
and other amounts which may become due hereunder, has been made.
Payment of interest in shares of Common Stock (other than the
Interest Conversion Shares issued prior to an Interest Notice
Period) shall otherwise occur pursuant to Section 4(d)(ii) herein
and, solely for purposes of the payment of interest in shares, the
Interest Payment Date shall be deemed the Conversion Date.
Interest shall cease to accrue with respect to any principal
amount converted, provided that the Company actually delivers the
Conversion Shares within the time period required by Section
4(d)(ii). Interest hereunder will be paid to the Person in
whose name this Debenture is registered on the records of the
Company regarding registration and transfers of this Debenture (the
" Debenture Register "). Except as otherwise provided
herein, if at any time the Company pays interest partially in cash
and partially in shares of Common Stock to the holders of the
Debentures, then such payment shall be distributed ratably among
the holders of the then-outstanding Debentures based on their (or
their predecessor’s) initial purchases of Debentures pursuant
to the Purchase Agreement.
d)
Late Fee . All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at an interest rate equal to
the lesser of 18% per annum or the maximum rate permitted by
applicable law (" Late Fees ") which shall accrue daily from
the date such interest is due hereunder through and including the
date of payment in full. Notwithstanding anything to the contrary
contained herein, if on any Interest Payment Date the Company has
elected to pay accrued interest in the form of Common Stock but the
Company is not able to pay accrued interest in Common Stock because
it fails to satisfy the conditions for payment in Common Stock set
forth above, then, at the option of the Holder, the Company, in
lieu of delivering either shares of Common Stock pursuant to this
Section 2 or paying the regularly scheduled interest payment in
cash, shall deliver, within three Trading Days of each applicable
Interest Payment Date, an amount in cash equal to the product of
(x) the number of shares of Common Stock otherwise deliverable to
the Holder in connection with the payment of interest due on such
Interest Payment Date multiplied by (y) the highest VWAP during the
period commencing on the Interest Payment Date and ending on the
Trading Day prior to the date such payment is made. If any
Interest Conversion Shares are issued to the Holder in connection
with an Interest Payment Date and are not applied against an
Interest Share Amount, then the Holder shall promptly return such
excess shares to the Company.
e)
Prepayment . Except as otherwise set forth in this
Debenture, the Company may not prepay any portion of the principal
amount of this Debenture without the prior written consent of the
Holder.
Section 3.
Registration of Transfers and Exchanges .
a)
Different Denominations . 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 payable for such
registration of transfer or exchange.
b)
Investment Representations . This Debenture has been issued
subject to certain investment representations of the original
Holder set forth in the Purchase Agreement and may be transferred
or exchanged only in compliance with the Purchase Agreement and
applicable federal and state securities laws and regulations.
c)
Reliance on Debenture Register . Prior to due presentment for
transfer to the Company of this Debenture, the Company and any
agent of the Company may treat the Person 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 4.
Conversion .
a)
Voluntary Conversion . At any time after the Original Issue Date
until this Debenture is no longer outstanding, this Debenture shall
be convertible, in whole or in part, into shares of Common Stock at
the option of the Holder, at any time and from time to time
(subject to the conversion limitations set forth in
Section 4(c) hereof. The Holder shall effect conversions
by delivering to the Company a Notice of Conversion, the form of
which is attached hereto as Annex A (a " Notice of
Conversion "), specifying therein the principal amount of this
Debenture to be converted and the date on which such conversion
shall be effected (a " Conversion Date "). If no
Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is
deemed delivered hereunder. To effect conversions hereunder,
the Holder shall not be required to physically surrender this
Debenture to the Company unless the entire principal amount of this
Debenture plus all accrued and unpaid interest thereon has been so
converted. Conversions hereunder shall have the effect of lowering
the outstanding principal amount of this Debenture in an amount
equal to the applicable conversion. The Holder and the
Company shall maintain records showing the principal amount(s)
converted and the date of such conversion(s). The Company may
deliver an objection to any Notice of Conversion within 1 Business
Day of delivery of such Notice of Conversion. In the event of
any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error.
The Holder, and any assignee by acceptance of this Debenture,
acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the
unpaid and unconverted principal amount of this Debenture may be
less than the amount stated on the face hereof.
b)
Conversion Price . The conversion price in effect on any
Conversion Date shall be equal to $0.09 (subject to
adjustment herein) (the " Conversion Price ").
c)
Conversion Limitations . (i) The Company shall not effect
any conversion of this Debenture, and a Holder shall not have the
right to convert any portion of this Debenture, to the extent that
after giving effect to the conversion set forth on the applicable
Notice of Conversion, such Holder (together with such
Holder’s Affiliates, and any other person or entity acting as
a group together with such Holder or any of such Holder’s
Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock
beneficially owned by such Holder and its Affiliates shall include
the number of shares of Common Stock issuable upon conversion of
this Debenture with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which
are issuable upon (A) conversion of the remaining, unconverted
principal amount of this Debenture beneficially owned by such
Holder or any of its Affiliates and (B) exercise or conversion of
the unexercised or unconverted portion of any other securities of
the Company subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without
limitation, any other Debentures or the Warrants) beneficially
owned by such Holder or any of its Affiliates. Except as set
forth in the preceding sentence, for purposes of this Section
4(c)(i), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. To the extent that the
limitation contained in this Section 4(c)(i) applies, the
determination of whether this Debenture is convertible (in relation
to other securities owned by such Holder together with any
Affiliates) and of which principal amount of this Debenture is
convertible shall be in the sole discretion of such Holder, and the
submission of a Notice of Conversion shall be deemed to be such
Holder’s determination of whether this Debenture may be
converted (in relation to other securities owned by such Holder
together with any Affiliates) and which principal amount of this
Debenture is convertible, in each case subject to such aggregate
percentage limitations. To ensure compliance with this restriction,
each Holder will be deemed to represent to the Company each time it
delivers a Notice of Conversion that such Notice of Conversion has
not violated the restrictions set forth in this paragraph and the
Company shall have no obligation to demand such representation or
to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated
above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 4(c)(i), in determining
the number of outstanding shares of Common Stock, a Holder may rely
on the number of outstanding shares of Common Stock as stated in
the most recent of the following: (A) the Company’s most
recent Form 10-QSB or Form 10-KSB, as the case may be; (B) a more
recent public announcement by the Company; or (C) a more recent
notice by the Company or the Company’s transfer agent setting
forth the number of shares of Common Stock outstanding. Upon
the written or oral request of a Holder, the Company shall within
two Trading Days confirm orally and in writing to such Holder the
number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of
securities of the Company, including this Debenture, by such Holder
or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The "Beneficial
Ownership Limitation" shall be 4.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon conversion of this
Debenture held by the Holder. The Beneficial Ownership
Limitation provisions of this Section 4(c)(i) may be waived by such
Holder, at the election of such Holder, upon not less than 61
days’ prior notice to the Company, to change the Beneficial
Ownership Limitation to 9.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance
of shares of Common Stock upon conversion of this Debenture held by
the Holder and the provisions of this Section 4(c)(i) shall
continue to apply. Upon such a change by a Holder of the
Beneficial Ownership Limitation from such 4.99% limitation to such
9.99% limitation. The Beneficial Ownership Limitation
provision may be waived by the Holder in its entirety upon 61
days’ prior notice to the Company, in which event the
provisions of this paragraph shall not apply and shall be void.
The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with
the terms of this Section 4(c)(i) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the
intended Beneficial Ownership Limitation herein contained or to
make changes or supplements necessary or desirable to properly give
effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Debenture.
(ii) Until the Company has obtained Authorized Share
Approval, the Company may not issue upon conversion of this
Debenture a number of shares of Common Stock which, when aggregated
with any shares of Common Stock issued prior to such Conversion
Date (A) pursuant to any Debentures issued pursuant to the Purchase
Agreement and (B) pursuant to any Warrants issued pursuant to the
Purchase Agreement, would exceed 10,000,000 shares of Common Stock
(" Issuable Maximum "). Each Holder shall be entitled
to a portion of the Issuable Maximum equal to the quotient obtained
by dividing (x) the aggregate principal amount of the Debenture(s)
issued and sold to such Holder on the Original Issue Date by (y)
the aggregate principal amount of all Debentures issued and sold by
the Company on the Original Issue Date. If any Holder shall no
longer hold the Debenture(s), then such Holder’s remaining
portion of the Issuable Maximum shall be allocated pro-rata among
the remaining Holders. If on any Conversion Date: (1) the
applicable Conversion Price then in effect is such that the shares
issuable upon conversion in full of all then outstanding Debentures
would exceed the Issuable Maximum, and (2)
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