NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. E-1 U.S. $750,000
INNOVACOM, INC.
7% SECURED CONVERTIBLE DEBENTURE DUE JANUARY 14, 2004
FOR VALUE RECEIVED, InnovaCom, Inc., a corporation organized
under the laws of the Nevada and having a principal place of business at ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Company") promises to pay to
JNC Strategic Fund Ltd., or registered assigns (the "Holder"), the principal sum
of Seven Hundred Fifty Thousand Dollars ($750,000), on or prior to January 14,
2004 or such earlier date as this Debenture (the Debenture") is required to be
repaid as provided hereunder (the "Maturity Date") and to pay interest to the
Holder on the principal sum at the rate of 7% per annum, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year while
this Debenture is outstanding and on each Conversion Date (as defined in Section
4(a)(i)), commencing on the earlier to occur of a Conversion Date (as defined
herein) for such principal amount and March 31, 1999. Interest shall accrue
daily commencing on the Original Issue Date (as defined in Section 6) until
payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Interest shall be calculated on the basis of a 360-day year and for the actual
number of days elapsed. Interest hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Company regarding registration
and transfers of this Debenture (the "Debenture Register"). All overdue, accrued
and unpaid interest and other amounts due hereunder shall bear interest at the
rate of 15% per annum (to accrue daily) from the date such interest is due
hereunder through and including the date of payment. The principal of, and
interest on, this Debenture are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
Debenture Register, except that interest due on the principal amount (but not
overdue interest) may, at the Company's option, be paid in shares of Common
Stock (as defined in Section 6) calculated based upon the Conversion Price (as
defined below) on the date such interest was due. All amounts due hereunder
other than such interest shall be paid in cash. Notwithstanding anything to the
contrary contained herein, the Company may not issue shares of Common Stock in
payment of interest on the principal amount if: (i) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all purposes,
or held as treasury stock, is insufficient to pay interest hereunder in
2
shares of Common Stock; (ii) such shares are not either registered for resale
pursuant to an Underlying Securities Registration Statement (as defined in
Section 6) or freely transferable without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), as determined by counsel to the Company pursuant to a written opinion
letter addressed and in form and substance acceptable to the Holder and the
transfer agent for such shares; or (iii) such shares are not Actively Traded (as
defined herein) (or listed or quoted for trading on the American Stock Exchange,
Nasdaq National Market, Nasdaq SmallCap Market or The New York Stock Exchange,
and any other exchange on which the Common Stock is then listed for trading
(each, a "Subsequent Market")). As used herein, "Actively Traded" shall mean
that (a) the average value of the shares of Common Stock traded on the OTC
Bulletin Board in each week measured over a four (4) week period on a rolling
basis equals or exceeds $50,000 and (b) there are no fewer than ten (10) market
makers actively making a market in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement. Prior to due presentment to the Company for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for all
other purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) any default in the payment of the principal of, interest on
or liquidated damages in respect of, this Debenture, free of any claim
of subordination, as and when the same shall become due and payable
(whether on the applicable quarterly interest payment date, a Conversion
Date or the Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement, the Security
Agreement or the Registration Rights Agreement, and such failure
3
or breach shall not have been remedied within 10 days after the date on
which notice of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences
any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is commenced
against the Company or any subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period of
60 days; or the Company or any subsidiary thereof is adjudicated
insolvent or bankrupt; or any order of relief or other order approving
any such case or proceeding is entered; or the Company or any subsidiary
thereof suffers any appointment of any custodian or the like for it or
any substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or the Company or any subsidiary
thereof makes a general assignment for the benefit of creditors; or the
Company shall fail to pay, or shall state that it is unable to pay, or
shall be unable to pay, its debts generally as they become due; or the
Company or any subsidiary thereof shall call a meeting of its creditors
with a view to arranging a composition or adjustment of its debts; or
the Company or any subsidiary thereof shall by any act or failure to act
indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company or
any subsidiary thereof for the purpose of effecting any of the
foregoing;
(iv) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement or
other instrument under which there may be issued, or by which there may
be secured or evidenced any indebtedness of the Company in an amount
exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be Actively Traded or fail to
be listed or quoted for trading on any Subsequent Market if after the
Original Issue Date the Common Stock shall be listed or quoted for
trading on any such Subsequent Market, or if the Common Stock shall be
suspended from trading thereon without being actively traded, relisted
or having such suspension lifted, as the case may be, within fifteen
(15) days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or, if
the Company is the surviving entity, the Company shall issue or sell to
another Person, or group thereof, in excess of 50% of the Common Stock)
or shall dispose of all or substantially all of its assets in one or
more transactions, or shall redeem more than a de minimis number of
shares of Common Stock (other than redemptions of Underlying Shares);
4
(vii) an Underlying Securities Registration Statement shall not
have been declared effective by the Securities and Exchange Commission
(the "Commission") on or prior to the 180th day after the Original Issue
Date;
(viii) an Event (as hereinafter defined) shall not have been
cured to the satisfaction of the Holder prior to the expiration of
thirty (30) days from the Event Date (as hereinafter defined) relating
thereto (other than an Event resulting from a failure of an Underlying
Securities Registration Statement to be declared effective by the
Commission on or prior to the 90th day after the Original Issue Date);
or
(ix) the Company shall fail to deliver certificates to the Holder
prior to the 15th day after the Conversion Date pursuant to Section
4(b).
(b) If any Event of Default occurs and is continuing the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration, to be, shall become,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Debentures shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in respect of conversions or as
payment of interest hereunder and then held by the Holder and (B) the Per Share
Market Value on the date prepayment is demanded or the date the full prepayment
price is paid, whichever is greater. The Holder need not provide and the Company
hereby waives any presentment, demand, protest or other notice of any kind, and
the Holder may immediately and without expiration of any grace period enforce
any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Such declaration may be rescinded and
annulled by ▇▇▇▇▇▇ at any time prior to payment hereunder. No such rescission or
annulment shall affect any subsequent Event of Default or impair any right
consequent thereon.
Section 4. Conversion.
(a) (i) This Debenture shall be convertible into shares of Common
Stock at the option of the Holder, in whole or in part at any time and from time
to time, from and after the 100th day following the Original Issue Date and
prior to the close of business on the Maturity Date. The number of shares of
Common Stock as shall be issuable upon a conversion hereunder shall be
determined by dividing the outstanding principal amount of this Debenture to be
converted, plus all accrued but unpaid interest thereon, by the Conversion Price
(as defined below), each as subject to adjustment as provided hereunder. The
Holder shall effect conversions by surrendering this Debenture (or such portions
thereof) to be converted, together with the form of conversion notice attached
hereto as Exhibit A (a "Conversion Notice") to the Company. Each Conversion
Notice shall specify the principal amount of Debentures to be converted and the
date on which such conversion is to be effected, which date may not be prior to
the date such Conversion Notice is deemed to have been delivered hereunder (a
"Conversion Date"). If no Conversion Date is specified in a Conversion Notice,
the Conversion Date shall be the date that such Conversion Notice is deemed
delivered hereunder. Subject to Section 4(b) hereof, each Conversion Notice,
once given, shall be irrevocable. If the Holder is converting less than all of
the principal amount represented by the Debenture(s) tendered by the Holder with
the Conversion Notice, or if a conversion hereunder
5
cannot be effected in full for any reason, the Company shall honor such
conversion to the extent permissible hereunder and shall promptly deliver to
such Holder (in the manner and within the time set forth in Section 4(b)) a new
Debenture for such principal amount as has not been converted.
(ii) Certain Conversion Restrictions.
(A) The Holder agrees not to convert Debentures to
the extent such
conversion would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 4.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of the Debentures held by such Holder
after application of this Section. The Holder shall have the sole authority and
obligation to determine whether the restriction contained in this Section
applies and, to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which Debentures are
convertible shall be in the sole discretion of the Holder. The provisions of
this Section may be waived by a Holder (but only as to itself and not to any
other Holder) upon not less than 75 days prior notice to the Company (in which
case, the Holder shall make such filings with the Commission, including under
Rule 13D or 13G, as are required by applicable law). Other Holders shall be
unaffected by any such waiver.
(B) The Holder agrees not to convert Debentures to
the extent such
conversion would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of the Debentures held by such Holder
after application of this Section. The Holder shall have the sole authority and
obligation to determine whether the restriction contained in this Section
applies and, to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which Debentures are
convertible shall be in the sole discretion of the Holder. The provisions of
this Section may be waived by a Holder (but only as to itself and not to any
other Holder) upon not less than 75 days prior notice to the Company. Other
Holders shall be unaffected by any such waiver.
(b) Not later than three Trading Days after the Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of the Common Stock being acquired upon the conversion of Debentures,
(ii) Debentures in a principal amount equal to the principal amount of
Debentures not converted; (iii) a bank check in the amount of all accrued and
unpaid interest (if the Company has elected and is permitted hereunder to pay
accrued interest in cash), together with all other amounts then due and payable
in accordance with the terms hereof, in respect of Debentures tendered for
conversion and (iv) if the Company has elected to pay accrued interest in shares
of the Common Stock, certificates, which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement), representing such number of shares of the Common Stock as
equals such interest divided by the Conversion Price calculated on the
Conversion Date; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of the Common Stock issuable upon
conversion of the principal amount of Debentures until Debentures are delivered
for conversion to the Company or the Holder notifies the Company
6
that such ▇▇▇▇▇▇▇▇▇ has been mutilated, lost, stolen or destroyed and complies
with Section 9 hereof. If in the case of any Conversion Notice such certificate
or certificates, including for purposes hereof, any shares of the Common Stock
to be issued on the Conversion Date on account of accrued but unpaid interest
hereunder, are not delivered to or as directed by the Holder by the third
Trading Day after a Conversion Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion (whether subject to a
Holder or a Company Conversion Notice), in which event the Company shall
immediately return the Debentures tendered for conversion. If the Company fails
to deliver to the Holder such certificate or certificates pursuant to this
Section, including for purposes hereof, any shares of the Common Stock to be
issued on the Conversion Date on account of accrued but unpaid interest
hereunder, prior to the fifth Trading Day after the Conversion Date, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
$1,500 for each day thereafter until the Company delivers such certificates
(such amount shall be also be due for each Trading Day after the date that the
Holder may rescind such conversion until such date as the Holder shall have
received the return of the principal amount of Debentures relating to such
rescission). If the Company fails to deliver to the Holder such certificate or
certificates pursuant to this Section prior to the 15th day after the Conversion
Date, the Company shall, upon notice from the Holder, prepay such portion of the
aggregate of the principal amount of Debentures then held by such ▇▇▇▇▇▇, as
requested by such Holder, for the Mandatory Prepayment Amount, in cash. If any
portion of the Mandatory Prepayment Amount pursuant to this Section is not paid
within seven days after notice therefor is deemed delivered hereunder, the
Company will pay interest on the Mandatory Prepayment Amount at a rate of 15%
per annum (to accrue daily), in cash to such Holder, accruing from such seventh
day until the Mandatory Prepayment Amount, plus all accrued interest thereon, is
paid in full.
(c) (i) The conversion price (the "Conversion Price") in effect
on any Conversion Date shall be the lesser of (A) $.1275 (the "Initial
Conversion Price") and (B) the Applicable Percentage (as defined in Section 6)
multiplied by the Average Price (as defined herein) calculated on the Conversion
Date; provided, that the five (5) Trading Day period contemplated in the Average
Price shall be extended for the number of Trading Days, if any, during such
period in which (A) the shares of Common Stock are not Actively Traded or
suspended or delisted from trading on any Subsequent Market, (B) after the date
declared effective by the Commission, the Underlying Securities Registration
Statement is not effective, or (C) after the date declared effective by the
Commission, the Prospectus included in the Underlying Securities Registration
Statement may not be used by the Holder for the resale of Underlying Shares,
provided, further, that if (a) an Underlying Securities Registration Statement
is not filed on or prior to the Filing Date (as defined in the Registration
Rights Agreement), or (b) the Company fails to file with the Commission a
request for acceleration in accordance with Rule 12d1-2 promulgated under the
Securities Exchange Act of 1934, as amended, within five (5) days of the date
that the Company is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Securities Registration Statement will not be
"reviewed" or is not subject to further review or comment by the Commission, or
(c) the Underlying Securities Registration Statement is not declared effective
by the Commission on or prior to the Effectiveness Date (as defined in the
Registration Rights Agreement), or (d) such Underlying Securities Registration
Statement is filed with and declared effective by the Commission but thereafter
ceases to be effective as to all Registrable Securities (as such term is defined
in the Registration Rights Agreement) for more than twenty (20) days at any time
prior to the expiration
7
of the "Effectiveness Period" (as such term as defined in the Registration
Rights Agreement), without being succeeded by a subsequent Underlying Securities
Registration Statement filed with and declared effective by the Commission
within twenty (20) days, or (e) trading in the Common Stock shall fail to be
Actively Traded or if the Common Stock shall be suspended or delisted from
trading on any Subsequent Market for any reason for more than five (5) days, or
(f) the conversion rights of the Holders of Debentures are suspended for any
reason or if the Holder is not permitted to resell Registrable Securities under
the Underlying Securities Registration Statement, or (g) an amendment to the
Underlying Securities Registration Statement is not filed by the Company with
the Commission within fifteen (15) days of the Commission's notifying the
Company that such amendment is required in order for the Underlying Securities
Registration Statement to be declared effective (any such failure being referred
to as an "Event," and for purposes of clauses (a), (c) and (f) the date on which
such Event occurs, or for purposes of clauses (b) and (e) the date on which such
five (5) day period is exceeded, or for purposes of clause (d) the date which
such twenty (20) day period is exceeded, or for purposes of clause (g) the date
on which such fifteen (15) day period is exceeded, being referred to as "Event
Date"), the Company shall pay, in cash, as liquidated damages and not as a
penalty, on the Event Date and on the first day of each month thereafter until
the Event is cured, 1.5% of the aggregate principal amount of Debentures then
outstanding pro rata to the holders thereof in accordance with their holdings
thereof. The provisions of this Section are not exclusive and shall in no way
limit the Company's obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any Debentures are outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of the Common Stock, (b) subdivide outstanding
shares of the Common Stock into a larger number of shares, (c) combine
outstanding shares of the Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of the Common Stock any shares of capital
stock of the Company, the Initial Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are outstanding, shall
issue rights or warrants to all holders of the Common Stock (and not to Holders
of Debentures) entitling them to subscribe for or purchase shares of the Common
Stock at a price per share less than the Per Share Market Value of the Common
Stock at the record date mentioned below, the Initial Conversion Price shall be
multiplied by a fraction, of which the denominator shall be the number of shares
of the Common Stock (excluding treasury shares, if any) outstanding on the date
of issuance of such rights or warrants plus the number of additional shares of
the Common Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered would purchase at such Per Share Market Value. Such
adjustment shall be made
8
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights or warrants. However, upon the expiration of any right or
warrant to purchase shares of the Common Stock the issuance of which resulted in
an adjustment in the Initial Conversion Price pursuant to this Section, if any
such right or warrant shall expire and shall not have been exercised, the
Initial Conversion Price shall immediately upon such expiration be recomputed
and effective immediately upon such expiration be increased to the price which
it would have been (but reflecting any other adjustments in the Initial
Conversion Price made pursuant to the provisions of this Section 4 after the
issuance of such rights or warrants) had the adjustment of the Initial
Conversion Price made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that number of shares of
the Common Stock actually purchased upon the exercise of such rights or warrants
actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall
distribute to all holders of the Common Stock (and not to Holders of Debentures)
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security, then in each such case the Initial Conversion Price at
which Debentures shall thereafter be convertible shall be determined by
multiplying the Initial Conversion Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of the Common Stock determined as of the record date mentioned
above, and of which the numerator shall be such Per Share Market Value of the
Common Stock on such record date less the then fair market value at such record
date of the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of Debentures then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which the then outstanding principal amount, together with all
9
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of its outstanding principal amount of Debentures,
plus all interest and other amounts due and payable thereon, at a price
determined in accordance with Section 3(b). The entire prepayment price shall be
paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made
to the nearest cent
or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of
Section 4(c)(ii) - (v), the Company shall promptly mail to each Holder of
Debentures a notice setting forth the Initial Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other distribution) on
its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend
on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
D. the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock of the Company,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property; o
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to
10
be entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert Debentures during the 30-day
period commencing the date of such notice to the effective date of the event
triggering such notice.
(d) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of the Common Stock
solely for the purpose of issuance upon conversion of the Debentures and payment
of interest on the Debentures, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(e) Upon a conversion hereunder the Company shall not be required
to issue stock certificates representing fractions of shares of the Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock
on conversion of the Debentures shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such Debentures so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to
be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (facsimile number (408)
727-8778), attention Chief Financial Officer, or such other address or facsimile
number as the Company may specify for such purposes by notice to the Holders
delivered in accordance with this Section. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
11
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail, postage
prepaid, addressed to each Holder of the Debentures at the facsimile telephone
number or address of such Holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m. (New
York City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 7:00 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) four days
after deposit in the United States mail, (iv) the Business Day following the
date of mailing, if send by nationally recognized overnight courier service, or
(v) upon actual receipt by the party to whom such notice is required to be
given.
Section 5. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time
upon thirty (30) Trading Days prior written notice to the Holders of the
Debentures to be prepaid (the "Optional Prepayment Notice") given at any time
after the 90th day following the date the Underlying Securities Registration
Statement has been declared effective by the Commission (provided that any
Trading Days that the holders are prohibited from utilizing such Underlying
Securities Registration Statement to resell Underlying Shares, despite their
desire to do so, shall be added to such 90 day period), to prepay, from funds
legally available therefor at the time of such prepayment, all or any portion of
the outstanding principal amount of the Debentures which have not previously
been repaid or for which Conversion Notices have not previously been delivered
hereunder, at a price equal to the Optional Prepayment Price (as defined below).
Any such prepayment by the Company shall be in cash and shall be free of any
claim of subordination. The Holders shall have the right to tender, and the
Company shall honor, Conversion Notices delivered prior to the expiration of the
thirtieth (30th) Trading Day after receipt by the Holders of an Optional
Prepayment Notice for such Debentures (such date, the "Optional Prepayment
Date").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
Price shall be increased by 15% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of the optional Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (i) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the principal amount of Debentures for which the
Optional Prepayment Price, plus accrued liquidated damages thereof, has not been
paid in full (the "Unpaid Prepayment Principal Amount"), in which event the
applicable Per Share Market Value shall be the lower of the Per Share Market
Value calculated on the Optional Prepayment Date and the Per Share Market Value
as of the Holder's written demand for conversion, or (ii) invalidate ab initio
such optional redemption, notwithstanding anything herein contained to the
contrary. If the Holder elects option (i) above, the Company shall within three
(3) Trading Days such election is deemed delivered hereunder to the Holder the
shares of Common Stock issuable upon conversion
12
of the Unpaid Prepayment Amount subject to such conversion demand and otherwise
perform its obligations hereunder with respect thereto; or, if the Holder elects
option (ii) above, the Company shall promptly, and in any event not later than
three Trading Days from receipt of notice of such election, return to the Holder
new Debentures for the full Unpaid Prepayment Principal Amount. If, upon an
election under option (i) above, the Company fails to deliver the shares of
Common Stock issuable upon conversion of the Unpaid Prepayment Principal Amount
prior to the fifth Trading Day after such election is deemed delivered
hereunder, the Company shall pay to the Holder in cash, as liquidated damages
and not as a penalty, $1,500 per day until the Company delivers such Common
Stock to the Holder.
(c) The "Optional Prepayment Price" for any Debentures shall
equal the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is paid
in full, whichever is less, multiplied by the Average Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such principal amount.
Section 6. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Applicable Percentage" means (i) 80% for any conversion honored
prior to the 120th day after the Original Issue Date, (ii) 77.5% for any
conversion honored on or after the 120th day and prior to the 150th day after
the Original Issue Date, and (iii) 75% for any conversion honored on or after
the 150th day after the Original Issue Date. For purposes hereof, a conversion
is deemed to have been honored when the shares of Common Stock issuable in
respect of such conversion are received by the Holder in accordance with the
terms hereof.
"Average Price" on any date means the average Per Share Market
Value for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Common Stock" means the Company's common stock, $.001 par value
per share, and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Mandatory Prepayment Amount" for any Debentures shall equal the
sum of (i) the principal amount of Debentures to be prepaid, plus all accrued
and unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the Average Price on
(x) the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
13
"Original Issue Date" shall mean the date of the first issuance
of any Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence such
Debenture.
"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date as quoted by
Bloomberg Information Services, Inc. ("Bloomberg"), or similar organizations or
agencies succeeding to its functions of reporting prices, or (b) if the Common
Stock is no longer reported by Bloomberg, or such similar organizations or
agencies, such closing bid price per share shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Security Agreement" means the Security Agreement, dated as of
June 29, 1998, between the Company and the original Holder of Debentures, as
amended and restated on August 28, 1998, December 15, 1998 and the Original
Issue Date, and as may be further amended modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded
on the Nasdaq Stock Market or other stock exchange or market on which the Common
Stock has been listed, or (b) if the Common Stock is not listed on the Nasdaq
Stock Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices).
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"Underlying Securities Registration Statement" means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering among other things the resale of the Underlying
Shares and naming the Holder as a "selling stockholder" thereunder.
14
Section 7. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct obligation of
the Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other proceedings of
the Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. The Company hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
receiving a copy thereof sent to the Company at the address in effect for
notices to it under this instrument and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
Section 11. Any waiver by the Company or the Holder of a breach
of any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
Section 12. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
15
Section 13. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day (or, if such next succeeding Business Day falls
in the next calendar month, the preceding Business Day in the appropriate
calendar month).
Section 14. The payment obligations under this Debenture and the
obligations of the Company to the Holder arising upon the conversion of all or
any of the Debentures in accordance with the provisions hereof are secured
pursuant to the Security Agreement.
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Secured
Convertible Debenture to be duly executed by a duly authorized officer as of the
date first above indicated.
INNOVACOM, INC.
By:________________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
17
EXHIBIT A
INNOVACOM, INC
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. E-1 into shares of Common
Stock, $.001 par value per share (the "Common Stock"), of INNOVACOM, INC. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address