EXHIBIT 4.2
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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.
Original Issue Date: June 8, 2005
Original Conversion Price (subject to
adjustment herein): $2.00
$_______________
SERIES A VARIABLE RATE SECURED CONVERTIBLE DEBENTURE
THIS SERIES A VARIABLE RATE SECURED CONVERTIBLE DEBENTURE is one of
a
series of duly authorized and issued Series
A Variable Rate Secured Convertible
Debentures of Western Power & Equipment
Corp., a Delaware Company (the
"Company"), having a principal place of
business at 4601 N.E. 77th Avenue,
Vancouver, Washington 98662, designated as
its Series A Variable Rate Secured
Convertible Debentures (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
$_______________, due June 7, 2010 (except
that, upon the Company timely honoring the
Holder Optional Redemption pursuant
to Section 6(c) if exercised by the Holder,
such date shall be June 7, 2011), 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 have the
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meanings given to such terms 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).
"Base Conversion Price" shall have the meaning set forth in
Section 5(b).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a federal legal holiday in the United States or
a
day on which banking institutions in the State of New York are
authorized or required by law or other government action to
close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"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 40% of the voting
securities
of the Company, 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
60%
of the aggregate voting power of the Company or the successor
entity of
such transaction, or (iii) the Company sells or transfers its
assets,
as an entirety or substantially as an entirety, to another Person
and
the stockholders of the Company immediately prior to such
transaction
own less than 60% of the aggregate voting power of the acquiring
entity
immediately after the transaction, (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 above in (i) or (iv).
"Common Stock" means the common stock, par value $0.001 per
share, of the Company and stock of any other class of securities
into
which such securities may hereafter have been 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 the shares of Common Stock issuable
upon conversion of this Debenture or as payment of interest in
accordance with the terms.
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"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 given to such
term 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 Notice
of
Conversions of the Holder, if any, (ii) all liquidated damages
and
other amounts owing to the Holder in respect of this Debenture
shall
have been paid; (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 the Trading Market and
all
of the shares issuable pursuant to the Transaction Documents are
listed
for trading on a 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 then existing
no
Event of Default or 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 a redemption, the
shares
issuable upon conversion in full of the redemption amount) to
the
Holder would not violate the limitations set forth in Section 4(c)
and
(viii) no public announcement of a pending or proposed
Fundamental
Transaction, Change of Control Transaction or acquisition
transaction
has occurred that has not been consummated.
"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.
"Fundamental Transaction" shall have the meaning set forth in
Section 5(d).
"Holder Optional Redemption" shall have the meaning set forth
in Section 6(a).
"Holder Optional Redemption Amount" shall mean the sum of (i)
100% of the principal amount of this Debenture then outstanding,
(ii)
accrued but unpaid interest thereon and (iii) all liquidated
damages
and other amounts due in respect of this Debenture.
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"Holder Optional Redemption Notice" shall have the meaning set
forth in Section 6(a).
"Holder Optional Redemption Notice Date" shall have the
meaning set forth in Section 6(a).
"Interest Conversion Rate" means the lesser of (a) the
Conversion Price and (b) 90% of the lesser of (i) the
arithmetic
average of the 20 VWAPs immediately prior to the applicable
Interest
Payment Date or (ii) the arithmetic average of the 20 VWAPs
immediately
prior to the date the applicable interest payment shares are issued
and
delivered if after the Interest Payment Date.
"Interest Payment Date" shall have the meaning set forth in
Section 2(a).
"Interest Period" means, initially, the period beginning on
and including the Original Issue Date and ending on and including
June
30, 2005 and each successive period as follows: the period
beginning on
and including July 1 and ending on and including September 30;
the
period beginning on and including October 1 and ending on and
including
December 31; the period beginning on and including January 1 and
ending
on and including March 31; and the period beginning on and
including
April 1 and ending on and including June 30.
"Inventory Floor Plan Financing Agreement" means that certain
Wholesale Financing and Security Agreement, dated November 17,
1992,
between the Company, Case Corporation, and Case Credit Corporation,
as
amended prior to the Original Issue Date, granting Case Corporation
and
Case Credit Corporation a security interest on inventory purchased
by
the Company for resale from Case Corporation.
"Late Fees" shall have the meaning set forth in Section 2(d).
"LIBOR" means, for each Interest Period (i) the six-month
London Interbank Offered Rate for deposits in U.S. dollars, as
shown on
such the Trading Day immediately prior to the beginning of such
Interest Period in The Wall Street Journal (Eastern Edition) under
the
caption "Money Rates - London Interbank Offered Rates (LIBOR)"; or
(ii)
if The Wall Street Journal does not publish such rate, the
offered
one-month rate for deposits in U.S. dollars which appears on
the
Reuters Screen LIBO Page as of 10:00 a.m., New York time, the
Trading
Day immediately prior to the beginning of such Interest Period,
provided that if at least two rates appear on the Reuters Screen
LIBO
Page on any such Trading Day, the "LIBOR" for such day shall be
the
arithmetic mean of such rates.
"Mandatory Default Amount" shall equal the sum of (i) the
greater of: (A) 120% of the principal amount of this Debenture to
be
prepaid, plus all accrued and unpaid interest thereon, or (B)
the
principal amount of this Debenture to be prepaid, plus all
other
accrued and unpaid interest hereon, divided by the Conversion Price
on
(x) the date the Mandatory Default Amount is demanded or otherwise
due
or (y) the date the Mandatory Default Amount is paid in full,
whichever
is less, multiplied by the VWAP on
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(x) the date the Mandatory Default Amount is demanded or otherwise
due
or (y) the date the Mandatory Default Amount is paid in full,
whichever
is greater, and (ii) all other amounts, costs, expenses and
liquidated
damages due in respect of this Debenture.
"Monthly Conversion Price" shall have the meaning set forth in
Section 6(b) hereof.
"Monthly Redemption" shall mean the redemption of this
Debenture pursuant to Section 6(b) hereof.
"Monthly Redemption Amount" shall mean $_____________(1);
provided, however, upon the Company timely honoring a Holder
Optional
Redemption pursuant to Section 6(c), if exercised by the Holder,
the
Monthly Redemption Amount thereafter shall be equal to the
outstanding
principal amount of this Debenture at the time such Holder
Optional
Redemption is honored divided by the number of months (based on the
1st
of the month) remaining until June 7, 2011.
"Monthly Redemption Date" means the 1st of each month,
commencing on the 7th month after the Original Issue Date and
ending
upon the full redemption of this Debenture.
"Monthly Redemption Period" shall have the meaning set forth
in Section 6(b) hereof.
"Monthly Redemption Share Amount" shall have the meaning set
forth in Section 6(b) hereof.
"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).
"Original Issue Date" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of
any
Debenture and regardless of the number of instruments which may
be
issued to evidence such Debenture.
"Permitted Indebtedness" shall mean the individual and
collective reference to the following: (a) Indebtedness
incurred
pursuant to the Series A Debentures and the Series B Debentures,
(b)
Existing Indebtedness as it exists on the date of the Purchase
Agreement but excluding any Existing Indebtedness paid off at
the
Closing, including the GE Facility and the APM Purchase Note,
(c)
additional Indebtedness to Case Corporation pursuant to the
Inventory
Floor Plan Financing Agreement, (d) additional Indebtedness
incurred in
connection with the acquisition of capital assets and obligations
under
sale-leaseback arrangements with respect to newly acquired or
leased
assets to Persons, other than Case Corporation, up to, in the
aggregate
at any one time outstanding, and together
__________________
(1) 1/54th of
the original principal amount of this Debenture.
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with any then outstanding Existing Indebtedness, a maximum of
$3,200,000 from the Original Issue Date until the 18 month
anniversary
of the Original Issue Date (with no such obligation (other than
Existing Indebtedness as it exists on the date of the Purchase
Agreement but excluding any Existing Indebtedness paid off at
the
Closing, including the GE Facility) individually exceeding
$100,000);
provided such aggregate maximum aggregate (subject still to the
$100,000 individual maximum amount) shall increase to $4,100,000
during
the period following such 18 month anniversary to the 30 month
anniversary of the Original Issue Date and to $5,000,000 after the
30
month anniversary of the Original Issue Date until this Debenture
is no
longer outstanding and (e) Indebtedness incurred by the Company
that
does not mature or require payments of principal prior to the four
year
anniversary of the Original Issue Date and is made expressly
subordinate in right of payment to the Indebtedness evidenced by
this
Debenture, as reflected in a written agreement acceptable to the
Holder
and approved by the Holder in writing.
"Permitted Lien" shall mean 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) any Liens incurred in
connection with Permitted Indebtedness under clause (d) in the
definition of Permitted Indebtedness above, provided that such
liens
are not secured by assets of the Company or its Subsidiaries other
than
the assets so acquired or leased; (c) Liens imposed by law which
were
incurred in the ordinary course of business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens,
and
other similar Liens arising in the ordinary course of business, and
(x)
which 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) which are being contested in
good
faith by appropriate proceedings, which proceedings have the effect
of
preventing the forfeiture or sale of the property or asset subject
to
such Lien; (d) Liens created in favor of the Purchasers pursuant to
the
Security Documents and (e) Existing Liens as they exist on the date
of
the Purchase Agreement, but excluding any Existing Liens on
Existing
Indebtedness paid off at the Closing, including Liens on the GE
Facility.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or
political
subdivision thereof or a governmental agency.
"Pre-Redemption Conversion Shares" shall have the meaning set
forth in Section 6(b) hereof.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of June 8, 2005, to which the Company and the original
Holder
are parties, as amended, modified or supplemented from time to time
in
accordance with its terms.
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"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which
the
Company and the original Holder are parties, as amended, modified
or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the
Conversion
Shares and naming the Holder as a "selling stockholder"
thereunder.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Subsidiary" shall have the meaning given to such term in the
Purchase Agreement.
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"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 Nasdaq SmallCap Market, the American Stock Exchange,
the
New York Stock Exchange, the Nasdaq National Market 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 primary Trading Market on which the Common Stock is then
listed
or quoted as reported by Bloomberg Financial L.P. (based on a
Trading
Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
function; (b) if the Common Stock is not then listed or quoted on
the
Trading Market and if prices for the Common Stock are then reported
in
the "Pink Sheets" published by the 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 (c) in all other cases, the fair market value of a
share
of Common Stock as determined by a nationally
recognized-independent
appraiser selected in good faith by Purchasers holding a majority
of
the principal amount of Debentures then outstanding.
Section 2.
Interest.
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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 per
annum
equal to LIBOR for the applicable Interest Period plus
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6.0% or such lesser rate as shall be the highest rate permitted
by
applicable law (the "Debenture Interest Rate"), payable quarterly
on
April 1, July 1, October 1 and January 1, beginning on the first
such
date after
the Original Issue Date, on each Monthly Redemption Date (as
to that principal amount then being redeemed), on each Conversion
Date
(as to that principal amount then being converted), on each
Holder
Optional Redemption Date (as to that principal amount 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
shares of Common Stock at the Interest Conversion Rate, or a
combination thereof (the amount to be paid in shares, the
"Interest
Share Amount"); provided, however, (i) payment in shares of
Common
Stock may only occur if during the 20 Trading Days immediately
prior to
the applicable Interest Payment Date ("Interest Notice Period")
and
through and including the date such shares of Common Stock are
issued
to the Holder all of the Equity Conditions, unless waived by the
Holder
in writing, have been met and the Company shall have given the
Holder
notice in accordance with the notice requirements set forth below
and
(ii) as to such Interest Payment Date, prior to the such
Interest
Notice Period (but not more 5 Trading Days prior to the
commencement of
the Interest Notice Period), the Company shall have delivered to
the
Holder's account with The Depository Trust Company a number of
shares
of Common Stock to be applied against such Interest Share Amount
equal
to the quotient of (x) the applicable Interest Share Amount divided
by
(y) the then Conversion Price (the "Interest Conversion
Shares").
Notwithstanding anything herein to the contrary, immediately after
the
Company has redeemed, pursuant to a Holder Optional Redemption
as
defined in Section 6(a) or a Monthly Redemption as set forth in
Section
6(b), a principal amount of outstanding Debentures in one or
more
redemptions, in the aggregate, equal to (i) greater than
$10,000,000,
the Debenture Interest Rate shall be reduced to equal LIBOR for
the
applicable Interest Period plus 5.25% and (ii) greater than
$20,000,000, the Debenture Interest Rate shall be reduced to
equal
LIBOR for the applicable Interest Period plus 4.0%.
b)
Company's Election to Pay Interest in Kind. Subject to
the terms and conditions herein, the decision whether to pay
interest
hereunder in shares of Common Stock or cash shall be at the
discretion
of the Company. Prior to the commencement of an Interest Notice
Period,
the Company shall provide the Holder with 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
(the Company may indicate in such notice that the election
contained in
such notice shall continue for later periods until revised) and
the
Interest Share Amount as to the applicable Interest Payment
Date.
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. 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.
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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 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) and only 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 in fact 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
Debentures (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
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 the rate of 18% per annum
(or
such lower maximum amount of interest permitted to be charged
under
applicable law) ("Late Fees") which will accrue daily, from the
date
such interest is due hereunder through and including the date
of
payment. Notwithstanding anything to the contrary contained herein,
if
on any Interest Payment Date the Company has elected to pay
interest in
Common Stock and is not able to pay accrued interest in the form
of
Common Stock because it does not then satisfy the conditions
for
payment in the form of 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 cash interest payment, shall deliver, within three
Trading
Days of each applicable Interest Payment Date, an amount in cash
equal
to the product
of 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 and the average 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.
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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 made for such registration of
transfer
or exchange.
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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 to the Company for transfer 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.
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a)
Voluntary Conversion. At any time after the Original
Issue Date until this Debenture is no longer outstanding, this
Debenture
shall be convertible into shares of Common Stock at the
option of the Holder, in whole or in part at any time and from time
to
time (subject to the limitations on conversion set forth in
Section
4(c) hereof). The Holder shall effect conversions by delivering to
the
Company the form of Notice of Conversion 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 is
to 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 provided 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 converted and
the
date of such conversions. The Company shall deliver any objection
to
any Notice of Conversion within 1 Business Day of receipt of
such
notice. 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 $2.00 (subject to adjustment
herein)(the "Conversion Price").
c)
Holder's Restriction on Conversion. The Company shall
not effect any conversion of this Debenture, and the Holder shall
not
have the right to convert any portion of this Debenture, pursuant
to
Section 4(a) or otherwise, to the extent that after giving effect
to
such conversion, the Holder (together with the Holder's
affiliates), as
set forth on the applicable Notice of Conversion, would
beneficially
own in excess of 4.99%
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of the number of shares of the Common Stock outstanding
immediately
after giving effect to such conversion. For purposes of the
foregoing
sentence, the number of shares of Common Stock beneficially owned
by
the Holder and its affiliates shall include the number of shares
of
Common Stock issuable upon conversion of this Debenture with
respect to
which the determination of such sentence is being made, but
shall
exclude the number of shares of Common Stock which would be
issuable
upon (A) conversion of the remaining, nonconverted portion of
this
Debenture beneficially owned by the Holder or any of its affiliates
and
(B) exercise or conversion of the unexercised or nonconverted
portion
of any other securities of the Company (including, without
limitation,
any other Debentures or the Warrants) subject to a limitation
on
conversion or exercise analogous to the limitation contained
herein
beneficially owned by the Holder or any of its affiliates. Except
as
set
forth in the preceding sentence, for purposes of this Section
4(c),
beneficial ownership shall be calculated in accordance with
Section
13(d) of the Exchange Act. To the extent that the limitation
contained
in this section applies, the determination of whether this
Debenture is
convertible (in relation to other securities owned by the Holder)
and
of which a portion of this Debenture is convertible shall be in
the
sole discretion of such Holder, absent manifest error by the
Holder. To
ensure compliance with this restriction, the 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
verify or confirm the accuracy of such determination. For purposes
of
this Section 4(c), in determining the number of outstanding shares
of
Common Stock, the Holder may rely on the number of outstanding
shares
of Common Stock as reflected in (x) the Company's most recent Form
10-Q
or Form 10-K, as the case may be, (y) a more recent public
announcement
by the Company or (z) any other 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 the Holder,
the
Company shall within two Trading Days confirm orally and in writing
to
the 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 the Holder
or
its affiliates since the date as of which such number of
outstanding
shares of Common Stock was reported. The provisions of this
Section
4(c) may be waived by the Holder, at the election of the Holder,
upon
not less than 61 days' prior notice to the Company, and the
provisions
of this Section 4(c) shall continue to apply until such 61st day
(or
such later date, as determined by the Holder, as may be specified
in
such notice of waiver).
d)
Mechanics of Conversion
i. Conversion Shares Issuable Upon Conversion of
Principal Amount. The number of shares of Common Stock issuable
upon a
conversion hereunder shall be determined by the quotient obtained
by
dividing (x) the outstanding principal amount of this Debenture to
be
converted by (y) the Conversion Price.
11
<PAGE>
ii. Delivery of Certificate Upon Conversion. Not later
than three Trading Days after any Conversion Date, the Company
will
deliver or cause to be delivered to the Holder (A) a certificate
or
certificates representing the Conversion Shares which shall be free
of
restrictive legends and trading restrictions (other than those
required
by the Purchase Agreement) representing the number of shares of
Common
Stock being acquired
upon the conversion of this Debenture (including,
if the Company has given continuous notice pursuant to Section 2(b)
for
payment of interest in shares of Common Stock at least 20 Trading
Days
prior to the date on which the Conversion Notice is delivered to
the
Company, shares of Common Stock representing the payment of
accrued
interest otherwise determined pursuant to Section 2(a) but
assuming
that the Interest Payment Period is the 20 Trading Days period
immediately prior to the date on which the Conversion Notice is
d
