Document:

Common Stock Warrant of Fuel Corporation of America dated August 12, 2005

 

 

Exhibit 4.3

 

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR ANY APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS. THESE SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT OR LAWS. 

 

	 	August 12, 2005

 

FUEL
CORPORATION OF AMERICA

 

 

COMMON
STOCK WARRANT 

 

THIS
CERTIFIES
that, for value received, Tryant, LLC and its permitted transferees hereunder
(the “Holder”), is entitled to subscribe for and purchase from FUEL
CORPORATOIN OF AMERICA,
a Nevada corporation (the “Company”), up to 2,000,000 fully paid and
nonassessable shares (the “Warrant Shares”) of common stock, $.001 par value, of
the Company (the “Common Stock”) at $.01 per share (the “Exercise Price”)
subject to adjustment as provided in Section 2 hereof. Upon vesting of this
Warrant pursuant to Section 1(b), in whole or in part, the Warrant shall be
exercisable until the earlier of (i) repayment of the promissory note as
described in Section 1(b) or (ii) August 12, 2008 (the “Exercise
Period”).

 

SECTION
1. Exercise
of Warrant.

 

General.
(a) This Warrant may be exercised by the Holder as to the whole or any lesser
number of the Warrant Shares covered hereby, upon surrender of this Warrant to
the Company at its principal executive office together with the Notice of
Exercise attached hereto as Exhibit A, duly completed and executed by the
Holder, and payment to the Company of the aggregate Exercise Price for the
Warrant Shares to be purchased in the form of (i) a check made payable to
the Company, (ii) wire transfer according to the Company’s instructions or
(iii) any combination of (i) and (ii). The exercise of this Warrant shall
be deemed to have been effected on the day on which the Holder surrenders this
Warrant to the Company and satisfies all of the requirements of this
Section 1. Upon such exercise, the Holder will be deemed a shareholder of
record of those Warrant Shares for which the warrant has been exercised with all
rights of a shareholder (including, without limitation, all voting rights with
respect to such Warrant Shares and all rights to receive any dividends with
respect to such Warrant Shares). If this Warrant is to be exercised in respect
of less than all of the Warrant Shares covered hereby, the Holder shall be
entitled to receive a new warrant covering the number of Warrant Shares in
respect of which this Warrant shall not have been exercised and for which it
remains subject to exercise. Such new warrant shall be in all other respects
identical to this Warrant.

 

(b)
The Warrant shall vest as to 1,555,556 Warrant Shares in the event the Company
does not make a timely payment of $175,000 due on September 30, 2005 pursuant to
its promissory note to the Holder in the amount of $225,000. Upon the Company
curing such default, the Warrants constituting the unexercised portion of the
1,555,556 Warrant Shares shall be cancelled. The remaining 444,444 Warrant
Shares shall vest in the event the Company does not 

 

1

 

make
a timely payment of $50,000 due on December 31, 2005 pursuant to its promissory
note to the Holder in the amount of $225,000. Upon the Company curing such
default, the Warrants constituting the unexercised portion of the 444,444
Warrant Shares shall be cancelled. This Warrant shall be cancelled upon the
Company paying the sum due under the promissory note due to the Holder in the
amount of $225,000.

 

SECTION
2. Adjustment
of Warrant Price.
If,
at any time during the Exercise Period, the number of outstanding shares of
Common Stock is (i) increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split of shares of such class of Common Stock, or
(ii) decreased by a combination or reverse split of shares of Common Stock,
then, following the record date fixed for the determination of holders of Common
Stock entitled to receive the benefits of such stock dividend, subdivision,
split-up, reverse split-up or combination, the Warrant Price shall be
proportionately
reduced, in the case of an increase in shares of Common Stock outstanding, or
proportionately increased, in the case of a decrease in shares of Common Stock
outstanding, in both cases by the ratio which the total number of shares of
Common Stock to be outstanding immediately after such event bears to the total
number of shares of Common Stock outstanding immediately prior to such
event.

 

SECTION
3. Adjustment
of Warrant Shares.
Upon
each adjustment of the Warrant Price as provided in Section 2, the Holder shall
thereafter be entitled to subscribe for and purchase, at the Warrant Price
resulting from such adjustment, the number of Warrant Shares equal to the
product of (i) the number of Warrant Shares existing prior to such adjustment
and (ii) the quotient obtained by dividing (A) the Warrant Price existing prior
to such adjustment by (B) the new Warrant Price resulting from such adjustment.
No fractional shares of capital stock of the Company shall be issued as a result
of any such adjustment, and any fractional shares resulting from the
computations pursuant to this paragraph shall be eliminated without
consideration.

 

SECTION
4. No
Shareholder Rights.
This
Warrant shall not entitle the holder hereof to any voting rights or other rights
as a shareholder of the Company.

 

SECTION
5. Covenant
of the Company.
The Company covenants and agrees that the Company shall at all times have
authorized and reserved or shall authorize and reserve, free from preemptive
rights, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.

 

SECTION
6. Investment
Representations and Warranties.
The Holder hereby represents and warrants to the Company as
follows:

 

(a)     
The
Holder is acquiring the Warrant, and it will acquire the Common Stock issuable
upon exercise thereof, for its own account, for investment and not with a view
to the distribution thereof, nor with any present intention of distributing the
same. The Holder understands that the Warrant and Common Stock issuable upon
exercise thereof, will not be registered under the Act or registered or
qualified under any state securities or “blue-sky” laws, by reason of their
issuance in a transaction exempt from the registration and/or qualification
requirements thereof, and that they must be held indefinitely unless a
subsequent disposition thereof is registered under the Act or registered or
qualified under any applicable state securities or “blue-sky” laws or is exempt
from registration and/or qualification.

 

2

 

(b)     
The
Holder understands that the exemption from registration afforded by Rule 144
(the provisions of which are known to the Holder) promulgated under the Act
depends on the satisfaction of various conditions and that, if applicable, Rule
144 may only afford the basis for sales under certain circumstances only in
limited amounts.

 

(c)     
The
Holder has no need for liquidity in its investment in the Company, and is able
to bear the economic risk of such investment for an indefinite period and to
afford a complete loss thereof. 

 

(d)     
The
Holder is an “accredited purchaser” as such term is defined in Rule 501 (the
provisions of which are known to the Holder) promulgated under the
Act.

 

SECTION
7. Restrictions
on Transfer.
The Holder of this Warrant by acceptance hereof agrees that the transfer of this
Warrant and the shares of Common Stock issuable upon exercise of this Warrant
are subject to the following provisions:

 

(a)     
General.
Subject to the requirements of the Act or any applicable state securities laws,
the Holder may sell, assign, transfer or otherwise dispose of all or any portion
of the Warrants or the Warrant Shares acquired upon any exercise hereof at any
time and from time to time. Upon the sale, assignment, transfer or other
disposition of all or any portion of the Warrants, Holder shall deliver to the
Company a written notice of such in the form attached hereto as Exhibit
B,
duly executed by Holder, which includes the identity and address of any
purchaser, assignor or transferee. 

 

(b)     
Restrictive
Legend.
Each certificate for Warrant Shares held by the Holder
and each certificate for any such securities issued to subsequent transferees of
any such certificate shall be stamped or otherwise imprinted with legends in
substantially the following form:

 

“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”) OR ANY RELEVANT STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS”. 

 

(c) Indemnification.
Holder acknowledges that he, she or it understands the meaning and legal
consequences of the representations, warranties and acknowledgments he, she or
it has made in Section 7 and elsewhere in this Warrant and he, she or it
understands that the Company is relying upon the truth and accuracy thereof.
Accordingly, the Holder hereby agrees to indemnify and hold harmless the
Company, its officers, agents and representatives, from and against any and all
loss, damage or liability due to or arising out of a breach of any
representation or warranty of Holder contained in this Warrant.

 

SECTION
8. Amendment.
The terms and provisions of this Warrant may not be modified or amended, except
with the written consent of the Company and the Holder.

 

3

 

SECTION
9. Reorganizations,
Etc.
In case, at any time during the Exercise Period, of any capital reorganization,
of any reclassification of the stock of the Company (other than a change in par
value or from par value to no par value or from no par value to par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or the consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
operation and which does not result in any change or reclassification in the
Warrant Shares) or of the sale of all or substantially all the properties and
assets of the Company as an entirety to any other corporation, the Company, at
its sole discretion, shall have the right and option to (A) provide 10 days
prior written notice of such event to the Holder and this Warrant shall
terminate and be of no further force and effect on and after the effective date
of such capital reorganization or reclassification or the consummation of such
consolidation, sale or merger; or (B) provide that this Warrant shall, after
such reorganization, reclassification, consolidation, merger or sale, be
exercisable for the kind and number of shares of stock or other securities or
property of the Company or of the corporation resulting from such consolidation
or surviving such merger or to which such properties and assets shall have been
sold to which such holder would have been entitled if he, she or it had held the
Warrant Shares issuable upon the exercise hereof immediately prior to such
reorganization, reclassification, consolidation, merger or sale.

 

SECTION
10. Lost,
Stolen, Mutilated or Destroyed Warrant.
If
this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such
terms as to indemnity or otherwise as it may in its discretion impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.

 

SECTION
11. Notices.
All notices, advices and communications to be given or otherwise made to any
party to this Agreement shall be deemed to be sufficient if contained in a
written instrument delivered in person or by telecopier or duly sent by first
class registered or certified mail, return receipt requested, postage prepaid,
or by overnight courier, or by electronic mail, with a copy thereof to be sent
by mail (as aforesaid) within 24 hours of such electronic mail, addressed to
such party at the address set forth below or at such other address as may
hereafter be designated in writing by the addressee to the addresser listing all
parties:

 

	 	
      (a)
	
      If
      to the Company, to:

Fuel
Corporation of America

27201
Puerta Real, Suite 350

Mission
Viejo, California 92691

Attention:
Thomas Banks

               
Chief
Executive Officer

and

4

 

	 	
      (b)
	
      If
      to the Holder, to:

Tryant,
LLC

1608
W. 2225 S.

Woods
Cross, Utah 84087

Attention:
Jeff Jenson

or
to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to have been delivered and received
(i) in the case of personal delivery or delivery by telecopier, on the date of
such deliver, (ii) in the case of nationally-recognized overnight courier, on
the next business day after the date when sent and (ii) in the case of mailing,
on the third business day following that on which the piece of mail containing
such communication is posted. As used in this Section 11, “business day” shall
mean any day other than a day on which banking institutions in the State of New
York are legally closed for business.

SECTION
12.  Binding
Effect on Successors.
Subject to Section 9 hereof, this Warrant shall be binding upon any corporation
succeeding the Company by merger, consolidation or acquisition of all or
substantially all of the Company’s assets. 

 

SECTION
13.  Descriptive
Headings and Governing Law.
The description headings of the several sections and paragraphs of this Warrant
are inserted for convenience only and do not constitute a part of this Warrant.
This Warrant shall be construed and enforced in accordance with, and the rights
of the parties shall be governed by, the laws of the State of New York (without
giving effect to conflicts of law principles thereunder).

 

SECTION
14.  Fractional
Shares.
No fractional shares shall be issued upon exercise of this Warrant. The Company
shall, in lieu of issuing any fractional share, pay the holder entitled to such
fraction a sum in cash equal to such fraction multiplied by the then effective
Warrant Price.

 

*
* *

5

 

IN
WITNESS WHEREOF,
the undersigned has caused this Common Stock Warrant to be executed by its duly
authorized officer as of the date first above written.

 

	 	 	 
	 	FUEL
      CORPORATION OF AMERICA
	 
 	 
 	 
 
	 	By:  	/s/ Thomas Banks
	 	
      

    
	 	
      Name:
      Thomas Banks

      Title:
      Chief Executive Officer

 

Exhibit
A

 

 

Form
of Subscription

 

 

NOTICE
OF EXERCISE

COMMON
STOCK WARRANT

 

To:       Fuel
Corporation of America

 

The
undersigned hereby elects to purchase _______ shares of Common Stock (“Common
Stock”) of Fuel Corporation of America, a Nevada corporation, (the “Company”)
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the aggregate exercise price therefor and any transfer taxes payable pursuant to
the terms of the Warrant.

 

Please
issue a certificate or certificates representing said shares of Common Stock in
the name of the undersigned or in such other name or names as are specified
below:

Name:     
__________________________________________________

Address:  
__________________________________________________ 

               
__________________________________________________

 

IN
WITNESS WHEREOF, the Warrant Holder has executed this Notice of Exercise
effective this ___ day of ________, ______.

 

	 	 	 
	 	  	 
	 	
      

    
	 	 
	 	(Signature)

 

7

Exhibit
B

Form
of Assignment

[To
be signed only upon transfer of Warrant]

For
value received, the undersigned hereby sells, assigns and transfers unto the
right represented by the within Warrant to purchase _______ shares of Common
Stock of FUEL
CORPORATION OF AMERICA,
to which the within Warrant relates, and appoints Attorney to transfer such
right on the books of FUEL
CORPORATION OF AMERICA,
with full power of substitution in the premises. 

 

 

	Dated:	 	 
		
      

    	 
	 	
      (Signature)
	 

 

Signed
in the presence of: 

______________________________

 

8Convertible Debenture of Flexscan, Inc. dated August 3, 2005

 

 

Exhibit 4.4

	
      Maturity
      Date:  
	August
      3, 2008
	 

 

FLEXSCAN,
INC.

10%
CONVERTIBLE DEBENTURE

 

	
      August
      3, 2005
	 	
      $1,000,000.00
	 	
      1-002

	
      Loan
      Date
	 	
      Loan
      Amount
	 	
      Loan
      Number

 

THE
DEBENTURE REPRESENTED BY THIS CERTIFICATE AND THE COMMON
STOCK UNDERLYING SUCH DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF (a) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE DEBENTURE AND/OR COMMON STOCK UNDER THE
SECURITIES
ACT OF 1933 OR (B) AN OPINION REASONABLY SATISFACTORY TO FLEXSCAN, INC., FROM
COUNSEL FOR FLEXSCAN, INC., OR FROM
COUNSEL FOR
THE PROPOSED TRANSFEROR REASONABLY SATISFACTORY TO FLEXSCAN, INC.,
TO
THE EFFECT THAT THE TRANSFER MAY BE EFFECTED WITHOUT SUCH REGISTRATION.

 

INVESTMENT
IN THIS DEBENTURE IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. SEE EXHIBIT
B "RISK FACTORS". THIS DEBENTURE WILL BE SOLD IN A PRIVATE PLACEMENT TO A
LIMITED NUMBER OF LENDERS MEETING CERTAIN SUITABILITY STANDARDS. NO ONE SHOULD
INVEST IN THE DEBENTURE WHO IS NOT PREPARED TO LOSE HIS ENTIRE
INVESTMENT.

 

 

flexSCAN,
Inc., a Delaware Corporation (the “Company”), for value received, hereby
promises to pay to the order of Rosfor
International, Inc., a
California Corporation, (the “Holder”) or the Holder’s registered assigns, the
sum of One
Million Dollars
($1,000,000.00), or
such lesser amount as shall then equal the outstanding principal amount hereof
and any unpaid accrued interest hereon, as set forth below, on Maturity Date:
August
03, 2008
(“Maturity Date”), which is three (3) years from the date of issuance of this
Convertible Debenture (the “Debenture”), unless this Debenture has been
converted prior thereto pursuant to the terms hereof.

 

The
following is a statement of the rights of the Holder and the conditions to which
this debenture is subject, and to which the Holder hereof, by the acceptance of
this Debenture, agrees:

 

	1.  	
      Interest
      and Warrants.

 

(a)  Interest
Rate. The
unpaid principal balance of this Debenture shall bear simple interest at a rate
equal to Ten
Percent
(10%) per
annum from the
date hereof until paid in full or converted
pursuant to Section 3 hereof. Interest shall be paid Quarterly or may be accrued
at Holder’s election.

 

(b)  Maximum
Rate Permitted by Law. In the
event that any interest rate provided for in this Section 1 shall be determined
to be unlawful, such interest rate shall be computed at the highest rate
permitted by applicable law. Any payment by the Company of any interest amount
in excess of that permitted by law shall be considered a mistake, with the
excess being applied to the principal amount of this Debenture without
prepayment premium or penalty.

 

1

 

(c)  Warrants. Holder
shall receive a Warrant for Seven
Hundred Thousand
(700,000)
shares of the Company’s common stock at time of conversion (“Conversion Date”).
Upon closure of the Debenture Offer, the Company shall undertake to register
pursuant to form SB-2 one hundred percent (100%) of the Company’s common stock
underlying this Debenture (“Registration”). Beginning on the Conversion Date,
Holder shall have the right to exercise the Warrant for a period of Five (5)
years. If exercised within one hundred eighty (180) days of the Conversion Date
the exercise price post merger of Company into Fuel Corporation of America shall
be One
Dollar
($1.00) per
share then One
Dollar Fifity Cents
($1.50)
thereafter.

 

(i)  Limit
on Sales. Neither
the Holder or its affiliates shall sell any of the Common Stock of the Company
in their possession at a volume in excess of five percent (5%) of the trading
volume in any weekly period.

 

(ii)  No
Short Sales.
Neither the Holder or its affiliates has an open short position in the Common
Stock of the Company, and the Holder agrees that it will not, and that it will
cause it affiliates not to, engage in any short sales or hedging transaction
with respect to the Common Stock.

 

2.  Voluntary
Prepayment. The
Company may, at its option, prepay, in whole or in part, the outstanding
principal and accrued interest under this Debenture with thirty (30) days
written notice (“Notice Period”) via the US Postal Service prior to the
conversion of this Debenture pursuant to the terms hereof. In the event of
prepayment, the Company shall tender to the Holder funds in the amount of One
Hundred Twenty-five Percent (125%) of the principal and accrued interest being
paid by check or wire transfer. In the event that less than all of the principal
and accrued interest is paid, such payment shall be allocated first to accrued
interest and second to principal. Holder may during the Notice Period at its
sole election convert the Debenture and any accrued interest into fully paid and
nonassessable shares of Common Stock of the Company at Fifty
Cents
($0.50) per
share.

 

3.  Conversion.

 

	(a)  	
      Voluntary
      Conversion.

 

(i)  Holder,
may at its sole election choose to convert the Debenture and any accrued
interest into fully paid and nonassessable shares of Common Stock of the Company
at Fifty
Cents
($0.50) per
share.

 

	(b)  	
      Mandatory
      Conversion.

 

(i)  Qualified
Financing. Upon the consummation of a sale or sales of shares of capital stock
or securities convertible into shares of capital stock for cash in an equity
financing to a third party or parties who are unaffiliated with the Company
(“Qualified Investors”), with aggregate gross proceeds to the Company of at
least Eight Million Dollars ($8,000,000), which amount shall include the
proceeds to the Company from the sale of 10% Convertible Debentures, including
this Debenture (a “Qualified Financing”), this Debenture shall be automatically
converted into fully paid and nonassessable shares of Common Stock of the
Company (the “Common Stock”), at the Conversion Price specified in Section 3(c)
below and in the manner specified in Section 3(e) below.

 

(ii)  Public
Offering. Immediately prior to the consummation of any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended,
including the Company’s initial public offering (a “Public Offering”), this
Debenture shall be automatically converted into fully paid and nonassessable
shares of Common Stock, at the Conversion Price specified in Section 3(d) below
and in the manner specified in Section 3(e) below.

 

(iii)  Sale.
Immediately prior to the consummation of any consolidation or merger of the
Company with or into any other corporation or other entity or person, or any
other corporate reorganization in which the Company shall not be the continuing
or surviving entity (other than a reincorporation in another state); any
transaction or series of related transactions by the Company in which in excess
of fifty percent (50%) of the
Company’s voting power is issued for the purpose of combining with or an
acquisition by one or more corporations or other entities or persons; or a sale,
conveyance or disposition of all or substantially all of the assets of the
Company (a “Sale”), this Debenture

 

2

 

shall
be automatically converted into fully paid and nonassessable shares of Common
Stock, at the Conversion Price specified in Section 3(d) below and in the manner
specified in Section 3(e) below.

 

(iv)  A
Qualified Financing, an election by the Company to convert this Debenture upon
Maturity, a Public Offering and a Sale shall occasionally be referred to herein
collectively as “Conversion Events” and individually as the “Conversion Event.”
Upon any Conversion Event, the number of shares of Common Stock into which this
Debenture shall be converted shall equal the product of (x / y) where: (x) is
the sum of the principal amount of the Debenture being converted and the unpaid
accrued interest thereon divided by (y) which is the applicable “Conversion
Price” (as hereinafter defined).

 

(c)  Conversion
Price Upon Qualified Financing or Maturity. In the
event of a conversion of this Debenture pursuant to either Section 3(a)(i) or
3(a)(ii), the applicable “Conversion Price” post merger of Company into Fuel
Corporation of America shall be Fifty
Cents
($0.50) per
share

 

(d)  Conversion
Price Upon Public Offering or Sale. In
the event of conversion of this Debenture pursuant to either Section (3)(a)(iii)
or 3(a)(iv), respectively, the applicable Conversion Price post merger of
Company into Fuel Corporation of America shall be Fifty
Cents
($0.50) per
share. 

 

(e)  Mechanics
of Conversion. On or
before the Conversion Event, the Holder shall surrender the certificate or
certificates for this Debenture, duly endorsed, at the Company’s principal
corporate office, and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. The
Company at its expense shall, as soon as practicable thereafter, issue and
deliver at such office to such Holder, or to the nominee or nominees of such
Holder, a certificate or certificates for the number of shares of Common Stock
to which such Holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the day
prior to the Conversion Event, and the person or persons entitled to receive the
shares of Common Stock, issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of
such date.

 

(f)  No
Impairment. The
Company will not, by amendment of its Articles of Incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company but will at all times in good faith assist
in the carrying out of all the provisions of this Section 3 and in the taking of
all such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Debentures against
impairment.

 

(g)  Taxes
on Conversion. The
issue of share certificates on conversion of this Debenture shall be made
without charge to the converting Holder for any tax in respect of the issue
thereof. The Company shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares
in any name other than that of the Holder, and the Company shall not be required
to issue or deliver any certificate in respect of such shares unless and until
the person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.

 

(h)  Reservation
of Conversion Securities. The
Company agrees that the Company will at all times have authorized and reserved,
and will keep available, solely for issuance or delivery upon the conversion of
this Debenture, the shares of Common Stock and other securities and properties
as from time to time shall be receivable upon the conversion of this
Debenture.

 

(i)  Securities
Registration. Upon
closing of the Debenture Offer the Company shall undertake to register pursuant
to form SB-2 one hundred percent (100%) of the Company’s common stock underlying
this Debenture.

 

(j)  No
Rights as Shareholders. Prior
to the conversion of this Debenture, the Holder of this Debenture shall not be
entitled to any rights of a shareholder of the Company, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any pre-emptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein or in the
Subscription Agreement or as otherwise agreed.

 

3

 

(k)  No
Fractional Shares. The
Company shall not be required to issue certificates representing fractional
shares of Common Stock, but will make a payment in cash based on the offering
price of one share of Common Stock in the Qualified Financing, Public Offering
or upon Maturity, as applicable, and based on the Fair Market Value of one share
of Common Stock at the time of the Sale, for any fractional share.

 

(l)  Limit
on Sales. Neither
the Holder nor its affiliates shall sell any of the Common Stock of the Company
in their possession at a volume in excess of one twelfth (1/12) of the Holder’s
shares per month not to exceed five percent (5%) of the trading volume in any
weekly period.

 

(m)  No
Short Sales.
Neither the Holder or its affiliates has an open short position in the Common
Stock of the Company, and the Holder agrees that it will not, and that it will
cause it affiliates not to, engage in any short sales or hedging transaction
with respect to the Common Stock.

 

(n)  Transfer
Agent Instructions. The
Company shall issue irrevocable instructions to its transfer agent to issue
certificates, registered in the name of the Holder or, after registration of the
Common Stock under the 1933 Act, its nominee, for the Common Stock in such
amounts as specified from time to time by the Holder to the Company upon
conversion of the Debenture in accordance with the terms thereof upon receipt by
the Company of a properly completed and executed notice of conversion in
accordance with the Certificate of Designation (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS").

 

Prior
to registration of the Common Stock under the 1933 Act, all such certificates
shall bear the restrictive legend as follows:

 

"The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended. The securities have been acquired for
investment and may not be sold, transferred or assigned in the absence of an
effective registration statement for the securities under said Act, or an
opinion of counsel, in form, substance and scope reasonably acceptable to the
Company, that registration is not required under said Act or unless sold
pursuant to Rule 144 under said Act."

 

The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section, and stop transfer instructions to give
effect to Section 3(o) hereof (in the case of the Common Stock, prior to
registration of the Common Stock under the 1933 Act), will be given by the
Company to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement. Nothing in this Section shall affect in any way the
Holder’s obligations and agreement set forth hereof to comply with all
applicable prospectus delivery requirements, if any, upon resale of the
Securities. If the Holder provides the Company with an opinion of counsel,
reasonably satisfactory to the Company in form, substance and scope, that
registration of a resale by the Holder of any of the Common Stock is not
required under the 1933 Act, the Company shall permit the transfer, and, in the
case of the Common Stock, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by the
Holder. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder, by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section, that the Holder shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the necessity
of showing economic loss and without any bond or other security being
required.

 

(o)  Transfer
or Resale.
Except for the Registration Rights pursuant to Section 1(c) and 3(i) the Holder
understands that (i) except as provided herein the Common Stock has not been and
are not being registered under the 1933 Act or any applicable state securities
laws, and may not be transferred unless (a) subsequently included in an
effective registration statement thereunder, (b) the Holder shall have delivered
to the Company an opinion of counsel (which opinion shall be reasonably
acceptable to the Company) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration, or (c) sold pursuant to Rule 144 promulgated under the 1933 Act
(or a successor rule) ("RULE 144")); (ii) any sale of such Securities made in
reliance

 

4

 

on Rule
144 may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such Securities under circumstances
in which the seller (or the person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder. Notwithstanding the foregoing or anything
else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a bona fide margin account or other lending
arrangement, provided that such transaction complies with applicable securities
laws.

 

4.  Notices. The
Company shall give the Holder written notice of a Conversion Event transaction
not later than ten (10) days prior to the shareholders’ meeting called to
approve such transaction, or, if approved by the written consent of the
shareholders, ten (10) days prior to the closing of such transaction. The first
of such notices shall describe the material terms and conditions of the
impending transaction and the provisions of this Section 4 and the Company shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than ten (10) days after the
Company has given the first notice provided for herein or sooner than five
(5)
days
after the Company has given the notice provided for herein of any material
changes, provided, however, that such periods may be shortened upon the written
consent of the holders of the majority of the principal amount of Debentures
then outstanding.

 

5.  Key
Man Life Insurance. The
Company agrees to procure and keep in force a term life insurance policy (“Key
Life Insurance Policy”) in the amount of One Million Dollars ($1,000,000.00) for
the Company’s President, currently Thomas Banks, with the Holder being the
beneficiary.

 

6.  Specific
Performance. Any
failure to comply with the requirements of this agreement may cause irreparable
injury to Holder without an adequate remedy at law, and Holder shall
be entitled to Specific Performance to comply with the requirements of this
agreement. The prevailing party shall receive all court costs and reasonable
attorneys fees incurred in obtaining such specific performance of, damages, or
an injunction against violation of the requirements of this
Section.

 

7.   Debenture
Register. This
Debenture is transferable only upon the books of the Company which it shall
cause to be maintained for such purpose. The Company may treat the registered
holder of this Debenture as he or it appears on the Company’s books at any time
as the Holder for all purposes.

 

8.  Subordination. Until
existing Senior Indebtedness, as used in this Note, is repaid, the indebtedness,
including interest, principal and default interest, if any, evidenced by this
Debenture is hereby expressly subordinated, to the extent and in the manner set
forth in this Section 6, in right of payment to the prior payment in full of all
the Company’s Senior Indebtedness (as hereinafter defined) whether now
outstanding or hereafter obtained. Notwithstanding the foregoing, for so long as
there is no event of default under the Senior Indebtedness, the Company may pay,
and the Holder may receive for its own account, all regular installments of
interest hereunder.

 

(a)  Senior
Indebtedness. As used
in this Note, the term “Senior Indebtedness” shall mean, unless expressly
subordinated to or made on a parity with the amounts due under this Note, the
principal of (and premium, if any), unpaid interest on and amounts reimbursable,
fees, expenses, costs of enforcement and other amounts due in connection with,
(i) indebtedness of Company, to banks, commercial finance lenders, insurance
companies, leasing or equipment financing institutions or other lending
institutions regularly engaged in the business of lending money (excluding
venture capital, investment banking or similar institutions which sometimes
engage in lending activities but which are primarily engaged in investments in
equity securities), which is for money borrowed, or purchase or leasing of
equipment in the case of lease or other equipment financing, whether or not
secured, and (ii) any such indebtedness or any debentures, notes or other
evidence of indebtedness issued in exchange for such Senior Indebtedness, or any
indebtedness arising from the satisfaction of such Senior Indebtedness by a
guarantor.

 

(b)  Default
on Senior Indebtedness. If
there should occur any receivership, insolvency, assignment for the benefit of
creditors, bankruptcy, reorganization or arrangements with creditors (whether or
not pursuant to bankruptcy or other insolvency laws), sale of all or
substantially all of the assets, dissolution, liquidation or any other
marshaling of the assets and liabilities of the Company, or if this Debenture
shall be declared due and payable upon the occurrence of an Event of Default as
a result

 

5

 

of a
default under any Senior Indebtedness, then (i) no amount shall be paid by the
Company in respect of the principal of or interest on this Debenture at the time
outstanding, unless and until the principal of and interest on the Senior
Indebtedness then outstanding shall be paid in full, and (ii) no claim or proof
of claim shall be filed with the Company by or on behalf of the Holder that
shall assert any right to receive any payments in respect of the principal of
and interest on this Debenture, except subject to the payment in full of the
principal of and interest on all of the Senior Indebtedness then outstanding. If
there occurs an event of default that has been declared in writing with respect
to any Senior Indebtedness, or in the instrument under which any Senior
Indebtedness is outstanding, permitting the holder of such Senior Indebtedness
to accelerate the maturity thereof, then, unless and until such event of default
shall have been cured or waived or shall have ceased to exist, or all Senior
Indebtedness shall have been paid in full, no payment shall be made in respect
of the principal of or interest on this Debenture.

 

(c)   Effect
of Subordination.
Subject to the rights, if any, of the holders of Senior Indebtedness under this
Section 6 to receive cash, securities or other properties otherwise payable or
deliverable to the Holder, nothing contained in this Section 6 shall impair, as
between the Company and the Holder, the obligation of the Company, subject to
the terms and conditions hereof, to pay to the Holder the principal hereof and
interest hereon as and when the same become due and payable, or shall prevent
the Holder, upon default hereunder, from exercising all rights, powers and
remedies otherwise provided herein or by applicable law.

 

(d)   Undertaking. By
its acceptance of this Debenture, the Holder agrees to execute and deliver such
documents as may be reasonably requested from time to time by the Company or the
lender of any Senior Indebtedness in order to implement the foregoing provisions
of this Section 6. If the Holder receives any payment on this Debenture which is
prohibited by this Section 6, such payment shall be held in trust by the Holder
for the benefit of, and shall be paid and delivered upon written request to, the
holders of Senior Indebtedness or their agent, for application to the payment on
such Senior Indebtedness. 

 

	9.  	
      Defaults
      and Remedies. 

 

(a)  Events
of Default. An
“Event of Default” shall occur if:

 

(i)  the
Company shall default in the payment of the principal and interest of this
Debenture, when and as the same shall become due and payable;

 

(ii)  the
Company shall default in the due observance or performance of any material
covenant, condition or agreement on the part of the Company to be observed or
performed pursuant to the terms hereof or pursuant to the terms of the
Subscription Agreement, and such default shall continue for thirty (30) days
after the date of written notice thereof, specifying such default and, if such
default is capable of being remedied, requesting that the same be remedied,
shall have been given to the Company by the Holder;

 

(iii)  any
event or condition shall occur that results in the acceleration of the maturity
of any indebtedness of the Company or any subsidiary in a principal amount
aggregating $500,000 or more; 

 

(iv)  This
note is to be construed and enforced according to the laws of the State of
California; upon default in the payment of interest when due, the whole sum of
the interest remaining unpaid shall, at the option of the holder, become
immediately due and payable and it shall accrue interest at the same rate as the
principal from the date of default.

 

(v)  an
involuntary proceeding shall be commenced or an involuntary petition shall be
filed in a court of competent jurisdiction seeking (a) relief in respect of the
Company, or of a substantial part of its property or assets, under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law, (b) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company, or for a substantial part of its property or
assets, or (c) the winding up or liquidation of the Company; and such proceeding
or petition shall continue undismissed for ninety (90) days, or an order or
decree approving or ordering any of the foregoing shall be entered;
or

 

(vi)  the
Company shall (a) voluntarily commence any proceeding or file any petition
seeking relief under Title 11of the United States Code, as now constituted or
hereafter amended, 

 

6

 

or any
other Federal or state bankruptcy, insolvency, receivership or similar law, (b)
consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in paragraph (iv)
of this Section 7(a), (c) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Company or any subsidiary, or for a substantial part of its property or assets,
(d) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (e) make a general assignment for the benefit
of creditors, (f) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (g) take any action for the
purpose of effecting any of the foregoing. 

 

(b)  Acceleration.
If an Event of Default occurs under Section 7(a)(iv) or (v), then, subject to
Section 6 above, the outstanding principal of and all accrued interest on this
Debenture shall automatically become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are expressly
waived in Section 9 below, if any other Event of Default occurs and is
continuing the Holder, by written notice to the Company, may declare the
principal of and accrued interest on this Debenture to be immediately due and
payable.

 

10.  Loss,
Etc., of Debenture. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Debenture, and of indemnity reasonably satisfactory to the
Company if lost, stolen or destroyed, and upon surrender and cancellation of
this Debenture if mutilated, and upon reimbursement of the Company’s reasonable
incidental expenses, the Company shall execute and deliver to the Holder a new
Debenture of like date, tenor and denomination.

 

11.  Waiver. The
Company hereby waives presentment, demand, notice of nonpayment, protest and all
other demands and notices in connection with the delivery, acceptance,
performance or enforcement of this Debenture. If an action is brought for
collection under this Debenture, the Holder shall be entitled to receive all
costs of collection, including, but not limited to, its reasonable attorneys’
fees. 

 

12.  Notices. Any
notice, approval, request, authorization, direction or other communication under
this Debenture shall be given in writing and shall be deemed to have been
delivered and given for all purposes (i) on the delivery date if delivered
personally to the party to whom the same is directed or transmitted by facsimile
to the facsimile number set forth on the signature page of this Debenture (or to
such other facsimile number as may be communicated to the notifying party in
writing) with confirmation of receipt, (ii) one (1) business day after deposit
with a commercial overnight carrier, with written verification of receipt, or
(iii) three (3) business days after the mailing date, whether or not actually
received, if sent by U.S. mail, return receipt requested, postage and charges
prepaid, at the address of the party set forth on the signature page of this
Debenture (or at such other address as may be communicated to the notifying
party in writing).

 

13.  Transferability. This
Debenture evidenced hereby may not be pledged, sold, assigned or transferred
except (i) to any subsidiary wholly owned (directly or through intermediate
wholly owned subsidiaries) by the Holder, (ii) to any director, shareholder or
executive officer of the Holder, (iii) to any corporation, partnership or other
entity resulting from any merger, consolidation or other reorganization to which
Holder is a party or any corporation, partnership or other person or entity to
which Holder may transfer all or substantially all of Holder’s assets and
business, or (iv) with the express written consent of the Company, which may be
withheld in its sole discretion; provided, however, that any such transfer shall
only be made in compliance with applicable federal and state securities laws.
Any pledge, sale, assignment or transfer in violation of the foregoing shall be
null and void.

 

14.  Headings;
References. All
headings used herein are used for convenience only and shall not be used to
construe or interpret this Debenture. Except where otherwise indicated, all
references herein to Sections refer to Sections hereof.

 

15.  Successors
and Assigns. All
of the covenants, stipulations, promises, and agreements in this Debenture shall
bind and inure to the benefit of the parties’ respective successors and assigns,
whether so expressed or not.

 

16.  Governing
Law. This
Debenture shall be governed by the laws of the State of California, and the laws
of such state (other than conflicts of laws principles) shall govern the
construction, validity, enforcement and interpretation hereto except to the
extent federal laws otherwise govern the validity, construction, enforcement and
interpretation hereof.

 

7

 

17.  Attorneys’
Fees. In the
event of any action or proceeding brought by either party against the other
under this agreement, the prevailing party shall be entitled to recover all
costs and expenses including the fees of its attorneys in such action or
proceeding.

 

18.   Payments.
Each
payment on this Debenture shall be due and payable in lawful money of the United
States of America, at the address of Holder as shown on the books of the
Company, in funds which are or will be available for next business day use by
Holder. In any case where the payment of principal and interest hereon is due on
a non-business Day, the Company shall be entitled to delay such payment until
the next succeeding business day, but interest shall continue to accrue until
the payment is, in fact, made.

 

IN
WITNESS WHEREOF, the
Company has caused this Debenture to be issued this day 3rd day of
August,
2005.

 

 

	
      flexSCAN,
      Inc.
	 	
      By:
	 
	 	 	 	 
	
      27201
      Puerta Real

      Suite
      350

      Mission
      Viejo, CA 92699

      Facsimile
      Number: (949) 609-1966
	 	
      Its:

       
	
        
      Chairman of the Board

       

	 	 	 	 
	 	 	 	 
	 	 	 	 
	
      Holder
	 	
      By:
	 
	 	 	 	   Nikolai Pepik
	Rosfor International, Inc.	 	 	 
	
      13036
      Sundance Avenue

      San
      Diego, CA 92129-2301
	 	
      Its:
      
	
        
      CEO 
      

	 	 	 	 
	
      Tax
      ID: 200—73—8737
	 	 	 

 

 

8

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