Exhibit 4.1
EXHIBIT A TO SECURITIES PURCHASE AGREEMENT
THE SECURITIES REPRESENTED HEREBY OR ISSUABLE UPON
CONVERSION HEREOF, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES BEING SOLD, TRANSFERRED OR ASSIGNED UNDER SAID
ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO THE BORROWER THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT.
THE UNPAID AND UNCONVERTED PRINCIPAL AMOUNT OF THIS
DEBENTURE REPRESENTED BY THIS DEBENTURE MAY BE LESS THAN THE
AMOUNT STATED ON THE FACE HEREOF. SEE SECTION 1.4(B).
CONVERTIBLE DEBENTURE
February 11, 1999 $3,000,000
FOR VALUE RECEIVED, INFONAUTICS, INC., a Pennsylvania corporation
(hereinafter called the "BORROWER"), hereby promises to pay to the order of RGC
INTERNATIONAL INVESTORS, LDC or registered assigns (the "HOLDER") the sum of
Three Million Dollars ($3,000,000), on August 11, 2000 (the "MATURITY DATE"),
and to pay interest on the unpaid principal balance hereof at the rate of seven
percent (7%) per annum from February 11, 1999 (the "ISSUE DATE") until the same
becomes due and payable, whether at maturity or upon acceleration or otherwise.
Any amount of principal or interest on this Debenture which is not paid when due
shall bear interest at the rate of fifteen percent (15%) per annum from the due
date thereof until the same is paid ("DEFAULT INTEREST"). Interest shall
commence accruing on the Issue Date, shall be computed on the basis of a 365-day
year and the actual number of days elapsed and shall be payable at the time of
optional conversion of the principal to which such interest relates in
accordance with Article I below or, to the extent not converted, at maturity or
upon acceleration in accordance with the terms hereof. All payments due
hereunder (to the extent not converted into Class A Common Stock, no par value
per share, of the Borrower (the "COMMON STOCK") in accordance with the terms
hereof) shall be made in lawful money of the United States of America. All
payments shall be made at such address as the Holder shall hereafter give to the
Borrower by written notice made in accordance with the provisions of this
Debenture. Whenever any amount expressed to be due by the
terms of this Debenture is due on any day which is not a business day, the same
shall instead be due on the next succeeding day which is a business day. Except
as otherwise expressly provided herein, this Debenture may not be prepaid by the
Borrower. As used in this Debenture, the term "business day" shall mean any day
other than a Saturday, Sunday or a day on which commercial banks in the city of
New York, New York are authorized or required by law or executive order to
remain closed. Each capitalized term used herein, and not otherwise defined,
shall have the meaning ascribed thereto in that certain Securities Purchase
Agreement, dated February 11, 1999, pursuant to which this Debenture was
originally issued (the "PURCHASE AGREEMENT"). For purposes hereof, the term
"Debentures" shall be deemed to refer to this Debenture, all other convertible
debentures issued pursuant to the Purchase Agreement and all convertible
debentures issued in replacement hereof or thereof or otherwise with respect
hereto or thereto.
The following terms shall apply to this Debenture:
ARTICLE I. CONVERSION RIGHTS
1.1 CONVERSION RIGHT.
(a) CONVERSION AMOUNT. Subject to the conversion limitations set forth
herein and in Section 1.1(b) below and Section 1.6 below, the Holder shall have
the right from time to time, and at any time on or prior to the earlier of (i)
the Maturity Date and (ii) the date of payment of the Default Amount (as defined
in Article III) pursuant to Section 1.5(a) or Article III or any payments
pursuant to Section 1.6, each in respect of the remaining outstanding principal
amount of this Debenture, to convert all or any part of the outstanding and
unpaid principal amount of this Debenture into fully paid and non-assessable
shares of Common Stock, as such Common Stock exists on the Issue Date, or any
shares of capital stock or other securities of the Borrower into which such
Common Stock shall hereafter be changed or reclassified, at the Conversion Price
(as defined in Section 1.2 below) determined as provided herein (a
"CONVERSION"); PROVIDED, HOWEVER, that in no event shall the Holder be entitled
to convert any portion of this Debenture in excess of that portion of this
Debenture upon conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debentures, the unexercised Warrants or the
unexercised or unconverted portion of any other security of the Borrower subject
to a limitation on conversion or exercise analogous to the limitations contained
herein) and (2) the number of shares of Common Stock issuable upon the
conversion of the portion of this Debenture with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13 D-G
thereunder, except as otherwise provided in clause (1) of such proviso. The
number of shares of Common Stock to be issued upon each conversion of this
Debenture shall be determined by dividing the Conversion Amount (as defined
below) by the applicable Conversion Price. The term "CONVERSION AMOUNT" means,
with respect to any conversion of this Debenture, the sum of (1) the principal
amount of this
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Debenture to be converted in such conversion, PLUS (2) all accrued and unpaid
interest thereon for the period beginning on the Issue Date and ending on the
Conversion Date (as defined in Section 1.4 thereof), PLUS (3) Default Interest,
if any, on the amounts referred to in the immediately preceding clauses (1)
and/or (2), PLUS (4) at the Holder's option, any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(e) hereof or pursuant to Section 2(b) of that
certain Registration Rights Agreement, dated as of February 11, 1999, executed
in connection with the initial issuance of this Debenture and the other
Debentures issued on the Issue Date (the "REGISTRATION RIGHTS AGREEMENT").
(b) CONVERSION RESTRICTIONS. Subject to the exceptions set forth below, the
Holder may only convert this Debenture on or after the ninetieth (90th) day
following the Issue Date; PROVIDED, HOWEVER, that the restrictions on conversion
set forth in this Section 1.1(b) shall not be applicable to conversions taking
place on any Conversion Date (i) occurring on or after the date the Borrower
makes a public announcement that it intends to merge or consolidate with any
other corporation or sell or transfer all or substantially all of the assets of
the Borrower or (ii) occurring on or after the date any person, group or entity
(including the Borrower) publicly announces a tender offer to purchase 50% or
more of the Borrower's Common Stock (or any other takeover scheme) or (iii)
occurring after there is a material adverse change in the business, operations,
assets, financial condition or prospects of the Borrower or its subsidiaries,
taken as a whole, or (iv) following the occurrence of any Event of Default (as
defined below).
1.2 CONVERSION PRICE. Subject to the provisions of Section 1.5 below, the
Conversion Price shall be $4.13 (90% of the Closing Bid Price (as defined below)
on the trading day prior to the Issue Date) (subject to equitable adjustments
for stock splits, stock dividends or rights offerings by the Borrower relating
to the Borrower's securities or the securities of any subsidiary of the
Borrower, combinations, recapitalization, reclassifications, extraordinary
distributions and similar events). "CLOSING BID PRICE" means, for any security
as of any date, the last closing bid price on the Nasdaq SmallCap Market
("NASDAQ") as reported by Bloomberg Financial Markets or an equivalent, reliable
reporting service mutually acceptable to and hereafter designated by holders of
a majority in interest of the Debentures and the Borrower ("BLOOMBERG") or, if
Nasdaq is not the principal trading market for such security, the closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the closing bid price of such security is available in
the over-the-counter market on the electronic bulletin board for such security,
as reported by Bloomberg, or, if no closing bid price of such security is
available in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is reported
for such security, then the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security that are listed in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date in the manner provided above, the Closing Bid Price shall be the fair
market value as mutually determined by the Borrower and the holders of a
majority in interest of the Debentures being converted for which the calculation
of the Closing Bid Price is required in order to determine the Conversion Price
of such Debentures. "TRADING DAY" shall mean any day on which the
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Common Sock is traded for any period on Nasdaq, or on the principal securities
exchange or other securities market on which the Common Stock is then being
traded.
1.3 RESERVATION OF SHARES. The Borrower covenants that during the period
the conversion right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares, free from preemptive
rights, to provide for the issuance of Common Stock upon the full conversion of
this Debenture and the other Debentures issued pursuant to the Purchase
Agreement. As of the date of issuance of this Debenture, 907,990 authorized and
unissued shares of Common Stock have been duly reserved for issuance upon
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement (the "RESERVED AMOUNT"). The Reserved Amount shall be
increased from time to time in accordance with the Borrower's obligations
pursuant to Section 4(h) of the Purchase Agreement. The Borrower represents that
upon issuance, such shares will be duly and validly issued, fully paid and
non-assessable. In addition, if the Borrower shall issue any securities or make
any change to its capital structure which would change the number of shares of
Common Stock into which the Debentures shall be convertible at the then current
Conversion Price, the Borrower shall at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Debentures. The Borrower (i) acknowledges that it has irrevocably
instructed its transfer agent to issue certificates for the Common Stock
issuable upon conversion of this Debenture and (ii) agrees that its issuance of
this Debenture shall constitute full authority to its officers and agents who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock in accordance with the
terms and conditions of this Debenture.
If, at any time a Holder of this Debenture submits a Notice of Conversion,
and the Borrower does not have sufficient authorized but unissued shares of
Common Stock available to effect such conversion in accordance with the
provisions of this Article I (a "CONVERSION DEFAULT"), subject to Section 4.8,
the Borrower shall issue to the Holder all of the shares of Common Stock which
are then available to effect such conversion. The portion of this Debenture
which the Holder included in its Conversion Notice and which exceeds the amount
which is then convertible into available shares of Common Stock (the "EXCESS
AMOUNT") shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof until (and
at the Holder's option at any time after) the date additional shares of Common
Stock are authorized and duly reserved for issuance by the Borrower to permit
such conversion. The Borrower shall pay to the Holder payments ("CONVERSION
DEFAULT PAYMENTS") for a Conversion Default in the amount of (x) the SUM OF (1)
the then outstanding principal amount of this Debenture, PLUS (2) all accrued
and unpaid interest thereon through the Authorization Date (as defined below),
PLUS (3) Default Interest, if any, on the amounts referred to in clauses (1)
and/or (2), MULTIPLIED BY (y) .24, MULTIPLIED BY (z) (N/365), where N = the
number of days from the day the Holder submits a Notice of Conversion giving
rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date (the
"AUTHORIZATION DATE") that the Borrower authorizes a sufficient number of shares
of Common Stock to effect conversion of the full outstanding principal balance
of this Debenture. The Borrower shall use its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable following the
earlier of (i) such time that the Holder notifies the Borrower or that
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the Borrower otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full conversion thereof and
(ii) a Conversion Default. The Borrower shall send notice to the Holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of the Holder's accrued Conversion Default Payments. The accrued
Conversion Default Payments for each calendar month shall be paid in cash or
shall be convertible into Common Stock (at such time as there are sufficient
authorized shares of Common Stock) at the applicable Conversion Price, at the
Holder's option, as follows:
(a) In the event the Holder elects to take such payment in cash, cash
payment shall be made to the Holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event the Holder elects to take such payment in Common Stock,
the Holder may convert such payment amount into Common Stock at the Conversion
Price (as in effect at the time of conversion) at any time after the fifth day
of the month following the month in which it has accrued in accordance with the
terms of this Article I (so long as there is then a sufficient number of
authorized shares of Common Stock).
The Holder's election shall be made in writing to the Borrower at any time
prior to 9:00 p.m., New York City Time, on the third day of the month following
the month in which Conversion Default payments have accrued. If no election is
made, the Holder shall be deemed to have elected to receive cash. Nothing herein
shall limit the Holder's right to pursue actual damages (to the extent in excess
of the Conversion Default Payments) for the Borrower's failure to maintain a
sufficient number of authorized shares of Common Stock, and each Holder shall
have the right to pursue all remedies available at law or in equity (including
decree of specific performance and/or injunctive relief).
1.4 METHOD OF CONVERSION.
(a) MECHANICS OF CONVERSION. Subject to Section 1.1 and the other
provisions of this Debenture, this Debenture may be converted by the Holder in
whole or in part (provided such partial conversion is at least $50,000, or such
lesser amount as shall remain unpaid at the time of the conversion (together
with accrued and unpaid interest thereon)) at any time and from time to time
after the Issue Date, by (A) submitting to the Borrower a duly executed notice
of conversion in the form attached hereto as Exhibit A ("NOTICE OF CONVERSION")
by facsimile dispatched prior to Midnight, New York City time (the "CONVERSION
NOTICE DEADLINE") on the date specified therein on the Conversion Date (as
defined below) (or by other means resulting in, or reasonably expected to result
in, written notice to the Borrower on the date specified therein as the
Conversion Date) to the office of the Borrower; which notice shall specify the
principal amount of this Debenture to be converted, the applicable Conversion
Price, and the number of shares of Common Stock issuable upon such conversion;
and (B) subject to Section 1.4(b), surrendering this Debenture at the principal
office of the Borrower.
(b) SURRENDER OF DEBENTURE UPON CONVERSION. Notwithstanding anything to the
contrary set forth herein, upon conversion of this Debenture in accordance with
the
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terms hereof, the Holder shall not be required to physically surrender this
Debenture to the Borrower unless the entire unpaid principal amount of this
Debenture is so converted. The Holder and the Borrower shall maintain records
showing the principal amount so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder and the
Borrower, so as not to require physical surrender of this Debenture upon each
such conversion. In the event of any dispute or discrepancy, such records of the
Borrower shall be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any portion of this Debenture is
converted as aforesaid, the Holder may not transfer this Debenture unless the
Holder first physically surrenders this Debenture to the Borrower, whereupon the
Borrower will forthwith issue and deliver upon the order of the Holder a new
Debenture of like tenor, registered as the Holder (upon payment by the Holder of
any applicable transfer taxes) may request, representing in the aggregate the
remaining unpaid principal amount of this Debenture. 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
represented by this Debenture may be less than the amount stated on the face
hereof.
(c) PAYMENT OF TAXES. The Borrower shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock or other securities or property on conversion
of this Debenture in a name other than that of the Holder (or in street name),
and the Borrower shall not be required to issue or deliver any such shares or
other securities or property unless and until the person or persons (other than
the Holder or the custodian in whose street name such shares are to be held for
the Holder's account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
(d) LOST OR STOLEN DEBENTURES. Upon receipt by the Borrower of evidence of
the loss, theft, destruction or mutilation of this Debenture, and (in the case
of loss, theft or destruction) of indemnity reasonably satisfactory to the
Borrower, and upon surrender and cancellation of this Debenture, if mutilated,
the Borrower shall execute and deliver a new Debenture of like tenor and date.
(e) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon submission of a notice
of Conversion, the Borrower shall, within three business days after the
Conversion Date (the "DELIVERY PERIOD"), issue and deliver (or cause its
Transfer Agent so to issue and deliver) in accordance with the terms hereof and
the Purchase Agreement (including, without limitation, in accordance with the
requirements of Section 2(g) of the Purchase Agreement) to or upon the order of
the Holder that number of shares of Common Stock for the portion of this
Debenture converted as shall be determined in accordance herewith. In addition
to any other remedies available to the Holder, including actual damages and/or
equitable relief, the Borrower shall pay to the Holder $2,000 per day in cash
for each day beyond a two-day grace period following the Delivery Period that
the Borrower fails to deliver Common Stock (a "DELIVERY DEFAULT") issuable upon
conversion of this Debenture pursuant to the Notice of Conversion until such
time as the Borrower has delivered all such Common Stock (the "DELIVERY DEFAULT
PAYMENTS"); PROVIDED, HOWEVER, in the event of a failure by the Borrower to
deliver shares upon conversion as a result of a Conversion Default, the
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Holder shall not be entitled to receive Delivery Default Payments but shall be
entitled to receive Conversion Default Payments in accordance with Section 1.3.
Such Delivery Default Payments shall be paid to the Holder of the fifth day of
the month following the month in which they have accrued or, at the option of
the Holder (by written notice to the Borrower by the first day of the month
following the month in which they have accrued), shall be added to the principal
amount of this Debenture, in which event interest shall accrue thereon in
accordance with the terms of this Debenture and such additional principal amount
shall be convertible into Common Stock in accordance with the terms of this
Debenture.
In lieu of delivering physical certificates representing the Common Stock
issuable upon conversion, provided the Borrower's Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon written request of the Holder and its compliance
with the provisions contained in Section 1.1 and in this Section 1.4, the
Borrower shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the Holder
by crediting the account of the Holder's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system. The time periods for
delivery and penalties described in the immediately preceding paragraph shall
apply to the electronic transmittals described herein.
(f) OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon receipt by the
Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder
of record of the Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest on this Debenture
shall be reduced to reflect such conversion, and, unless the Borrower defaults
on its obligations hereunder, all rights with respect to the portion of this
Debenture being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets, as herein
provided, on such conversion. If the Holder shall have given a Notice of
Conversion as provided herein, the Borrower's obligation to issue and deliver
the certificates for Common Stock shall be absolute and unconditional,
irrespective of the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Borrower to the holder
of record, or any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by the Holder of any obligation to the Borrower,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion.
(g) NO FRACTIONAL SHARES. If any conversion of this Debenture would result
in a fractional share of Common Stock or the right to acquire a fractional share
of Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion of this Debenture shall be the
next higher number of shares.
(h) CONVERSION DATE. The "CONVERSION DATE" shall be the date specified in
the Notice of Conversion, provided that the Notice of Conversion is submitted by
facsimile (or by other means resulting in, or reasonably expected to result in,
written notice) to the Borrower or
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its Transfer Agent before Midnight, New York City time, on the date so
specified, otherwise the Conversion Date shall be the first business day after
the date so specified (provided that the Notice of Conversion is actually
received by the Borrower or its Transfer Agent on such business day). The person
or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such securities as of the Conversion Date and all rights with respect to this
Debenture (or portion thereof) surrendered shall forthwith terminate except the
rights set forth in Section 1.4(f) and Section 1.7.
1.5 EFFECT OF CERTAIN EVENTS.
(a) EFFECT OF MERGER, CONSOLIDATION, ETC. At the option of the Holder, the
sale, conveyance or disposition of all or substantially all of the assets of the
Borrower, the effectuation by the Borrower of a transaction or series of related
transactions in which more than 50% of the voting power of the Borrower is
disposed of, or the consolidation, merger or other business combination of the
Borrower with or into any other Person (as defined below) or Persons when the
Borrower is not the survivor shall either: (i) be deemed to be an Event of
Default (as defined in Article III) pursuant to which the Borrower shall be
required to pay to the Holder upon the consummation of and as a condition to
such transaction an amount equal to the Default Amount (as defined in Article
III) or (ii) be treated pursuant to Section 1.5(b) hereof. "PERSON" shall mean
any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time when this
Debenture is issued and outstanding and prior to conversion of all of the
Debentures, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower, then the Holder of this
Debenture shall thereafter have the right to receive upon conversion of this
Debenture, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore issuable upon
conversion, such stock, securities or assets which the Holder would have been
entitled to receive in such transaction had this Debenture been converted in
full immediately prior to such transaction (without regard to any limitations on
conversion set forth herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the Holder of this Debenture
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable upon
the conversion hereof. The Borrower shall not effect any transaction described
in this Section 1.5(b) unless (a) it first gives, to the extent practicable,
thirty (30) days prior written notice (but in any event at least fifteen (15)
days prior written notice) of the record date of the special meeting of
shareholders to approve, or if there is no such record date, the consummation
of, such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event or sale of assets (during which time the
Holder shall be entitled to convert this Debenture) and (b) the resulting
successor or acquiring entity (if not the Borrower) assumes by written
instrument the obligations of
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this Section 1.5(b). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(c) ADJUSTMENT DUE TO DISTRIBUTION. If the Borrower shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to the Borrower's shareholders
in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a "DISTRIBUTION"), then the Holder of this Debenture shall
be entitled, upon any conversion of this Debenture after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the Holder with respect to the
shares of Common Stock issuable upon such conversion had such Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
(d) PURCHASE RIGHTS. If, at any time when any Debentures are issued and
outstanding, the Borrower issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the "PURCHASE RIGHTS")
pro rata to the record holders of any class of Common Stock, then the Holder of
this Debenture will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Debenture (without regard to any limitations on
conversion contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
(e) ANTIDILUTION PROVISIONS. The Conversion Price shall be subject to
adjustment from time to time as provided in this Section 1.5(e).
(i) ADJUSTMENT OF CONVERSION PRICE. If and whenever on or after the date of
issuance of this Debenture, the Borrower issues or sells, or in accordance with
Section1.5(e)(ii) hereof is deemed to have issued or sold, any shares of Common
Stock for no consideration or for a consideration per share (before deduction of
reasonable expenses or commissions or underwriting discounts or allowances in
connection therewith) less than the Market Price (as defined below) on the date
of issuance (or deemed issuance) of such shares of Common Stock (a "DILUTIVE
ISSUANCE"), then immediately upon the Dilutive Issuance, the Conversion Price
will be reduced to a price determined by multiplying the Conversion Price in
effect immediately prior to the Dilutive Issuance by a fraction, (i) the
numerator of which is an amount equal to the sum of (x) the number of shares of
Common Stock actually outstanding immediately prior to the Dilutive Issuance,
plus (y) the quotient of the aggregate consideration, calculated as set forth in
Section 1.5(e)(ii) hereof, received by the Borrower upon such Dilutive Issuance
divided by the Market Price in effect immediately prior to the Dilutive
Issuance, and (ii) the denominator of which is the total number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after the
Dilutive Issuance.
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(ii) EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Conversion Price under Section 1.5(e)(i) hereof, the
following will be applicable:
A. ISSUANCE OF RIGHTS OR OPTIONS. If the Borrower in any manner issues or
grants any warrants, rights or options, whether or not immediately exercisable,
to subscribe for or to purchase Common Stock or other securities convertible
into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") (such warrants,
rights and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as "OPTIONS") and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the Market
Price on the date of issuance or grant of such Options, then the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
will, as of the date of the issuance or grant of such Options, be deemed to be
outstanding and to have been issued and sold by the Borrower for such price per
share. For purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon the exercise of such Options" is determined by
dividing (i) the total amount, if any, received or receivable by the Borrower as
consideration for the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Borrower
upon the exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the Conversion
Price will be made upon the actual issuance of such Common Stock upon the
exercise of such Options or upon the conversion or exchange of Convertible
Securities issuable upon exercise of such Options.
B. ISSUANCE OF CONVERTIBLE SECURITIES. If the Borrower in any manner issues
or sells any Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of Options), and the
price per share for which Common Stock is issuable upon such conversion or
exchange is less than the Market Price on the date of issuance of the
Convertible Securities, then the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities
will, as of the date of the issuance of such Convertible Securities, be deemed
to be outstanding and to have been issued and sold by the Borrower for such
price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Borrower as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Borrower upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Conversion Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
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C. CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a change at any
time in (i) the amount of additional consideration payable to the Borrower upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Borrower upon the conversion or exchange of any Convertible
Securities; or (iii) the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock (other than under or by reason
of provisions designed to protect against dilution), the Conversion Price in
effect at the time of such change will be readjusted to the Conversion Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
D. TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE SECURITIES. If,
in any case, the total number of shares of Common Stock issuable upon exercise
of any Option or upon conversion or exchange of any Convertible Securities is
not, in fact, issued and the rights to exercise such Option or to convert or
exchange such Convertible Securities shall have expired or terminated, the
Conversion Price then in effect will be readjusted to the Conversion Price which
would have been in effect at the time of such expiration or termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination (other than in respect of the actual number of
shares of Common Stock issued upon exercise or conversion thereof), never been
issued.
E. CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Options or
Convertible Securities are issued, granted or sold for cash, the consideration
received therefor for purposes of this Debenture will be the amount received by
the Borrower therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or incurred by the
Borrower in connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
part or all of which shall be other than cash, the amount of the consideration
other than cash received by the Borrower will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Borrower will be the Market
Price thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with any acquisition, merger or
consolidation in which the Borrower is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving corporation as is attributable
to such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
in good faith by the Board of Directors of the Borrower.
F. EXCEPTIONS TO ADJUSTMENT OF CONVERSION PRICE. No adjustment to the
Conversion Price will be made (i) upon the exercise of any warrants, options or
convertible securities granted, issued and outstanding on the date of issuance
of this Debenture; (ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee benefit plan of the
Borrower now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the independent
members of
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the Board of Directors of the Borrower or a majority of the members of a
committee of independent directors established for such purpose; or (iii) upon
the conversion of the Debentures.
(iii) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Borrower at any
time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Borrower at any time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a smaller number of shares, then, after the date of
record for effecting such combination, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.
(iv) CERTAIN DEFINITIONS.
A. "COMMON STOCK DEEMED OUTSTANDING" shall mean the number of shares of
Common Stock actually outstanding (not including shares of Common Stock held in
the treasury of the Borrower), plus (x) pursuant to Section 1.5(e)(ii)(A)
hereof, the maximum total number of shares of Common Stock issuable upon the
exercise of Options, as of the date of such issuance or grant of such Options,
if any, and (y) pursuant to Section 1.5(e)(ii)(B) hereof, the maximum total
number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
B. "MARKET PRICE," as of any date, (i) means the average of the last
reported sale prices for the shares of Common Stock on the Nasdaq SmallCap
Market ("NASDAQ") for the five (5) trading days immediately preceding such date
as reported by Bloomberg, L.P. ("BLOOMBERG"), or (ii) if Nasdaq is not the
principal trading market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the Common Stock during
the same period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the fair market value as reasonably determined in good faith by (a) the Board
of Directors of the Borrower or, at the option of a majority-in-interest of the
holders of the outstanding Debentures by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
C. "COMMON STOCK," for purposes of this Section 1.5(e), includes the Class
A Common Stock, no par value per share, and any additional class of stock of the
Borrower having no preference as to dividends or distributions on liquidation,
provided that the shares purchasable pursuant to this Debenture shall include
only shares of Class A Common Stock, no par value per share, in respect of which
this Debenture is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or any reorganization, reclassification,
consolidation or merger involving the Borrower.
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(f) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this
Section 1.5, the Borrower, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to the Holder of a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Borrower
shall, upon the written request at any time of the Holder, furnish to such
Holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Debenture.
1.6 TRADING MARKET LIMITATIONS. Unless (i) permitted by the applicable
rules and regulations of the principal securities market on which the Common
Stock is then listed or traded or (ii) the Borrower has obtained approval of the
issuance of Common Stock upon conversion of the Debentures in accordance with
applicable law and the rules and regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Borrower or any of its securities (the "SHAREHOLDER APPROVAL") , in no event
shall the total number of shares of Common Stock issued upon conversion of this
Debenture and the other Debentures issued pursuant to the Purchase Agreement
(including any shares of capital stock or rights to acquire shares of capital
stock issued by the Borrower which are aggregated or integrated with the Common
Stock issued or issuable upon conversion of the Debentures for purposes of any
such rule or regulation) exceed the maximum number of shares of Common Stock
that the Borrower can issue pursuant to any rule of the principal United States
securities market on which the Common Stock is then traded (including Rule
4460(i) of Nasdaq) (the "MAXIMUM SHARE AMOUNT"), which, as of the Issue Date
shall be 2,323,376 shares (19.99% of the total shares outstanding on the Issue
Date), subject to adjustment from time to time for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Common Stock occurring after the Issue Date. With respect to each Holder of
Debentures, the Maximum Share Amount shall refer to such Holder's PRO RATA share
thereof determined in accordance with Section 4.8 below. In the event that (x)
the aggregate number of shares of Common Stock issued upon conversion of this
Debenture and the other Debentures issued pursuant to the Purchase Agreement
represents at least twenty percent (20%) of the Maximum Share Amount and (y) the
sum of (i) the aggregate number of shares of Common Stock issued upon conversion
of this Debenture and the other Debentures issued pursuant to the Purchase
Agreement PLUS (ii) the aggregate number of shares of Common Stock that remain
issuable upon conversion of this Debenture and the other Debentures issued
pursuant to the Purchase Agreement, represents at least one hundred percent
(100%) of the Maximum Share Amount (the "TRIGGERING EVENT"), the Borrower will
use its best efforts to seek and obtain Shareholder Approval (or obtain such
other relief as will allow conversions hereunder in excess of the Maximum Share
Amount) as soon as practicable following the Triggering Event. If any Debentures
cease to be convertible as a result of the limitations described in this Section
1.6 (a "TRADING MARKET REDEMPTION EVENT"), and the Borrower has not prior to, or
within thirty (30) days of the date that such Trading Market Redemption Event
arises, (i) obtained the Shareholder Approval or (ii) eliminated any prohibition
under application law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Borrower or any of its securities on the Borrower's
ability to issue shares of Common Stock in excess of the Maximum Share Amount
then the Borrower shall be obligated to redeem immediately all of the then
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outstanding Debentures, in accordance with this Section 1.6. An irrevocable
redemption notice (the "TRADING MARKET REDEMPTION NOTICE") shall be delivered
promptly to the Holders of Debentures at their registered address appearing on
the records of the Borrower and shall state (i) that the Maximum Share Amount
has been issued upon conversion of the Debentures, (ii) that the Borrower is
obligated to redeem all of the outstanding Debentures, and (iii) the date of
redemption, which shall be a date within five (5) business days of the earlier
of (a) the date of the Trading Market Redemption Notice or (b) the date on which
the Holders of the Debentures notify the Borrower of the occurrence of a Trading
Market Redemption Event. On the date of redemption, the Borrower shall make
payment of the Default Amount (as defined in Article III) in cash.
1.7 STATUS AS SHAREHOLDER. Upon submission of a Notice of Conversion by a
Holder, (i) the shares covered thereby (other than the shares, if any, which
cannot be issued because their issuance would exceed such Holder's allocated
portion of the Reserved Amount or Maximum Share Amount) shall be deemed
converted into shares of Common Stock and (ii) the Holder's rights as a Holder
of such converted portion of this Debenture shall cease and terminate, excepting
only the right to receive certificates for such shares of Common Stock and to
any remedies provided herein or otherwise available at law or in equity to such
Holder because of a failure by the Borrower to comply with the terms of this
Debenture. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Deadline with respect to a conversion of any
portion of this Debenture for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Borrower) the Holder shall regain the rights of a Holder of this Debenture with
respect to such unconverted portions of this Debenture and the Borrower shall,
as soon as practicable, return such unconverted Debenture to the Holder or, if
the Debenture has not been surrendered, adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without limitation, the right
to receive Conversion Default Payments pursuant to Section 1.3 to the extent
required thereby for such Conversion Default and any subsequent Conversion
Default) for the Borrower's failure to convert this Debenture.
ARTICLE II. CERTAIN COVENANTS
2.1 DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not without the Holder's
written consent (a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock solely in the form
of additional shares of Common Stock or (b) directly or indirectly or through
any subsidiary make any other payment or distribution in respect of its capital
stock.
2.2 RESTRICTION ON STOCK REPURCHASES. So long as the Borrower shall have
any obligation under this Debenture, the Borrower shall not without the Holder's
written consent redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any one transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.
- 14 -
2.3 BORROWINGS. So long as the Borrower shall have any obligation under
this Debenture, the Borrower shall not without the Holder's written consent,
create, incur, assume or suffer to exist any liability for borrowed money,
except (a) borrowings in existence or committed on the date hereof and of which
the Borrower has informed the Holder in writing prior to the date hereof, (b)
indebtedness incurred in the ordinary course of business (which shall include
trade credit, equipment financing, accounts receivables financing and lines of
credit (not to exceed $5 million)) or (c) borrowings, the proceeds of which
shall be used to repay this Debenture.
2.4 ADVANCES AND LOANS. So long as the Borrower shall have any obligation
under this Debenture, the Borrower shall not without the Holder's written
consent, lend money, give credit or make advances to any person, firm, joint
venture or corporation, including, without limitation, officers, directors,
employees, subsidiaries and affiliates of the Borrower, except loans, credits or
advances (a) in existence or committed on the date hereof and which the Borrower
has informed the Holder in writing prior to the date hereof or (b) made in the
ordinary course of business.
2.5 CONTINGENT LIABILITIES. So long as the Borrower shall have any
obligation under this Debenture, the Corporation shall not without the Holder's
written consent, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumption, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed the Holder in writing prior to the date
hereof or (b) made in the ordinary course of business.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "EVENT OF DEFAULT")
shall occur:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay the
principal hereof or interest thereon when due on this Debenture, whether at
maturity, upon mandatory prepayment pursuant to Section 1.7, upon acceleration
or otherwise.
3.2 CONVERSION AND THE SHARES. The Borrower fails to issue shares of Common
Stock to the Holder (or announces or threatens that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Debenture (for a period of at least
sixty (60) days, if such failure is solely as a result of the circumstances
governed by Section 1.3 and the Borrower is using its best efforts to authorize
a sufficient number of shares of Common Stock as soon as practicable), fails to
transfer or cause its transfer agent to transfer (electronically or in
certificated form) any certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture as and when required by this Debenture
or the Registration Rights Agreement, or fails to remove any restrictive legend
(or to withdraw any stop transfer instructions in respect thereof) on any
certificate for any shares of Common Stock issued to the Holder upon conversion
of this Debenture as and when required by this
- 15 -
Debenture, the Purchase Agreement or the Registration Rights Agreement (or makes
any announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for ten (10) days after the Borrower shall
have been notified thereof in writing by the Holder.
3.3 FAILURE TO EFFECT REGISTRATION. The Borrower fails to obtain
effectiveness with the Securities and Exchange Commission prior to July 11, 1999
of the Registration Statement(s) (as defined in the Registration Rights
Agreement) required to be filed pursuant to Section 2(a) of the Registration
Rights Agreement, or fails to obtain the effectiveness of any additional
Registration Statement (required to be filed pursuant to Section 3(b) of the
Registration Rights Agreement) within 120 days after the Registration Trigger
Date (as defined in the Registration Rights Agreement), or any such Registration
Statement, after its initial effectiveness and during the Registration Period
(as defined in the Registration Rights Agreement), lapses in effect or sales of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) cannot otherwise be made thereunder (whether by reason of the
Borrower's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement , the Borrower's failure to
file and obtain effectiveness with the SEC of an additional Registration
Statement required pursuant to Section 3(b) of the Registration Rights Agreement
or otherwise) for more than thirty (30) consecutive days or sixty (60) days in
any twelve month period after such Registration Statement becomes effective;
3.4 BREACH OF COVENANTS. The Borrower breaches any material covenant or
other material term or condition contained in Article II hereof or in Sections
1.3, 1.5 or 1.6 of this Debenture, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5
of the Purchase Agreement and such breach continues for a period of ten (10)
business days after written notice thereof to the Borrower from the Holder;
3.5 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made and the breach of which has a material adverse effect on the rights of the
Holder with respect to this Debenture, the Purchase Agreement or the
Registration Rights Agreement;
3.6 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business, or such a receiver or trustee shall otherwise be
appointed;
3.7 JUDGMENTS. Any money judgment, writ or similar process shall be entered
or filed by a court against the Borrower or any subsidiary of the Borrower or
any of its property or other assets for more than $200,000, and shall remain
unvacated, unbonded or unstayed for a period
- 16 -
of twenty (20) days unless otherwise consented to by the Holder, which consent
will not be unreasonably withheld;
3.8 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
subsidiary of the Borrower and such proceedings remain outstanding for a period
of sixty (60) days; or
3.9 DELISTING OF COMMON STOCK. The Borrower shall fail to maintain the
listing of the Common Stock on at least one of The Nasdaq National Market,
Nasdaq Small Cap Market, the New York Stock Exchange, or the American Stock
Exchange;
3.10 DEFAULT UNDER OTHER DEBENTURES. An Event of Default has occurred and
is continuing under any of the other Debentures issued pursuant to the Purchase
Agreement.
then, upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of the Holders of a majority of the aggregate principal amount of the
outstanding Debentures issued pursuant to the Purchase Agreement exercisable
through the delivery of written notice to the Borrower by such Holders (the
"DEFAULT NOTICE"), and upon the occurrence of an Event of Default specified in
Section 3.6 or 3.8, the Debentures shall become immediately due and payable and
the Borrower shall pay to the Holder, in full satisfaction of its obligations
hereunder, an amount equal to the greater of (i) 120% TIMES the SUM of (w) the
then outstanding principal amount of this Debenture, PLUS (x) all accrued and
unpaid interest thereon for the period beginning on the Issue Date and ending on
the date of payment of the Default Amount (the "MANDATORY PREPAYMENT DATE"),
PLUS (y) Default Interest, if any, on the amounts referred to in clauses (w)
and/or (x), PLUS (z) any amounts owed to the Holder pursuant to Sections 1.3 and
1.4(e) hereof or pursuant to Section 2(b) of the Registration Rights Agreement
(the then outstanding principal amount of this Debenture to the date of payment
PLUS the amounts referred to in clauses (x), (y) and (z) shall collectively be
known as the "DEFAULT SUM"), or (ii) the "parity value" of the Default Sum to be
prepaid, where parity value means (a) the highest number of shares of Common
Stock issuable upon conversion of such Default Sum in accordance with Article I
(without giving any effect to any limitation on conversion of the Debenture
contained herein,) MULTIPLIED BY (b) the highest Closing Price for the Common
Stock during the period beginning on the date of first occurrence of the Event
of Default and ending one day prior to the Mandatory Prepayment Date (the
greater of such amounts being referred to herein as the "DEFAULT AMOUNT"). The
Default Amount, together with all other amounts payable hereunder, shall
immediately become due and payable, all without demand, presentment or notice,
all of which hereby are expressly waived, together with all costs, including,
without limitation, legal fees and expenses, of collection, and the Holder shall
be entitled to exercise all other rights and remedies available at law or in
equity.
If the Borrower fails to pay the Default Amount within five (5) business
days of written notice that such amount is due and payable, then the Holder
shall have the right at any time, so long as the Borrower remains in default
(and so long and to the extent that there are sufficient authorized shares), to
require the Borrower, upon written notice, to immediately issue, in lieu of the
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Default Amount, the number of shares of Common Stock of the Borrower equal to
the Default Amount divided by the Conversion Price then in effect.
ARTICLE IV. MISCELLANEOUS
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
4.2 NOTICES. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or sent by
United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, facsimile number
▇▇▇-▇▇▇-▇▇▇▇. Both the Holder and the Borrower may change the address for
service by service of written notice to the other as herein provided.
4.3 AMENDMENTS. This Debenture and any provision hereof may only be amended
by an instrument in writing signed by the Borrower and the Holder. The term
"Debenture" and all reference thereto, as used throughout this instrument, shall
mean this instrument (and the other Debentures issued pursuant to the Purchase
Agreement) as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
4.4 ASSIGNABILITY. This Debenture shall be binding upon the Borrower and
its successors and assigns, and shall inure to be the benefit of the Holder and
its successors and assigns.
4.5 COST OF COLLECTION. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
4.6 GOVERNING LAW. This Debenture shall be governed by the internal laws of
the Commonwealth of Pennsylvania, without regard to the principles of conflict
of laws.
4.7 CERTAIN AMOUNTS. Whenever pursuant to this Debenture the Borrower is
required to pay an amount in excess of the outstanding principal amount (or the
portion thereof required to be paid at that time) plus accrued and unpaid
interest plus Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of cash payment on
this Debenture may be difficult to determine and the amount to be so paid by the
Borrower represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to convert this
Debenture and to earn a return from the sale of shares of Common Stock acquired
upon conversion of this Debenture at a price in excess of the
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price paid for such shares pursuant to this Debenture. The Borrower and the
Holder hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a cash
payment without the opportunity to convert this Debenture into shares of Common
Stock.
4.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT. The Maximum
Share Amount and Reserved Amount shall be allocated pro rata among the holders
of Debentures based on the principal amount of such Debentures issued to each
Holder. Each increase to the Maximum Share Amount and Reserved Amount shall be
allocated pro rata among the holders of Debentures based on the principal amount
of such Debentures held by each Holder at the time of the increase in the
Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or
otherwise transfer any of such Holder's Debentures, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any
Debentures shall be allocated to the remaining Holders of Debentures, pro rata
based on the principal amount of such Debentures then held by such Holders.
4.9 DAMAGES SHARES. The shares of Common Stock that may be issuable to the
Holder pursuant to Sections 1.3 and 1.4(e) hereof and pursuant to Section 2(b)
of the Registration Rights Agreement ("DAMAGES SHARES") shall be treated as
Common Stock issuable upon conversion of this Debenture for all purposes hereof
and shall be subject to all of the limitations and afforded all of the rights of
the other shares of Common Stock issuable hereunder, including without
limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares ("DAMAGES AMOUNTS")
shall not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts is
zero.
4.10 DENOMINATIONS. At the request of the Holder, upon surrender of this
Debenture, the Borrower shall promptly issue new Debentures in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $100,000 as the Holder shall request.
4.11 PURCHASE AGREEMENT. By its acceptance of this Debenture, each Holder
agrees to be bound by the applicable terms of the Purchase Agreement.
4.12 NOTICE OF CORPORATE EVENTS. Except as otherwise provided below, the
Holder of this Debenture shall have no rights as a Holder of Common Stock unless
and only to the extent that it converts this Debenture into Common Stock. The
Borrower shall provide the Holder with prior notification of any meeting of the
Borrower's shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
- 19 -
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.12.
4.13. REMEDIES. The Borrower 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
Borrower acknowledges that the remedy at law for a breach of its obligations
under this Debenture will be inadequate and agrees, in the event of a breach or
threatened breach by the Borrower of the provisions of this Debenture, that the
Holder shall be entitled, in addition to all other available remedies at law or
in equity, to an injunction or injunctions restraining, preventing or curing any
breach of this Debenture and to enforce specifically the terms and provisions
thereof, without the necessity of showing economic loss and without any bond or
other security being required.
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in its
name by its duly authorized officer this 11th day of February, 1999.
INFONAUTICS, INC.
By: /S/ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
President and Chief Executive Officer
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EXHIBIT A
NOTICE OF CONVERSION
OF CONVERTIBLE DEBENTURE
TO: INFONAUTICS, INC.
(1) Pursuant to the terms of the attached Convertible Debenture (the
"DEBENTURE"), the undersigned hereby elects to convert $ __________ principal
amount of the Debenture into shares of Common Stock of Infonautics, Inc. a
Pennsylvania corporation (the "BORROWER"). Capitalized terms used herein and not
otherwise defined herein have the respective meanings provided in the Debenture.
(2) The Borrower shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
TRANSFER").
Name of DTC Prime Broker:
-------------------------------------------
Account Number:
-----------------------------------------------------
/ / In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name:
----------------------------------------------------------------
Address:
-------------------------------------------------------------
(3) The Holder acknowledges and affirms that the Common Stock issued
pursuant to this Notice of Conversion has been or will be sold in accordance
with the requirements of the 1933 Act, if applicable, or pursuant to an
exemption under the 1933 Act.
Date:
---------------------------- -------------------------------------
Signature of Registered Holder (must
be signed exactly as name appears in
the Debenture).