Debenture



                                                                                                                                
Exhibit 10.2

 

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.

 

Original Issue Date:
July 28, 2008

Original Conversion
Price (subject to adjustment herein): $1.05

 

$_______

 

 

ORIGINAL ISSUE DISCOUNT


SENIOR SECURED
CONVERTIBLE DEBENTURE

DUE July 28, 2010

 
               THIS ORIGINAL ISSUE DISCOUNT SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued Original Issue Discount Senior Secured Convertible Debentures of Blink Logic Inc., a Nevada corporation, (the “Company”), having its principal place of business at 1038 Redwood Highway, Suite 100A, Mill Valley, CA, 94941, designated as its Original Issue Discount Senior Secured Convertible Debenture due July 28, 2010 (this debenture, the “Debenture” and, collectively with the other debentures of such series, 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 $_______ on July 28, 2010 (the “Maturity Date”) or such
earlier date as this Debenture is required or permitted to be repaid as provided
hereunder.  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(e).

 

“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).

 

“Beneficial Ownership
Limitation” shall have the meaning set forth in Section 4(c). 

 

“Business Day”
means any day except any Saturday, any 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).

 

“Change of Control
Transaction” means the occurrence after the date hereof of any of (a) 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
(b) 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 (c) 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 (d) a replacement at one time or within a three year period
of more than one-half of the members of the 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 (e) 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 (a) through (d) above.

 

“Conversion”
shall have the meaning ascribed to such term in Section 4. 

 

“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
Schedule” means the Conversion Schedule in the form of Schedule 1 attached
hereto. 

 

“Conversion
Shares” means, collectively, the shares of Common Stock issuable upon
conversion of this Debenture in accordance with the terms hereof.

 

“Debenture
Register” means the records of the Company regarding registration and
transfer of this Debenture.

 

“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).

 

“Equity
Conditions” means, during the period in question, (a)
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, (b) the Company shall have paid all liquidated damages and other amounts
owing to the Holder in respect of this Debenture, (c)(i) there is
an effective Registration Statement pursuant to which the Holder is permitted to
utilize the prospectus thereunder to resell all of the shares of Common Stock
issuable pursuant to the Transaction Documents (and the Company believes, in
good faith, that such effectiveness will continue uninterrupted for the
foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to
the Transaction Documents may be resold pursuant to Rule 144 without volume or
manner-of-sale restrictions or current public information requirements as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Transfer Agent and the Holder, (d)
the Common Stock is trading on a Trading Market and all of the shares issuable
pursuant to the Transaction Documents are listed or quoted 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), (e) 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, (f) 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, (g) the issuance of the shares in question (or, in the case of an
Optional Redemption or Monthly Redemption, the shares issuable upon conversion
in full of the Optional Redemption Amount or Monthly Redemption Amount)
to the Holder
would not violate the limitations set forth in Section 4(c) herein, (h)
there has been no public announcement of a pending or proposed Fundamental
Transaction or Change of Control Transaction that has not been consummated, (i)
the Holder is not in possession of any information provided by the Company that
constitutes, or may constitute, material non-public information and (j) the
daily dollar trading volume for each Trading Day for a period of 20 consecutive
Trading Days prior to the applicable date in question on the principal Trading
Market exceeds $125,000 of shares (subject to adjustment for forward and reverse
stock splits and the like) per Trading Day.

 

“Event of
Default”
shall have the meaning set forth in Section 8(a).

 

“Forced
Conversion” shall have the meaning set forth in Section 6(d).

 

“Forced
Conversion Date” shall have the meaning set forth in Section 6(d).

 

“Forced Conversion
Notice” shall have the meaning set forth in Section 6(d).

 

“Forced Conversion
Notice Date” shall have the meaning set forth in Section 6(d).

 

“Fundamental
Transaction” shall have the meaning set forth in Section 5(e).

 

“Mandatory Default
Amount”  means the sum of (i) the greater of (A) 130% of the
outstanding Principal Amount of this Debenture, or (B) the outstanding Principal
Amount of this Debenture 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.

 

“Monthly Conversion
Period” shall have the meaning set forth in Section 6(b) hereof.

 

 “Monthly
Conversion Price” shall have the meaning set forth in Section 6(b) hereof.


 

“Monthly
Redemption” means the redemption of this Debenture pursuant to Section 6(b)
hereof. 

 

 “Monthly
Redemption Amount” means, as to a Monthly Redemption, $____________, plus
the sum of all liquidated damages and any other amounts then owing to the Holder
in respect of this Debenture.

 

 “Monthly
Redemption Date” means January 28, 2009, and the 28th calendar
day of each month thereafter, and terminating upon the full redemption of this
Debenture. 

 

“Monthly Redemption
Notice” 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).

 

“Optional
Redemption” shall have the meaning set forth in Section 6(a).

 

“Optional Redemption
Amount” means the sum of (i) 120% of the then outstanding Principal Amount
of the Debenture, and (ii) 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” means (a) the indebtedness evidenced by the Debentures, (b)
the Indebtedness existing on the Original Issue Date and set forth on
Schedule 3.1(aa) attached to the Purchase Agreement, (c) lease
obligations and purchase money indebtedness of up to $100,000, in the aggregate,
incurred in connection with the acquisition of capital assets and lease
obligations with respect to newly acquired or leased assets, (d) up to
$2,500,000, in the aggregate, of additional non-equity linked Indebtedness
incurred by the Company it being understood, that in the case of this clause
(d), such transactions shall not have any equity components of any nature and
the Company must provide the Holder with a written subordination agreement with
respect to such additional Indebtedness, which agreement shall be reasonably
satisfactory to the Holder and (e) indebtedness incurred in connection with an
issuance or issuances contemplated by clause (d) under the definition of Exempt
Issuance (as defined in the Purchase Agreement). Notwithstanding anything herein
to the contrary, in no event shall any indebtedness be “Permitted Indebtedness”
if such incurrence causes the Current Ratio (as used under
GAAP) of the Company and its Subsidiaries on a consolidated basis to be less
than 1.0.

 

“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 clauses (a), (b), (d) and (e) of the definition of Permitted
Indebtedness; and (d) Liens incurred in connection with Permitted Indebtedness
under clause (c) thereunder, provided that such Liens are not secured by assets
of the Company or its Subsidiaries other than the assets so acquired or
leased.

“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 July 28,
2008 among the Company and the original Holders, as amended, modified or
supplemented from time to time in accordance with its terms.

 

“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(d). 

 

“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 Global Market, the Nasdaq Global
Select 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 OTC Markets, Inc. (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.

 

           
Section 2.        Interest and
Prepayment.  This Debenture was issued for an original issue discount.
No regularly scheduled interest payments shall be made on this Debenture. 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, (when used in
this Debenture “no longer outstanding” shall include the Debentures being paid
in full or fully converted), 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 (each, 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 (such date, the “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 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 $1.05, subject
to adjustment herein (the “Conversion Price”).

 

c)              
Conversion
Limitations; Holder’s
Restriction on Conversion. 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, the Holder (together with the
Holder’s Affiliates, and any other person or entity acting as a group together
with the Holder or any of the 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 the 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 the 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 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 and the rules and regulations promulgated
thereunder.  To the extent that the limitation contained in this Section
4(c) applies, the determination of whether this Debenture is convertible (in
relation to other securities owned by the Holder together with any Affiliates)
and of which Principal Amount of this Debenture is convertible shall be in the
sole discretion of the Holder, and the submission of a Notice of Conversion
shall be deemed to be the Holder’s determination of whether this Debenture may
be converted (in relation to other securities owned by the Holder together with
any Affiliates) and which Principal Amount of this Debenture is convertible, in
each case subject to the Beneficial Ownership Limitation. 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.  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), in determining the number of outstanding
shares of Common Stock, the 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 periodic or annual report, 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 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 “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 Holder, upon not less than 61
days’ prior notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 4(c), provided that the
Beneficial Ownership Limitation in no event exceeds 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 Beneficial Ownership Limitation provisions of this Section 4(c)
shall continue to apply.  Any such increase or decrease will not be
effective until the 61st day after such notice is delivered to the
Company.  The Beneficial Ownership Limitation 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) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation contained herein 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.

 

d)              
Mechanics of
Conversion.

 

                                                        
i.                   
Conversion Shares
Issuable Upon Conversion of Principal Amount.  The number of
Conversion Shares 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.

 

                                                      
ii.                   
Delivery of Certificate
Upon Conversion. Not later than three
Trading Days after each Conversion Date (the “Share Delivery Date”), the
Company shall deliver, or cause to be delivered, to the Holder (A) a certificate
or certificates representing the Conversion Shares which, on or after the
earlier of (i) the six month anniversary of the Original Issue Date or (ii) the
Effective Date, shall be free of restrictive legends and trading restrictions
(other than those which may then be required by the Purchase Agreement)
representing the number of Conversion Shares being acquired upon the conversion
of this Debenture. On or after the Effective Date, the Company shall use its
best efforts to deliver any certificate or certificates required to be delivered
by the Company under this Section 4(d) electronically through the Depository
Trust Company or another established clearing corporation performing similar
functions.  

 

                                                    
iii.                   
Failure to Deliver
Certificates.  If in the case
of any Notice of Conversion such certificate or certificates are not delivered
to or as directed by the applicable Holder by the third Trading Day after the
Conversion Date, the Holder shall be entitled to elect by written notice to the
Company at any time on or before its receipt of such certificate or
certificates, to rescind such Conversion, in which event the Company shall
promptly return to the Holder any original Debenture delivered to the Company
and the Holder shall promptly return to the Company the Common Stock
certificates representing the Principal Amount of this Debenture unsuccessfully
tendered for conversion to the Company. 

 

                                                    
iv.                   
Obligation Absolute;
Partial Liquidated Damages.  The Company’s
obligations to issue and deliver the Conversion Shares upon conversion of this
Debenture in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such
Conversion Shares; provided, however, that such delivery shall not
operate as a waiver by the Company of any such action the Company may have
against the Holder.  In the event the Holder of this Debenture shall elect
to convert any or all of the outstanding Principal Amount hereof, the Company
may not refuse conversion based on any claim that the Holder or anyone
associated or affiliated with the Holder has been engaged
in any violation of law, agreement or for any other reason, unless an injunction
from a court, on notice to Holder, restraining and or enjoining conversion of
all or part of this Debenture shall have been sought and obtained, and the
Company posts a surety bond for the benefit of the Holder in the amount of 150%
of the outstanding Principal Amount of this Debenture, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to the Holder to the extent it obtains judgment.  In the absence
of such injunction, the Company shall issue Conversion Shares or, if applicable,
cash, upon a properly noticed conversion.  If the Company fails for any
reason to deliver to the Holder such certificate or certificates pursuant to
Section 4(d)(ii) by the third Trading Day after the Conversion Date, the Company
shall pay to the Holder, in cash, as liquidated damages and not as a penalty,
for each $1000 of Principal Amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such third
Trading Day until such certificates are delivered.    Nothing
herein shall limit a Holder’s right to pursue actual damages or declare an Event
of Default pursuant to Section 8 hereof for the Company’s failure to deliver
Conversion Shares within the period specified herein and the Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.  The exercise of any such rights shall not prohibit the
Holder from seeking to enforce damages pursuant to any other Section hereof or
under applicable law.

 

                                                      
v.                   
Compensation for Buy-In
on Failure to Timely Deliver Certificates Upon Conversion. In addition to any
other rights available to the Holder, if the Company fails for any reason to
deliver to the Holder such certificate or certificates by the Share Delivery
Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the
Holder is required by its brokerage firm to purchase (in an open market
transaction or otherwise), or the Holder’s brokerage firm otherwise purchases,
shares of Common Stock to deliver in satisfaction of a sale by the Holder of the
Conversion Shares which the Holder was entitled to receive upon the conversion
relating to such Share Delivery Date (a “Buy-In”), then the Company shall
(A) pay in cash to the Holder (in addition to any other remedies available to or
elected by the Holder) the amount by which (x) the Holder’s total purchase price
(including any brokerage commissions) for the Common Stock so purchased exceeds
(y) the product of (1) the aggregate number of shares of Common Stock that the
Holder was entitled to receive from the conversion at issue multiplied by (2)
the actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B) at the
option of the Holder, either reissue (if surrendered) this Debenture in a
Principal Amount equal to the Principal Amount of the attempted conversion or
deliver to the Holder the number of shares of Common Stock that would have been
issued if the Company had timely complied with its delivery requirements under
Section 4(d)(ii).  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted conversion of this Debenture with respect to which
the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000.  The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Buy-In and, upon request of the Company, evidence of the amount of such
loss.  Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
shares of Common Stock upon conversion of this Debenture as required pursuant to
the terms hereof.

 

                                                    
vi.                   
Reservation of Shares
Issuable Upon Conversion. The Company covenants
that it will at all times reserve and keep available out of its authorized and
unissued shares of Common Stock for the sole purpose of issuance upon conversion
of this Debenture, as herein provided, free from preemptive rights or any other
actual contingent purchase rights of Persons other than the Holder (and the
other holders of the Debentures), not less than such aggregate number of shares
of the Common Stock as shall (subject to the terms and conditions set forth in
the Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the outstanding Principal
Amount of this Debenture.  The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly authorized, validly
issued, fully paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be registered for public sale in
accordance with such Registration Statement.

 

                                                  
vii.                   
Fractional
Shares. No fractional shares
or scrip representing fractional shares shall be issued upon the conversion of
this Debenture.  As to any fraction of a share which Holder would otherwise
be entitled to purchase upon such conversion, the Company shall at its election,
either pay a cash adjustment in respect of such final fraction in an amount
equal to such fraction multiplied by the Conversion Price or round up to the
next whole share.

 

                                                
viii.                   
Transfer
Taxes.  The issuance of
certificates for shares of the Common Stock on conversion of this Debenture
shall be made without charge to the Holder hereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery of such
certificates, provided that the Company shall not be required to pay any tax
that may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon conversion in a name other than that of
the Holder of this Debenture so converted and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.

 

Section
5.       
Certain Adjustments.

 

a)              
Stock Dividends and
Stock Splits.  If the Company,
at any time while this Debenture is outstanding: (A) pays a stock dividend or
otherwise makes a distribution or distributions payable in shares of Common
Stock on shares of Common Stock or any Common Stock Equivalents (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Company upon conversion of the Debentures); (B) subdivides outstanding shares of
Common Stock into a larger number of shares; (C) combines (including by way of a
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares; or (D) issues, in the event of a reclassification of shares of the
Common Stock, any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding any treasury shares of the Company)
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such
event.  Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.

 

b)              
Subsequent Equity
Sales.  If, at any time
while this Debenture is outstanding,  the Company or any Subsidiary, as
applicable, sells or grants any option to purchase or sells or grants any right
to reprice, or otherwise disposes of or issues (or announces any sale, grant or
any option to purchase or other disposition), any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock at an
effective price per share that is lower than the then Conversion Price (such
lower price, the “Base Conversion Price” and such issuances,
collectively, a “Dilutive Issuance”) (if the holder of the Common Stock
or Common Stock Equivalents so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights per share
which are issued in connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share that is lower than the
Conversion Price, such issuance shall be deemed to have occurred for less than
the Conversion Price on such date of the Dilutive Issuance), then the Conversion
Price shall be reduced to equal the Base Conversion Price.  Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are
issued.  Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of an Exempt
Issuance.  If the Company enters into a Variable Rate Transaction,
despite the prohibition set forth in the Purchase Agreement, the Company shall
be deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion price at which such securities may be converted or
exercised. The Company shall notify the Holder in writing, no later than 1
Business Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“Dilutive Issuance Notice”).  For purposes of clarification, whether
or not the Company provides a Dilutive Issuance Notice pursuant to this Section
5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to
receive a number of Conversion Shares based upon the Base Conversion Price on or
after the date of such Dilutive Issuance, regardless of whether the Holder
accurately refers to the Base Conversion Price in the Notice of
Conversion.

c)              
Subsequent Rights
Offerings.  If the Company,
at any time while the Debenture is outstanding, shall issue rights, options or
warrants to all holders of Common Stock (and not to Holders) entitling them to
subscribe for or purchase shares of Common Stock at a price per share that is
lower than the VWAP on the record date referenced below, then the Conversion
Price shall be multiplied by a fraction of which the denominator shall be the
number of shares of the Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered (assuming delivery to the Company in full of
all consideration payable upon exercise of such rights, options or warrants)
would purchase at such VWAP.  Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights, options or warrants.  

 

d)              
Pro Rata
Distributions. If the Company, at any
time while this Debenture is outstanding, distributes to all holders of Common
Stock (and not to the Holders) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for or
purchase any security (other than the Common Stock, which shall be subject to
Section 5(b)), then in each such case the Conversion Price shall be adjusted by
multiplying such Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the VWAP determined as of the
record date mentioned above, and of which the numerator shall be such VWAP on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
1 outstanding share of the Common Stock as determined by the Board of Directors
of the Company in good faith.  In either case the adjustments shall be
described in a statement delivered to the Holder describing the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to 1 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.

 

e)              
Fundamental
Transaction. If, at any time while
this Debenture is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one transaction or
a series of related transactions, (C) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction”), then, upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Conversion Share
that would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of 1 share of Common Stock (the
“Alternate Consideration”).  For purposes of any such conversion,
the determination of the Conversion Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of 1 share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Conversion Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration.  If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of this
Debenture following such Fundamental Transaction.  To the extent necessary
to effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a new
debenture consistent with the foregoing provisions and evidencing the Holder’s
right to convert such debenture into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall include
terms requiring any such successor or surviving entity to comply with the
provisions of this Section 5(e) and insuring that this Debenture (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.

 

f)               
Calculations.  All calculations
under this Section 5 shall be made to the nearest cent or the nearest 1/100th of
a share, as the case may be.  For purposes of this Section 5, the number of
shares of Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding any treasury
shares of the Company) issued and outstanding.

 

g)              
Notice to the
Holder.

 

                                                        
i.                   
Adjustment to Conversion
Price.  Whenever the
Conversion Price is adjusted pursuant to any provision of this Section 5, the
Company shall promptly deliver to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.  

 

                                                      
ii.                   
Notice to Allow
Conversion by Holder.  If (A) the
Company shall declare a dividend (or any other distribution in whatever form) on
the Common Stock, (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) the
Company shall authorize the granting to all holders of the Common Stock of
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights, (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of this
Debenture, and shall cause to be delivered to the Holder at
its last address as it shall appear upon the Debenture Register, at least 20
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, redemption, rights or warrants,
or if a record is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice.  The Holder is
entitled to convert this Debenture during the 20-day period commencing on the
date of such notice through the effective date of the event triggering such
notice. 

  

Section
6.       
Redemption and Forced Conversion.

 

a)              
Optional Redemption at Election of Company. 
Subject to the provisions of this
Section 6(a), at any time after the Effective Date, the Company may deliver a
notice to the Holder (an “Optional Redemption Notice” and
the date such notice is deemed delivered hereunder, the “Optional Redemption
Notice Date”) of its irrevocable election to
redeem some or all of the then outstanding Principal Amount of this Debenture
for cash in an amount equal to the Optional Redemption Amount on the
10th Trading Day following the Optional Redemption Notice Date (such
date, the “Optional Redemption Date” and
such redemption, the “Optional Redemption”).  The Optional Redemption
Amount is payable in full on the Optional Redemption Date.  The Company may
only effect an Optional Redemption if each of the Equity Conditions shall have
been met (unless waived in writing by the Holder) on each Trading Day during the
period commencing on the Optional Redemption Notice Date through to the Optional
Redemption Date and through and including the date payment of the
Optional Redemption Amount is actually made in full.  If any of the Equity
Conditions shall cease to be satisfied at any time during the 10 Trading Day
period, then the Holder may elect to nullify the Optional Redemption
Notice by notice to the Company within 3 Trading Days after the first day on
which any such Equity Condition has not been met (provided that if, by a
provision of the Transaction Documents, the Company is obligated to notify the
Holder of the non-existence of an Equity Condition, such notice period shall be
extended to the third Trading Day after proper notice from the Company) in which
case the Optional Redemption Notice shall be null and void, abinitio.  The Company covenants and
agrees that it will honor all Notices of Conversion tendered from the time of
delivery of the Optional Redemption Notice through the date all amounts owing
thereon are due and paid in full. The Company’s determination to
effect an Optional Redemption shall be applied ratably among all of the Holders
of Debentures.

 

b)              
Monthly Redemption.  On each Monthly Redemption Date, the
Company shall redeem the Monthly Redemption Amount (the “Monthly
Redemption”). The Monthly Redemption Amount payable on each Monthly
Redemption Date shall be paid in cash; provided, however, as to
any Monthly Redemption and upon 10 Trading Days’ prior written irrevocable
notice (the “Monthly Redemption Notice”), in lieu of a cash redemption
payment the Company may elect to pay all or part of a Monthly Redemption Amount
in Conversion Shares based on a conversion price equal to the lesser of (i) the
then Conversion Price and (ii) 90% of the average of the VWAPs for the 10
consecutive Trading Days ending on the Trading Day that is immediately prior to
the applicable Monthly Redemption Date (subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting the
Common Stock during such 10 Trading Day period) (the price calculated during the
10 Trading Day period immediately prior to the Monthly Redemption Date, the
“Monthly Conversion Price” and such 10 Trading Day period, the
“Monthly Conversion Period”); provided, further, that the
Company may not pay the Monthly Redemption Amount in Conversion Shares unless
(y) from the date the Holder receives the duly delivered Monthly Redemption
Notice through and until the date such Monthly Redemption is paid in full, the
Equity Conditions have been satisfied, unless waived in writing by the Holder,
and (z) as to such Monthly Redemption, prior to such Monthly Conversion Period
(but not more than 5 Trading Days prior to the commencement of the Monthly
Conversion 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 Monthly Redemption Amount equal to the quotient of (x) the
applicable Monthly Redemption Amount divided by (y) the then Conversion Price
(the “Pre-Redemption Conversion Shares”).  The Holder may convert,
pursuant to Section 4(a), any Principal Amount of this Debenture subject to a
Monthly Redemption at any time prior to the date that the Monthly Redemption
Amount and any other amounts then owing to the Holder are due and paid in
full.  Unless otherwise indicated by the Holder in the applicable Notice of
Conversion, any Principal Amount of this Debenture converted during the
applicable Monthly Conversion Period until the date the Monthly Redemption
Amount is paid in full shall be first applied to the Principal Amount subject to
the Monthly Redemption Amount payable in cash and then to the Monthly Redemption
Amount payable in Conversion Shares.  Any Principal Amount of this
Debenture converted during the applicable Monthly Conversion Period in excess of
the Monthly Redemption Amount shall be applied against the last Principal Amount
of this Debenture scheduled to be redeemed hereunder, in reverse time order from
the Maturity Date; provided, however, if
any such conversion is applied against such Monthly Redemption Amount, the
Pre-Redemption Conversion Shares, if any were issued in connection with such
Monthly Redemption or were not already applied to such conversions, shall be
first applied against such conversion.  The Company covenants and agrees
that it will honor all Notice of Conversions tendered up until such amounts are
paid in full.  The Company’s determination to pay a Monthly Redemption in
cash, shares of Common Stock or a combination thereof shall be applied ratably
to all of the holders of the then outstanding Debentures based on their (or
their predecessor’s) initial purchases of Debentures pursuant to the Purchase
Agreement.  At any time the Company delivers a notice to the Holder of its
election to pay the Monthly Redemption Amount in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 disclosing such
election.

 

c)              
Redemption Procedure.  The payment of cash or
issuance of Common Stock, as applicable, pursuant to an Optional Redemption and
Monthly Redemption shall be payable on the Optional Redemption Date and Monthly
Redemption Date.  If any portion of the payment pursuant to an Optional
Redemption and Monthly Redemption shall not be paid by the Company by the
applicable due date, interest shall accrue thereon at an interest rate equal to
the lesser of 18% per annum or the maximum rate permitted by applicable law
until such amount is paid in full.  Notwithstanding anything herein
contained to the contrary, if any portion of the Optional Redemption Amount or
Monthly Redemption Amount remains unpaid after such date, the Holder may elect,
by written notice to the Company given at any time thereafter,
to invalidate such Optional Redemption or Monthly Redemption, ab
initio, and, with respect to the Company’s failure to honor the Optional
Redemption, the Company shall have no further right to exercise such Optional
Redemption.  Notwithstanding anything to the contrary in this Section 6,
the Company’s determination to redeem in cash or its elections under Section
6(b) shall be applied ratably among the Holders of Debentures.The
Holder may elect to convert the outstanding Principal Amount of the Debenture
pursuant to Section 4 prior to actual payment in cash for any redemption under
this Section 6 by the delivery of a Notice of Conversion to the
Company.

 

d)              
Forced Conversion. Notwithstanding anything herein to the
contrary, if after the Effective Date, the VWAP for 20 out of any 30 consecutive
Trading Days, which period shall have commenced only after the Effective Date
(such period the “Threshold Period”), exceeds $3.15 (subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the Original Issue Date), the Company may, within 1 Trading Day after the end of
any such Threshold Period, deliver a written notice to the Holder (a “Forced
Conversion Notice” and the date such notice is delivered to the Holder, the
“Forced Conversion Notice Date”) to cause the Holder to convert all or
part of the then outstanding Principal Amount of this Debenture plus, if so
specified in the Forced Conversion Notice, accrued but unpaid liquidated damages
and other amounts owing to the Holder under this Debenture, it being agreed that
the “Conversion Date” for purposes of Section 4 shall be deemed to occur on the
third Trading Day following the Forced Conversion Notice Date (such third
Trading Day, the “Forced Conversion Date”).  The Company may not deliver a Forced Conversion Notice, and any
Forced Conversion Notice delivered by the Company shall not be effective, unless
all of the Equity Conditions are met (unless waived in writing by the Holder) on
each Trading Day occurring during the applicable Threshold Period through and
including the later of the Forced Conversion Date and the Trading Day after the
date such Conversion Shares pursuant to such conversion are delivered to the
Holder.  Any Forced Conversion shall be applied ratably to all Holders
based on their initial purchases of Debentures pursuant to the Purchase
Agreement; provided that any voluntary conversions by a Holder shall be applied
against the Holder’s pro rata allocation, thereby decreasing the aggregate
amount forcibly converted hereunder if only a portion of this Debenture is
forcibly converted.  For purposes of clarification, a Forced Conversion
shall be subject to all of the provisions of Section 4, including, without
limitation, the provision requiring payment of liquidated damages and
limitations on conversions.

 

Section
7.       
Negative Covenants. As long as any portion of this Debenture remains
outstanding, unless the holders of at least 67% in Principal Amount of the then
outstanding Debentures shall have otherwise given prior written consent, the
Company shall not, and shall not permit any of its subsidiaries (whether or not
a Subsidiary on the Original Issue Date) to, directly or indirectly:

 

a)              
other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
suffer to exist any indebtedness for borrowed money of any kind, including but
not limited to, a guarantee, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom;

 

b)              
other
than Permitted Liens, enter into, create, incur, assume or suffer to exist any
Liens of any kind, on or with respect to any of its property or assets now owned
or hereafter acquired or any interest therein or any income or profits
therefrom;

 

c)              
amend
its charter documents, including, without limitation, its certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;

 

d)              
repay, repurchase or
offer to repay, repurchase or otherwise acquire more than a de
minimis number of shares of its Common Stock or Common Stock Equivalents
other than as to (a) the Conversion Shares or Warrant Shares as permitted or
required under the Transaction Documents and (b) repurchases of Common Stock or
Common Stock Equivalents of departing officers and directors of the Company,
provided that such repurchases shall not exceed an aggregate of $100,000 for all
officers and directors during the term of this Debenture; 

 

e)              
repay,
repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness,
other than the Debentures if on a pro-rata basis, other than regularly scheduled
principal and interest payments as such terms are in effect as of the Original
Issue Date, provided that such payments shall not be permitted if, at such time,
or after giving effect to such payment, any Event of Default exist or
occur;

 

f)               
pay
cash dividends or distributions on any equity securities of the
Company;

 

g)              
enter into any
transaction with any Affiliate of the Company which would be required to be
disclosed in any public filing with the Commission, unless such transaction is
made on an arm’s-length basis and expressly approved by a majority of the
disinterested directors of the Company (even if less than a quorum otherwise
required for board approval); or

 

h)              
enter into any agreement
with respect to any of the foregoing.

 

       
    Section 8.       
Events of Default.  

 

a)              
“Event of
Default” means, wherever used herein, any of the following events (whatever
the reason for such event and whether 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):

 

                                                        
i.                   
any default in the payment of (A)
the Principal Amount of any Debenture or (B) liquidated damages and other
amounts owing to a Holder on any Debenture, as and when the same shall become
due and payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of a default under
clause (B) above, is not cured within 3 Trading Days;

 

                                                      
ii.                   
the Company shall fail to observe or perform any other covenant or
agreement contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (ix) below) which failure is not cured, if
possible to cure, within the earlier to occur of
(A) 7 Trading Days after notice of such failure sent by the
Holder or by any other Holder and (B) 12 Trading Days after the
Company has become or should have become aware of such failure;

 

                                                    
iii.                   
a default or event of default (subject to any grace or cure period
provided in the applicable agreement, document or instrument) shall occur under
(A) any of the Transaction Documents or (B) any other material agreement, lease,
document or instrument to which the Company or any Subsidiary is obligated (and
not covered by clause (vi) below);

 

                                                    
iv.                   
any representation or warranty made in this Debenture, any other
Transaction Documents, any written statement pursuant hereto or thereto or any
other report, financial statement or certificate made or delivered to the Holder
or any other Holder shall be untrue or
incorrect in any material respect as of the date when made or deemed
made;

 

                                                      
v.                   
the Company or any Significant Subsidiary (as such term is defined in
Rule 1-02(w) of Regulation S-X)  shall be subject to a Bankruptcy
Event;

 

                                                    
vi.                   
the Company or any Subsidiary shall default on any of its obligations
under any mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be issued, or by
which there may be secured or evidenced, any indebtedness for borrowed money or
money due under any long term leasing or factoring arrangement that (a) involves
an obligation greater than $250,000, whether such indebtedness now exists or
shall hereafter be created, and (b) results in such indebtedness becoming or
being declared due and payable prior to the date on which it would otherwise
become due and payable; 

 

                                                  
vii.                   
the Common Stock shall not be eligible for listing or quotation for
trading on a Trading Market and shall not be eligible to resume listing or
quotation for trading thereon within five Trading Days;

 

                                                
viii.                   
the Company shall be a party to any Change of Control Transaction or
Fundamental Transaction or shall agree to sell or dispose of all or in excess of
33% of its assets in one transaction or a series of related transactions
(whether or not such sale would constitute a Change of Control
Transaction);

 

                                                    
ix.                   
the Company shall fail for any reason to deliver certificates to a Holder
prior to the fifth Trading Day after a Conversion Date or any Forced Conversion
Date pursuant to Section 4(d) or the Company shall provide at any time notice to
the Holder, including by way of public announcement, of the Company’s intention
to not honor requests for conversions of any Debentures in accordance with the
terms hereof; or

 

                                                      
x.                   
any monetary judgment, writ or similar final process shall be entered or
filed against the Company, any subsidiary or any of their respective property or
other assets for more than $250,000, and such judgment, writ or similar final
process shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.

 

b)              
Remedies Upon Event of
Default. If any Event of
Default occurs, the outstanding Principal Amount of this Debenture, plus
liquidated damages and other amounts owing in respect thereof through the date
of acceleration, shall become, at the Holder’s election, immediately due and
payable in cash at the Mandatory Default Amount.  Commencing 5 days after
the occurrence of any Event of Default that results in the eventual acceleration
of this Debenture, the interest rate on this Debenture shall accrue at an
interest rate equal to the lesser of 18% per annum or the maximum rate permitted
under applicable law.  Upon the payment in full of the Mandatory Default
Amount, the Holder shall promptly surrender this Debenture to or as directed by
the Company.  In connection with such acceleration
described herein, the Holder need not provide, and the Company hereby waives,
any presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law.  Such acceleration may be rescinded and annulled by Holder
at any time prior to payment hereunder and the Holder shall have all rights as a
holder of the Debenture until such time, if any, as the Holder receives full
payment pursuant to this Section 8(b).  No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.

 

Section
9.       
Miscellaneous.   

a)              
Notices.  Any and all
notices or other communications or deliveries to be provided by the Holder
hereunder, including, without limitation, any Notice of Conversion, shall be in
writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, or such other facsimile number or address as the Company may
specify for such purpose by notice to the Holder delivered in accordance with
this Section 9(a).  Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address of
the Holder appearing on the books of the Company, or if no such facsimile number
or address appears, at the principal place of business of the Holder.  Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified on
the signature page prior to 5:30 p.m. (New York City time), (ii) the date
immediately following the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number specified on the signature
page between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time)
on any date, (iii) the second Business Day following the date of mailing, if
sent by nationally recognized overnight courier service or (iv) upon actual
receipt by the party to whom such notice is required to be given.

 

b)              
Absolute
Obligation. 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 liquidated damages (if any) on this Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed.  This
Debenture is a direct debt obligation of the Company.  This Debenture ranks
pari passu with all other Debentures now or hereafter issued under
the terms set forth herein.      

 

c)              
Lost or Mutilated
Debenture.  If this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the principal amount of this Debenture
so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, reasonably satisfactory to the Company.

 

d)              
Governing
Law.  All questions
concerning the construction, validity, enforcement and interpretation of 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
conflict of laws thereof.  Each party agrees that all legal proceedings
concerning the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a
party hereto or its respective Affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal courts sitting
in the City of New York, Borough of Manhattan (the “New York
Courts”).  Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Debenture
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any other manner permitted by
applicable law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its attorneys fees and other costs and expenses incurred in the investigation,
preparation and prosecution of such action or proceeding.

 

e)              
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 by the Company
or the Holder must be in writing.

 

f)               
Severability.  If any provision
of this Debenture is invalid, illegal or unenforceable, the balance of this
Debenture shall remain in effect, and if any provision is inapplicable to any
Person or circumstance, it shall nevertheless remain applicable to all other
Persons and circumstances.  If it shall be found that any interest or other
amount deemed interest due hereunder violates the applicable law governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted
under applicable law. The Company covenants (to the extent that it may lawfully
do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on this Debenture as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this indenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every such as
though no such law has been enacted.

 

g)              
Next Business
Day.  Whenever any
payment or other obligation hereunder shall be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business
Day.

 

h)              
Headings.  The headings
contained herein are for convenience only, do not constitute a part of this
Debenture and shall not be deemed to limit or affect any of the provisions
hereof.

 

i)               
Assumption.  Any successor to
the Company or any surviving entity in a Fundamental Transaction shall (i)
assume, prior to such Fundamental Transaction, all of the obligations of the
Company under this Debenture and the other Transaction Documents pursuant to
written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) and (ii) issue to the
Holder a new debenture of such successor entity evidenced by a written
instrument substantially similar in form and substance to this Debenture,
including, without limitation, having a principal amount and interest rate equal
to the Principal Amount and the interest rate of this Debenture and having
similar ranking to this Debenture, which shall be satisfactory to the Holder
(any such approval not to be unreasonably withheld or delayed).  The
provisions of this Section 9(i) shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
of this Debenture.

 

j)               
Secured
Obligation.  The obligations
of the Company under this Debenture are secured by all assets of the Company and
each Subsidiary pursuant to the Security Agreement, dated as of July 28, 2008
between the Company, the Subsidiaries of the Company and the Secured Parties (as
defined therein).

 

*********************

 




IN WITNESS WHEREOF, the
Company has caused this Debenture to be duly executed by a duly authorized
officer as of the date first above indicated.

 

 


	
BLINK
LOGIC INC.

 

 

	
By:__________________________________________

    
Name:

    
Title:

Facsimile
No. for delivery of Notices: _______________

	
 

	
 




 


                                                                    
ANNEX A

 

                                                    
NOTICE OF CONVERSION

                                                                             


 

           
The undersigned hereby elects to convert principal under the Original Issue
Discount Senior Secured Convertible Debenture due July 28, 2010 of Blink Logic
Inc., a Nevada corporation (the “Company”), into shares of common stock
(the “Common Stock”), of the Company according to the conditions hereof,
as of the date written below.  If shares of Common Stock are to be issued
in the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith.  No fee will be charged to the holder for any conversion, except
for such transfer taxes, if any.

 

           
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts specified under Section 4 of this Debenture, as determined in
accordance with Section 13(d) of the Exchange Act.

 

           
The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.  

 

Conversion
calculations:                                                                                                            


Date to Effect
Conversion:

 

Principal Amount of
Debenture to be Converted:

 

                                                                                                                                                    


Number of shares of
Common Stock to be issued:

                                                                                                                                                    


                                                                                                                                                    


Signature:

                                                                                        


Name:

                                                                                                                                                    


Address for Delivery of
Common Stock Certificates:

 

                                                           
Or

 

                                                           
DWAC Instructions:

 

                                                           
Broker
No:                             


                                                           
Account
No:                          


 


 

                                                                    
Schedule 1

 

                                                    
CONVERSION SCHEDULE

 

The Original Issue
Discount Senior Secured Convertible Debentures due on July 28, 2010 in the
aggregate Principal Amount of $_______ are issued by Blink Logic Inc., a Nevada
corporation. This Conversion Schedule reflects conversions made under Section 4
of the above referenced Debenture.

 

                                                                        
Dated: 

 

 


	
 

Date of
Conversion

(or for first
entry, Original Issue Date)
	
 

Amount of
Conversion
	
 

Aggregate
Principal Amount Remaining Subsequent to Conversion

(or original
Principal Amount)
	
 

Company
Attest