THIS INSTRUMENT IS SUBJECT TO THE SUBORDINATION PROVISIONS CONTAINED IN
PARAGRAPH 7 HEREOF. NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THIS
INSTRUMENT, NO PAYMENT ON ACCOUNT OF THE PRINCIPAL OR INTEREST HEREOF SHALL
BECOME DUE OR BE PAID EXCEPT IN ACCORDANCE WITH THE TERMS OF PARAGRAPH 7 HEREOF.
AM COMMUNICATIONS, INC.
SUBORDINATED CONVERTIBLE DEBENTURE
No.:__________________
$350,000.00 May 29, 2003
THIS DEBENTURE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933
(THE "ACT") OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AS TO THE DEBENTURE OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
FOR VALUE RECEIVED, the undersigned, AM COMMUNICATIONS, INC., a
Delaware corporation (the "Company"), hereby promises to pay to ________________
(the "Lender"), or his registered assigns, the principal sum of THREE HUNDRED
FIFTY THOUSAND DOLLARS ($350,000.00) (the "Investment Amount"), as hereinafter
provided, together with interest (computed on the basis of a three hundred
sixty-five (365) day year) on the unpaid principal balance of this Debenture
from the date the principal amount is received by the Company from Lender until
such amount is paid, at the rate of twelve and one-half percent (12.5%) per
annum.
1. PAYMENT.
(a) Payments of the principal of and interest on this
Debenture shall be made in lawful money of the United States of America at the
current address of the registered Holder (as such term is defined hereinafter)
of this Debenture as recorded in the Company's books. The initial address of
Lender for such purposes is ______________________________________, and changes
in said address shall be reflected on the Company's books upon written notice
from the registered Holder of this Debenture.
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(b) Subject to the provisions of paragraph 7 hereof, interest
accruing on the outstanding principal balance of this Debenture during each
calendar quarter shall be paid on the first business day of the next calendar
quarter, commencing on July 1, 2003 and continuing on the first business day on
or after each January 1, April 1, July 1 and October 1 thereafter until the
Maturity Date (as such term is defined hereinafter). There shall be a 30 day
grace period for payments to be made hereunder (but interest shall be computed
to the actual date of payment).
(c) Subject to the provisions of paragraph 7 hereof, the
principal balance of this Debenture, if any, outstanding on August 30, 2004 (the
"Maturity Date"), plus all accrued and unpaid interest thereon, shall be paid in
full on the Maturity Date.
(d) The outstanding principal balance of this Debenture,
together with all accrued but unpaid interest thereon, may be prepaid in whole
or in part, at the Company's option at any time prior to the Maturity Date,
without penalty or premium, so long as the Company complies with the
subordination provisions hereof and provides written notice of prepayment to the
registered Holder of this Debenture at least thirty (30) days prior to the date
fixed for prepayment (the "Prepayment Date").
2. REGISTRATION AND TRANSFER.
(a) The Company shall maintain at its principal executive
offices a register for this Debenture, in which the Company shall record the
name and address of the person in whose name this Debenture has been issued and
the name and address of each transferee and prior owner thereof. The Company may
deem and treat the person in whose name this Debenture is so registered as the
Holder and owner thereof for all purposes and all notices hereunder to the
registered Holder may be sent to the address indicated on such register.
(b) This Debenture may be transferred only by the surrendering
thereof for registration of transfer duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder. The Company may
condition its registration of such transfer upon (a) the Company's receipt of an
opinion of counsel reasonably acceptable to the Company that the transfer of the
Debenture does not violate the Act or any state securities or blue sky laws, and
(b) the payment to it of a sum sufficient to cover any stamp tax or other
governmental charge imposed in respect of such transfer.
(c) Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of this Debenture, and (in the case
of loss, theft or destruction) of indemnification satisfactory to the Company,
and upon surrender and cancellation of this Debenture, if mutilated, the Company
shall execute and deliver a new Debenture of like tenor and date.
3. COMMON STOCK PURCHASE RIGHTS.
(a) As additional consideration for the credit to be extended
by the Lender to the Company pursuant to the terms and provisions of this
Debenture, the registered Holder of this Debenture may at any time and from time
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to time prior to the Expiration Date (as such term is defined hereinafter)
purchase, through the conversion of the then outstanding principal balance of
this Debenture, that number of shares of the Company's Common Stock, $0.10 par
value per share (the "Common Stock"), equal to the result obtained when the
outstanding principal balance of the Debenture which is being converted is
divided by the Conversion Price (as defined herein). Such purchase right shall
automatically terminate at 5:00 P.M., local time in Philadelphia, Pennsylvania,
on the earlier to occur (the "Expiration Date") of (i) the Maturity Date, or
(ii) the Prepayment Date on which the outstanding principal balance of this
Debenture is paid in full. The initial Conversion Price shall be equal to $0.21
per share, which is acknowledged by the Company and the Lender to be the average
of the closing price of the Common Stock, as reported at 4:00 p.m. E.S.T. on the
OTC Electronic Bulletin Board, for the five (5) trading days immediately
preceding the date on which the Investment Amount was paid in full to the
Company. The purchase price for any shares of the Common Stock elected to be
purchased by the registered Holder of this Debenture pursuant to the terms and
provisions of this subparagraph 3(a) will be satisfied by applying the then
outstanding principal balance of this Debenture towards the purchase price.
(b) The Common Stock purchase rights evidenced by this
Debenture shall be exercised, from time to time prior to the Expiration Date, by
the registered Holder hereof giving written notice of exercise to the Company's
Secretary, signed by the registered Holder and stating the number of shares of
Common Stock to be purchased and the name or names in which the Conversion
Certificate (as hereinafter defined) is to be issued, accompanied by this
Debenture. Such notice shall be deemed to be given on the date on which it is
received by the Secretary of the Company (the "Effective Date"), and such notice
shall be irrevocable once given. All interest on the principal amount of this
Debenture being converted shall cease to accrue as of the Effective Date.
(c) Within fifteen (15) days after the delivery of the notice
specified in subparagraph 3(b) above, and the satisfaction of all other
conditions precedent set forth herein, the Company shall deliver to the
registered Holder of this Debenture a certificate (the "Conversion Certificate")
for the number of shares of Common Stock to which such Holder is entitled and,
in the case of a conversion of less than all of the then outstanding principal
balance of this Debenture, the Company shall cancel this Debenture upon the
surrender hereof and shall execute and deliver a new debenture, of like tenor,
for the principal balance remaining outstanding hereunder after the issuance of
the Conversion Certificate. The Company may condition delivery of any Conversion
Certificate upon the prior receipt from the registered Holder of this Debenture
of any undertakings that the Company may reasonably determine are required to
ensure that the Conversion Certificate is being issued in compliance with all
applicable Federal and state securities laws. The Conversion Certificate shall
be deemed to be effective, and the shares of Common Stock issued in accordance
therewith, on the Effective Date.
(d) Neither the registered Holder of this Debenture nor his
designees shall have any rights as a shareholder of the Company until a
conversion of this Debenture and the issuance of a Conversion Certificate
representing shares of the Common Stock, as provided for herein.
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(e) Any Conversion Certificate issued pursuant to this
Debenture, unless all of the shares of the Common Stock represented by such
Conversion Certificate have been registered under the Act and all applicable
state securities laws pursuant to the provisions of paragraph 4 below, shall
contain the following legend:
THESE SHARES HAVE NOT BEEN REGISTERED PURSUANT TO THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES
LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS RELATING TO THESE SHARES OR RECEIPT BY THE COMPANY OF AN
OPINION OF COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED.
(f) The Company hereby agrees that at all times there shall be
reserved for issuance and delivery upon exercise of the Common Stock purchase
rights provided for herein all shares of its Common Stock or other shares of
capital stock of the Company from time to time issuable upon a conversion of
this Debenture. All such shares shall be duly authorized and, when issued upon
the exercise of the Common Stock purchase rights/conversion rights provided for
herein in accordance with the terms hereof, shall be validly issued, fully paid
and nonassessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale (other than any restrictions on sale
pursuant to applicable federal and state securities laws) and free and clear of
all preemptive rights.
(g) The Company will not issue a fractional share of Common
Stock upon a conversion of this Debenture or the exercise of the Common Stock
purchase rights provided for herein. Instead, the Company will deliver its check
to the Holder for the current market value of the fractional share. The current
market value of a fraction of a share is determined as follows: multiply the
Market Price (as defined below) of a full share by the fraction of a share and
round the result to the nearest cent.
4. REGISTRATION RIGHTS AND RELATED PROVISIONS.
(a) Certain Definitions. As used in this paragraph 4 and
elsewhere in this Agreement, the following terms shall have the following
respective meanings:
"Commission" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect at the
time.
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"Holder" shall mean, individually or collectively as the
context requires, any and all record owners of any then outstanding share of
Restricted Stock.
"Initial Public Offering" means the first Qualified Public
Offering of the Common Stock of the Company for the account of the Company and
offered on a "firm commitment" or basis pursuant to an offering registered under
the Securities Act with the Commission on Form S-1, Form SB-2, or their then
equivalents, occurring on or after the date hereof.
"Person" shall include any natural person, corporation, trust,
association, company, partnership, joint venture and other entity and any
government, governmental agency, instrumentality or political subdivision.
"Qualified Public Offering" means a fully underwritten public
offering of the Common Stock of the Company pursuant to an effective
registration under the Securities Act in which the aggregate gross proceeds
received by the Company exceed $5,000,000.00.
"Restricted Stock" shall mean all of the shares of Common
Stock issued or issuable pursuant to this Debenture other than shares which have
been (a) registered under the Securities Act pursuant to an effective
registration statement filed thereunder and disposed of in accordance with the
registration statement covering them, (b) sold pursuant to Section 4(1) of the
Securities Act, (c) sold pursuant to Rule 144 under the Securities Act, or (d)
eligible for sale pursuant to Rule 144 under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect at the
time.
(b) Piggy-Back Registration. If, at any time after the Company
has completed an Initial Public Offering, the Company proposes to register any
of the shares of its Common Stock under the Securities Act for sale to the
public, whether for its own account or for the account of other security holders
or both (except with respect to registration statements on Forms S-4, Form S-8
or another form not available for registering the Restricted Stock for sale to
the public), each such time it will give prompt written notice to each Holder of
its intention to do so. Upon the written request of a Holder, received by the
Company within 20 days after the receipt by such Holder of any such notice from
the Company, the Company will use its best efforts to cause the Restricted Stock
then owned by any Holder as to which registration shall have been so requested
to be included in the shares of its Common Stock to be covered by the
registration statement proposed to be filed by the Company, all to the extent
necessary to permit the sale or other disposition by the Holder(s) of such
Restricted Stock so registered. Notwithstanding the foregoing provisions, the
Company may withdraw any registration statement referred to in this paragraph
4(b) and, in connection with any offering involving an underwriting of Common
Stock to be issued by the Company or to be sold by any other holder of the
Company's Common Stock, if the managing underwriter for such offering shall
impose a limitation on the number of shares of the Restricted Stock which may be
included in the registration statement, because, in its judgment, such
limitation is necessary to effect an orderly public distribution, then the
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Company shall be obligated to include in such registration statement only that
number of shares of the Restricted Stock as the managing underwriter believes
will not jeopardize the success of the offering, in each case without thereby
incurring any liability to any Holder of the Restricted Stock. The Company shall
advise all Holders of the Restricted Stock requested to be included in any
registration pursuant to this paragraph 4(b) of a withdrawal of the registration
statement or the imposition of any such restrictions by the managing
underwriter, and the number of shares that may be included in the registration
and underwriting shall be allocated first to all securities proposed by the
Company to be sold for its own account, and second among such Holders and the
holders of all of other securities of the Company requested to be included in
such registration pro-rata among such Holders and such other holders in
proportion to the respective number of shares held by such Holders and such
other holders at the time of the filing of the registration statement.
(c) Registration Procedures. If and whenever the Company is
required by the provisions of paragraph 4(b) to use its best efforts to effect
the registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(i) use its best efforts to keep such registration
statement effective for up to ninety (90) days;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for the period specified in paragraph 4(c)(i) above;
(iii) furnish to each seller of Restricted Stock and
to each underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
(iv) use its best efforts to register or qualify the
Restricted Stock covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as the sellers of the Restricted Stock or,
in the case of an underwritten public offering, the managing underwriter, shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(v) use its best efforts to list the Restricted Stock
covered by such registration statement with any securities exchange on which the
Common Stock of the Company is then listed;
(vi) immediately notify each seller of Restricted
Stock and each underwriter under such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
6
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(vii) if the offering is underwritten and at the
request of any seller of Restricted Stock, use its best efforts to furnish on
the date that Restricted Stock is delivered to the underwriters for sale
pursuant to such registration: (i) an opinion of counsel representing the
Company for the purposes of such registration, addressed to the underwriters and
to such seller, stating that such registration statement has become effective
under the Securities Act and that (A) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the Securities Act, (B) the registration statement, the related prospectus
and each amendment or supplement thereof comply as to form in all material
respects with the requirements of the Securities Act (except that such counsel
need not express any opinion as to financial statements contained therein) and
(C) to such other effects as reasonably may be requested by counsel for the
underwriters or by such seller or its counsel and (ii) a letter dated such date
from the independent public accountants retained by the Company, addressed to
the underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
and
(viii) make available for inspection by each seller
of Restricted Stock, any underwriter participating in any distribution pursuant
to such registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
The period of distribution of Restricted Stock in a firm
commitment underwritten public offering shall be deemed to extend until each
underwriter has completed the distribution of all securities purchased by it,
and the period of distribution of Restricted Stock in any other registration
shall be deemed to extend until the earlier of the sale of all Restricted Stock
covered thereby and 90 days after the effective date thereof.
In connection with each registration of Restricted Stock
pursuant to paragraph 4(b) hereof in a Qualified Public Offering, the Company
and each seller agree to enter into a written agreement with the managing
underwriter in such form and containing such provisions as are customary in the
securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature.
7
(d) Expenses. All expenses incurred by the Company in
complying with this paragraph 4, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, costs of insurance and
fees and disbursements of one counsel for the sellers of Restricted Stock, but
excluding any Selling Expenses, are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Restricted Stock are called "Selling Expenses".
The Company will pay all Registration Expenses in connection
with each registration statement filed hereunder. All Selling Expenses incurred
in connection with each registration statement filed hereunder shall be borne by
the participating sellers in proportion to the number of shares sold by each, or
by such participating sellers as they may otherwise agree.
(e) Indemnification and Contribution. (i) In the event of a
registration of any of the Restricted Stock under the Securities Act pursuant to
this paragraph 4, the Company will indemnify and hold harmless each seller of
such Restricted Stock thereunder, and each other person, if any, who controls
such seller within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
this paragraph 4, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each such seller and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission (A) so made in conformity with information furnished by any
such seller or any such controlling person in writing specifically for use in
such registration statement or prospectus, or (B) contained in a preliminary
prospectus and subsequently corrected in a final or amended prospectus copies of
which were delivered to any such seller or any such controlling person on a
timely basis.
(ii) In the event of a registration of any of the
Restricted Stock under the Securities Act pursuant to this paragraph 4, each
seller of such Restricted Stock thereunder, severally and not jointly, will
indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of the Securities Act, each officer of the Company
who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise,
8
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Restricted Stock was registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability directly
arises out of or is directly based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such seller, as such, furnished in
writing to the Company by such seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
each seller hereunder shall be limited to, amount equal to greater of (i) the
proceeds received by such seller from the sale of the Restricted Stock sold in
such registration, or (ii) the proportion of any such loss, claim, damage,
liability or expense which is equal to the proportion that the public offering
price of the shares sold by such seller under such registration statement bears
to the total public offering price of all securities sold thereunder.
(iii) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
paragraph 4(e) and shall only relieve it from any liability which it may have to
such indemnified party under this paragraph if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this paragraph 4(e) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified party shall have the right to select a separate counsel
and to assume such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
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(iv) In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (A) any indemnified party exercising rights under this paragraph 4, or
any controlling person of any such indemnified party makes a claim for
indemnification pursuant to this paragraph but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this paragraph provides for indemnification in such case, or (B)
contribution under the Securities Act may be required on the part of any such
indemnified party or any such controlling person in circumstances for which
indemnification is provided under this paragraph; then, and in each such case,
the indemnified party and the indemnifying party will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that any Holder of
Restricted Stock is responsible for the portion represented by the percentage
that the public offering price of its Restricted Stock offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (x) no such Holder
will be required to contribute any amount in excess of the public offering price
of all such Restricted Stock offered by it pursuant to such registration
statement; and (y) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
(f) Changes in Common Stock. If, and as often as, there is any
change in the Common Stock by way of a stock split, stock dividend, combination
or reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the registration rights and privileges granted
pursuant to this paragraph 4 shall continue with respect to the Restricted Stock
as so changed.
(g) Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Stock to the public without registration,
at all times hereafter, the Company agrees to use its best efforts to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act;
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and
(iii) furnish to each Holder forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such Holder to sell any Restricted Stock without
registration.
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(h) Information to be Provided by ▇▇▇▇▇▇. The Holders of
Restricted Stock to be included in any registration effected hereunder shall
furnish to the Company such information regarding such Holders and the
distribution proposed by such Holders as the Company may reasonably request in
writing or as may otherwise be required by applicable laws. The obligations of a
Holder under this paragraph 4(h) shall be a condition precedent to such ▇▇▇▇▇▇'s
participation in any registration effected pursuant to this Agreement.
(i) Transfer of Registration Rights. The rights to cause the
Company to register securities granted the Holders under this paragraph 4 may be
assigned to a transferee or assignee of the underlying Restricted Stock,
provided that the Company is given written notice at the time of, or within a
reasonable time after, said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned and provided further that the transferee
or assignee of such rights expressly assumes the obligations herein provided.
(j) "Market Stand-off" Agreement. (i) Any Holder, if requested
by the Company and an underwriter of Common Stock (or other securities) of the
Company, shall, upon written notice from the Company, not sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such party, and not being sold in a registration described in this
paragraph 4, for a period of up to one hundred eighty (180) days following the
effective date of a registration statement of the Company filed under the
Securities Act; provided that all control persons, officers and directors of the
Company enter into restrictions that are at least as onerous. The Company may
impose stop-transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of said period.
(ii) In addition, each Holder of Restricted Stock
agrees by acquisition of such Restricted Stock not to sell, make any short sale
of, loan, grant any option for the purchase of, effect any public sale or
distribution of or otherwise dispose of any equity securities of the Company,
during the ten days prior to and the 90 days (or such longer period as required
by the underwriter) after the effective date of any underwritten registration
pursuant to this paragraph 4 has become effective, except as part of such
underwritten registration, whether or not such Holder participates in such
registration, and except as otherwise permitted by the managing underwriter of
such underwriting (if any). Each Holder of Restricted Stock agrees that the
Company may instruct its transfer agent to place stop transfer notations in its
records to enforce this paragraph 4(j).
(iii) The Company agrees not to sell, make any short
sale of, loan, grant any option for the purchase of, effect any public sale or
distribution of or otherwise dispose of its equity securities or securities
convertible into or exchangeable or exercisable for any of such securities
during the ten days prior to and the 90 days after the effective date of any
registration pursuant to this paragraph 4 has become effective, except (A) as
part of such registration, (B) pursuant to registrations on Form S-4 or S-8 or
any successor or similar forms thereto or (C) as otherwise permitted by the
managing underwriter of such offering (if any).
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(iv) No Person may participate in any underwritten
offering hereunder unless such Person (A) agrees to sell such Person's
securities on the basis provided in any underwriting arrangements approved,
subject to the terms and conditions hereof, by the Person or a majority of the
Persons entitled to approve such arrangements and (B) completes and executes all
agreements, questionnaires, indemnities and other documents (other than powers
of attorney) required under the terms of such underwriting arrangements.
5. ADJUSTMENT FOR CAPITAL CHANGES; MERGER OR CONSOLIDATION;
NON-DILUTION PROVISIONS.
(a) In the event of a stock dividend, stock split,
recapitalization, combination, subdivision or other similar corporate change
with respect to the capital stock of the Company, the Board of Directors of the
Company shall make an appropriate and proportional adjustment in the aggregate
number of shares of Common Stock into which this Debenture is convertible and/or
the Conversion Price per share of Common Stock.
(b) If any merger or consolidation of the Company shall occur,
then, as a condition to such merger or consolidation, lawful and adequate
provision shall be made whereby the registered Holder of this Debenture shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified herein (including without limitation payment of the
applicable Conversion Price) and in lieu of the shares of Common Stock of the
Company immediately theretofore receivable upon conversion of this Debenture,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for such shares of Common Stock immediately
theretofore receivable by such Holder had such merger or consolidation not taken
place. The Company shall not effect any such consolidation or merger unless,
prior to or simultaneously with the consummation thereof, the successor (if
other than the Company) resulting from such consolidation or merger shall
assume, by written instrument executed and delivered to the Holder, the
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) The Conversion Price shall also be subject to automatic
adjustment from time to time as follows:
(i) If the Company shall at any time or from time to
time hereafter issue (an "Issuance") (A) any shares of the Common Stock at a
price per share which is lower than the Market Price (as such term is defined
hereinafter) of the Common Stock on the date of such Issuance, or (B) any
options, warrants or other securities of the Company convertible into or
exchangeable for shares of the Common Stock (the "Convertible Securities") and
the exercise price established in such security for a share of the Common Stock
is lower than the Market Price of the Common Stock on the date on which such
convertible security is issued, the Conversion Price shall forthwith be adjusted
to an amount determined by multiplying that Conversion Price and the result
obtained by dividing (A) an amount equal to the sum of (1) the total number of
shares of the Common Stock outstanding (on a fully diluted basis) immediately
prior to such Issuance, including without limitation the maximum number of
shares of the Common Stock issuable upon a conversion of this Debenture and upon
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the conversion, exchange or exercise of all then outstanding convertible
securities, multiplied by the Market Price (the "Current Value") plus (2) the
aggregate consideration received by the Company in connection with the Issuance
(which for any Convertible Security shall be deemed to be equal to the sum of
the price or other consideration paid by the purchaser to obtain the Convertible
Security and the aggregate consideration payable upon the exercise, exchange or
conversion of such Convertible Security for shares of the Common Stock); by (B)
an amount equal to the sum of (1) that Current Value and (y) the aggregate
consideration that would have been received by the Company if the securities
sold in connection with the Issuance had been sold by the Company for the Market
Price (which for any Convertible Security shall be deemed to be equal to the sum
of the price or other consideration paid by the purchaser to obtain the
Convertible Security and the Market Price multiplied by the number of shares of
Common Stock issuable upon any exercise, exchange or conversion of such
Convertible Security). The adjustment shall be made successively whenever any
such Issuance is made, and shall become effective immediately after such
Issuance.
(ii) For purposes of the above calculations, the
number of shares of Common Stock outstanding immediately prior to the Issuance
shall not include any additional Common Stock issuable solely as a result of the
adjustment of the Conversion Price resulting from the application of the
foregoing provisions. Notwithstanding the foregoing, an Issuance shall not
include, for purposes of any adjustment to the Conversion Price, the issuance of
any shares of Common Stock or other securities of the Company pursuant to any
options, warrants, convertible securities or other rights outstanding on the
date hereof or the granting of options (and the issuance of shares of the Common
Stock pursuant to such option) to employees, officers or directors or other key
individuals providing services to the Company, provided such options are
specifically approved in advance by a majority of the Board of Directors of the
Company (or by such greater percentage as may be required for the particular
action by the Company's by-laws) or are issued pursuant to the terms and
provisions of the Company's 1999 Stock Option Plan. Notwithstanding anything in
the foregoing to the contrary, no adjustment shall be made upon the conversion,
exchange or exercise of Convertible Securities into Common Stock.
(iii) For the purposes of any adjustment of the
Conversion Price as set forth above:
(A) In the case of the issuance of Common
Stock for cash, the consideration shall be
deemed to be the amount of cash paid
therefor.
(B) In the case of the issuance of Common
Stock for a consideration in whole or in
part other than cash, the consideration
other than cash shall be deemed to be the
fair market value thereof, as determined in
good faith by the Board of Directors.
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(d) No adjustment to the Conversion Price need be made
hereunder for a change in the par value of the Common Stock. Notwithstanding
anything to the contrary contained herein, no adjustment to the Conversion Price
shall be made if, as a result of such adjustment, the Conversion Price would be
less than the then current par value of the Common Stock
(e) As used herein, "Market Price" per share of Common Stock
shall mean the closing price of the Common Stock on the last trade date prior to
the date of determination, as reported at 4:00 p.m. E.S.T. by Nasdaq, or the
primary national securities exchange on which the Common Stock is then quoted;
provided, however, that if quotes for the Common Stock are not reported by
Nasdaq and the Common Stock is neither traded on the Nasdaq National Market, on
a national securities exchange, on the Nasdaq Small Cap Market nor on the OTC
Electronic Bulletin Board, the price referred to above shall be the price
reflected in the over-the-counter market as reported by the National Quotation
Bureau, Inc. or any organization performing a similar function, and provided,
further, that if the Common Stock is not then publicly traded, the Market Price
shall be determined by the Board of Directors of the Company.
(f) Upon any adjustment of the Conversion Price as provided in
this paragraph 5, the number of shares of Common Stock purchasable upon the
conversion of this Debenture, at the Conversion Price resulting from such
adjustment, shall be equal to the number of shares of Common Stock obtained by
multiplying the Conversion Price in effect immediately prior to such adjustment
and the number of shares of Common Stock issuable on the exercise of this
Debenture immediately prior to such adjustment, and then dividing the number so
obtained by the Conversion Price resulting from such adjustment.
(g) Upon any adjustment of the Conversion Price and/or the
number of shares of the Common Stock issuable pursuant to a conversion of this
Debenture, the Company shall give written notice to the registered Holder of
this Debenture, which notice shall state the Conversion Price and the number of
shares of the Common Stock issuable upon a conversion of this Debenture
resulting from such adjustment, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
6. EVENTS OF DEFAULT.
(a) If one or more of the following events of default shall
occur (an "Event of Default"):
(i) The Company shall default in the payment of
any principal of or interest on this
Debenture, and such failure shall continue
uncured for thirty (30) days after written
notice thereof is provided by Lender to the
Company (unless such payment default arises
solely as a result of the Company's
compliance with the subordination provisions
set forth herein); or
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(ii) The Company shall materially default in the
performance of any other term or provision
herein and such default shall not be cured
within a reasonable time after written
notice, not to exceed sixty (60) days
(unless such default arises solely as a
result of the Company's compliance with the
subordination provisions set forth herein),
or if any representation or warranty of
Company herein shall prove to be materially
false or misleading when made; or
(iii) The Company shall be declared, by a court of
competent jurisdiction, a bankrupt or
insolvent;
then during the continuance of any such Event of Default (subject to paragraph 7
below), the registered Holder of this Debenture may declare by written notice
all the then unpaid principal amount of this Debenture to be due and payable,
upon which the same shall forthwith become due and payable, together with the
interest accrued thereon, without presentation, demand, protest or notice of
dishonor, all of which the Company hereby waives.
(b) Should the indebtedness represented by this Debenture or
any part thereof be collected in any proceeding or placed in the hands of
attorneys for collection, the Company agrees to pay, in addition to the
principal and interest due and payable hereon, all costs of collecting this
Debenture, including reasonable attorneys' fees and expenses.
7. SENIOR INDEBTEDNESS
(a) The term "Senior Indebtedness", as utilized herein, means
the principal of, premium, if any, and interest on all indebtedness of the
Company and any of its direct or indirect subsidiaries (collectively, the
"Borrowers"), as well as all fees and expenses at any time accruing with respect
to such indebtedness, whether outstanding on the date on which this Debenture is
issued or thereafter created, incurred or assumed, in respect of borrowed money
from any bank, savings and loan, insurance company, finance company, or other
financial institution, and their successors and assigns (collectively, the
"Bank"), including, without limitation, any and all post-petition interest and
costs from and after the date of filing of a petition by or against any Borrower
under federal bankruptcy law, whether or not allowed as a claim in such
proceeding or enforceable or recoverable against such Borrower or its bankruptcy
estate).
(b) This Debenture and the obligations of the Company
hereunder are subordinated and postponed to the indefeasible payment and
satisfaction in full of the Senior Indebtedness in accordance with and subject
to the terms hereof. So long as no event of default (or event which, with the
passage of time or giving of notice or both, will become an event of default)
has occurred with respect to any Senior Indebtedness and is then outstanding,
the Company (but no other Borrower) shall be permitted to make interest payments
when due to the registered Holder of this Debenture (such Holder is hereinafter
referred to in this paragraph 7 as the "Holder"). If the Company fails to make
any interest payment when due to the Holder, then the Holder shall have the
right to commence collection proceedings against the Company in respect of such
interest payment, provided that (i) notwithstanding anything to the contrary
contained in this Debenture, the Holder shall not be entitled to accelerate the
unpaid principal amount of this Debenture, and (ii) all proceeds of any such
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collection proceeding (net of the Holder's expenses incurred in connection with
such proceeding) shall be held and paid over by the Holder to the Bank in
accordance with paragraph 7(d) below. Except as expressly provided to the
contrary in any loan documents evidencing the Senior Indebtedness with respect
to principal payments in the aggregate amount of up to $50,000.00 permitted to
be made hereunder upon the occurrence of certain events, all Senior Indebtedness
(including principal, interest, fees, expenses, premiums and penalties) must be
paid in full before any principal payments may be made by the Company to the
Holder.
(c) Notwithstanding any contrary provision contained herein,
in the event of (i) any liquidation, dissolution or other winding-up of the
Company, or of any receivership, insolvency, liquidation, readjustment,
reorganization or other similar proceeding relative to the Company or its
property, or (ii) any other event of default occurring and continuing with
respect to any Senior Indebtedness, all Senior Indebtedness (including
principal, interest, fees, expenses, premium and penalty) shall be paid in full
before any payment (whether principal, interest or otherwise) shall be made with
respect to the Debenture.
(d) Should the Holder directly or indirectly receive any
payment or distribution not permitted by the provisions of this Debenture or any
collateral or proceeds thereof, prior to the full and indefeasible payment and
satisfaction of the Senior Indebtedness and the termination of all financing
arrangements between the Bank and the Borrowers, the Holder will deliver the
same to the Bank in the form received (except for the endorsement or assignment
of the Holder where necessary), for application to the Senior Indebtedness in
such order and manner as the Bank may elect. Until so delivered, the Holder
shall hold the same, in trust, for the Bank as property of the Bank, and shall
not commingle such property of the Bank with any other property held by the
Holder. In the event the Holder fails to make any such endorsement or
assignment, the Bank, or any of its officers or employees on behalf of the Bank,
is hereby irrevocably authorized in its own name or in the name of the Holder to
make such endorsement or assignment and is hereby irrevocably appointed as the
Holder's attorney-in-fact for those purposes.
(e) The Holder hereby consents that, at any time and from time
to time, without further consent of or notice to the Holder and without in any
manner affecting, impairing, lessening or releasing any of the provisions of
this Debenture, the Bank may, in its sole discretion: (i) renew, compromise,
extend, expand, postpone, waive, accelerate, terminate, change the payment terms
of, or otherwise modify any Senior Indebtedness or amend, restate, renew,
replace or terminate any and all other agreements now or hereafter related to
any Senior Indebtedness; (ii) extend credit to any Borrower in whatever amount
on a secured or unsecured basis or take other support for any Senior
Indebtedness and exchange, enforce, waive, sell, transfer, collect, adjust or
release any such security or other support or any part thereof; (iii) apply any
and all payments or proceeds of such security or other support in any order or
manner as the Bank, in its discretion, may determine; and (iv) release or
substitute any party liable on any Senior Indebtedness, any guarantor of any
Senior Indebtedness, or any other party providing support for any Senior
Indebtedness.
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(f) This Debenture will not be affected, impaired or released
by any delay or failure of the Bank to exercise any of its rights and remedies
against the Borrowers or any guarantor or under any Senior Indebtedness or
against any collateral, by any failure of the Bank to take steps to perfect or
maintain its lien on, or to preserve any rights to, any collateral by any
irregularity, unenforceability or invalidity of any Senior Indebtedness or any
part thereof or any security or guarantee therefor, or by any other event or
circumstance which otherwise might constitute a defense available to, or a
discharge of, the Borrowers or a subordinated creditor. The Holder hereby waives
demand, presentment for performance, protest, notice of dishonor and of protest
with respect to any Senior Indebtedness and the collateral, notice of acceptance
of this paragraph 7 by the Bank, notice of the making of any Senior Indebtedness
and notice of default under any Senior Indebtedness.
(g) Nothing in this Debenture will obligate the Bank to grant
credit to, or continue financing arrangements with, the Borrowers.
(h) No Borrower shall grant and the Holder shall not take any
lien on or security interest in any Borrower's property, now owned or hereafter
acquired or created, without the prior written consent of the Bank.
(i) The Bank may, in its discretion, file a proof of claim for
or collect the Holder's claim first for the benefit of the Bank to the extent of
the unpaid Senior Indebtedness and then for the benefit of the Holder (but
without creating any duty or liability to the Holder other than to remit to the
Holder distributions, if any, actually received in such proceedings after the
Senior Indebtedness has been paid and satisfied in full) directly from the
receiver, trustee, custodian, liquidator or representative of any Borrower's
estate in such proceeding. The Borrowers and the Holder shall furnish all
assignments, powers or other documents requested by the Bank to facilitate such
direct collection by the Bank.
(j) Neither the Holder nor any Borrower may modify,
supplement, amend, renew, extend or replace any of the terms of this Debenture
without the prior written consent of the Bank, or enter into any new agreement,
instrument or document in respect of the indebtedness evidenced by this
Debenture after the date hereof, provided that if any such agreement, instrument
or document (including, without limitation, this Debenture) is so modified,
supplemented, amended, renewed, extended, replaced or entered into, such
agreement, instrument or document shall be subject to the terms hereof.
(k) This is a continuing agreement and will remain in full
force and effect until all of the Senior Indebtedness has been indefeasibly paid
and satisfied and until all the agreement, instruments and documents evidencing
any of the Senior Indebtedness have been terminated. This Debenture will
continue to be effective or will be reinstated, as the case may be, if at any
time payment of all or any part of the Senior Indebtedness is rescinded or must
otherwise be returned by the Bank upon insolvency, bankruptcy, or reorganization
of any Borrower or otherwise, all as though such payment had not been made.
(l) No delay or omission on the part of the Bank to exercise
any right or power arising hereunder will impair any such right or power or be
considered a waiver of any such right or power or any acquiescence therein, nor
17
will the action or inaction of the Bank impair any right or power arising
hereunder. The Bank's rights and remedies hereunder are cumulative and not
exclusive of any other rights or remedies which the Bank may have under other
agreements, at law or in equity. Nothing in this Debenture is intended to
modify, alter, reduce or impair any rights which the Bank may have against any
Borrower under any other agreement, instrument or document.
8. MISCELLANEOUS.
(a) If the date of any payment required by this Debenture be
Saturday, Sunday or a bank holiday, such payment shall be payable on the first
business day following such date.
(b) The Company hereby expressly waives presentment, demand,
protest or any other notice whatsoever.
(c) This Debenture and the terms and provisions hereof shall
be governed by and interpreted in accordance with the laws of the Commonwealth
of Pennsylvania, without regard to its conflict of laws rules.
(d) This Debenture shall be binding upon and shall inure to
the benefit of the parties hereto, their successors, heirs and assigns.
9. COMPANY REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Lender as follows:
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and is
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification (except where the failure to be so
qualified would not have a material adverse effect on the business, assets or
financial condition of the Company). The Company has the corporate power and
authority to own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted, and to execute, deliver and perform
the terms of this Debenture.
(b) The execution and delivery by the Company of this
Debenture and the performance by the Company of its obligations hereunder,
including the issuance of the Common Stock pursuant to the conversion rights set
forth herein, (i) have been duly authorized by all requisite corporate action,
(ii) have been consented to by any third party whose consent is required, and
(iii) will not violate any provision of law, any order of any court or other
agency of government, the Certificate of Incorporation of the Company, as
amended, or the Bylaws of the Company, as amended, or any provision of any
material indenture, agreement or other instrument to which the Company or any of
its respective properties or assets is bound, or conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company.
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(c) Neither the issuance, sale nor delivery of this Debenture
nor the shares of Common Stock into which it may be partially or wholly
converted, are subject to any preemptive right of stockholders of the Company or
to any right of first refusal or other right in favor of any person.
(d) All designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of the Common Stock of
the Company are as set forth in the Certificate of Incorporation of the Company
and the corporation laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Debenture to be
executed, sealed and delivered on the date first above written.
AM COMMUNICATIONS, INC.
By:_______________________________
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