THIS
SECURED DEBENTURE (THE “SECURITIES”) HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.
SENIOR SECURED CONVERTIBLE REDEEMABLE DEBENTURE
ENVIRONMENT ECOLOGY HOLDING CO. OF CHINA
June, 30, 2008
|
No. EEHC
- 1
|
US$2,500,000
|
This
Senior Secured Convertible Redeemable Debenture (the “
Debenture
”) is issued on June 30, 2008 (the “
Closing Date
”) Environment Ecology
Holding Co. of China a Florida corporation, with
headquarters located at 391 Hun Yu Lane, Dong Xin Street,
Xi’an, Shaanxi Province, P.R. China (the “
Company
”), to Trafalgar Capital
Specialized Investment Fund, Luxembourg (together with
its permitted successors and assigns, the “ Holder
”) pursuant to exemptions from registration under the
Securities Act of 1933, as amended.
ARTICLE I.
Section
1.01
Principal and Interest . For value
received, the Company hereby promises to pay to the order of the
Holder by June 30, 2010 (the “Maturity Date”) in
lawful money of the United States of America and in immediately
available funds the unpaid principal sum of Two Million Five
Hundred Thousand U.S. Dollars (US$2,500,000) together
with interest on the unpaid principal of this Debenture at the rate
of ten percent (10%) per annum (the “Interest Rate”)
payable monthly in cash on the outstanding balance commencing one
(1) month from the date hereof. Interest shall be
computed on the basis of a 360-day year and the actual days elapsed
and the Holder shall deduct the first two (2) interest payments at
the Closing (as defined in the Securities Purchase
Agreement). Any unpaid interest shall be compounded
monthly. Additionally, upon the occurrence of an Event
of Default (as defined herein) the Interest Rate shall be increased
to a rate of eighteen percent (18%) per annum.
Section
1.02
Optional Conversion . The
Holder is entitled, at its option, subject to the limitations set
forth herein, to convert, and sell on the same day or at any
subsequent time, at any time and from time to time, until payment
in full of the remaining outstanding
pr incipal balance of
this
Debenture , plus any interest
, all or any part of the principal amount of the Debenture, plus
accrued interest, into shares (the “ Conversion
Shares ”) of Common Stock at the price per share equal
to: the lesser of (a) an amount equal to one hundred twenty-five
percent (125%) of the Volume Weighted Average Price
(“VWAP”) as quoted by Bloomberg L.P. on the date hereof
(the “ Fixed Price
”), or (b) an amount equal to eighty-five
percent (85%) of the lowest daily closing VWAP as quoted by
Bloomberg L.P. during the five (5) trading days
immediately preceding the Conversion Date (as defined herein)
(the “ Conversion
Price ”). No fraction of shares or scrip
representing fractions of shares will be issued on conversion, but
the number of shares issuable shall be rounded to the nearest whole
share. To convert this Debenture, the Holder hereof
shall deliver written notice thereof, substantially in the form of
Exhibit “A” to this Debenture, with appropriate
insertions (the “ Conversion
Notice ”), to the Company at its address as set forth
herein. The date upon which the conversion shall be
effective (the “ Conversion
Date ”) shall be deemed to be the date set forth in
the Conversion Notice. Conversions hereunder shall have the effect of
lowering the ou tstanding
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 converted and the
date of such conversions. In no event shall the Holder be
entitled to convert this Debenture for a number of shares of Common
Stock in excess of that number of shares of Common Stock which,
upon giving effect to such conversion, would cause the aggregate
number of shares of Common Stock beneficially owned by the Holder
and its affiliates to exceed 4.99% of the outstanding shares of the
Common Stock following such conversion without the approval of the
Company.
Section
1.03
Reservation of Common Stock . The
Company shall reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of
effecting the conversion of this Debenture, such number of shares
of Common Stock as shall from time to time be sufficient to effect
such conversion, based upon the Conversion Price. If at
any time the Company does not have a sufficient number of
Conversion Shares authorized and available, then the Company shall
file a preliminary proxy statement with the Securities and Exchange
Commission within ten (10) business day after such
occurrence and shall call and hold a special meeting of
its stockholders as soon as practicable after such occurrence for
the sole purpose of increasing the number of authorized shares of
Common Stock.
Section 1.04
Conversion Cap. Except as provided in the next
sentence, unless otherwise waived by the Company, the Holder shall
not convert more than twenty-five thousand dollars ($25,000)
principal amount of this Debenture in any week. During
any week in which the Company’s Common Stock trades at a
price per share in excess of thirty cents ($0.30), the Holder shall
be permitted to convert up to one hundred thousand dollars
($100,000) principal amount of this Debenture.
Section
1.05
Mandatory Redemption. The Company shall redeem
this Debenture in twenty four (24) equal installments of principal
and accrued interest monthly beginning on the one (1) month
anniversary following the First Closing Date. The
Company shall pay a ten percent (10%) redemption premium on the
principal redeemed each month. For the avoidance of
doubt, redemptions shall follow the schedule as set out in Exhibit
B subject to adjustment pursuant to Section 1.02 Optional
Conversion.
Section
1.06
Interest Payments . Holder shall deduct the first
two (2) interest payments at the Closing. U pon the
occurrence of an Event of Default (as defined in
Section 3.01 below) by the
Company, the Holder has the option to elect that the
interest due and payable
hereunder be paid in cash (via wire transfer or certified
funds) or in the form of Common Stock. If paid in the
form of Common Stock, that number of
shares of Common Stock with a value equal to the amount of interest
due shall be issued .
The amount of stock to be
issued will be calculated as follows: the value of the stock shall
be eighty-five percent of the lower of: (i) the
VWAP as quoted by Bloomberg L.P. on the date the interest payment
is due; or (ii) if the interest payment is not made when due,
the VWAP as quoted by Bloomberg L.P. on the date the interest
payment is made. No fractional shares will be issued;
therefore, in the event that the value of the Common Stock per
share does not equal the total interest due, the Company will pay
the balance in cash.
Section
1.07
Paying Agent and Registrar . Initially, the
Company will act as paying agent and registrar. The
Company may change any paying agent, registrar, or
Company-registrar by giving the Holder not less than ten (10)
business days’ written notice of its election to do so,
specifying the name, address, telephone number and facsimile number
of the paying agent or registrar. The Company may act in
any such capacity.
Section
1.08
Secured Nature of Debenture . This Debenture is
secured by all of the assets and property of the Company and its
subsidiaries as set forth on Exhibit A to the Security Agreement
dated the date hereof between the Company and the Holder (the
“ Security
Agreement ”). As set forth in the Security
Agreement, Holder’s security interest shall terminate upon
the occurrence of an Expiration Event as defined in the Security
Agreement.
Section
1.09
Currency
Exchange Rate Protections.
(a) “Closing Date Exchange Rate” means
the Euro to US dollar spot exchange rate as converted by the
Holder’s Custodian on the date funds are transferred into
escrow.
(b)
“Repayment
Exchange Rate” means in
relation to each date of a Conversion or Redemption, the
Euro to US dollar spot exchange rate as quoted by Bloomberg or
Proquote on such date.
(c) If
on the date of any Conversion Notice, the Repayment
Exchang
