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Exhibit 1
THIS DEBENTURE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS DEBENTURE
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED OR PLEDGED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR SUCH APPLICABLE
STATE SECURITIES LAWS, OR IF THE PROPOSED TRANSFER MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OR REGISTRATION OR QUALIFICATION UNDER
APPLICABLE STATE SECURITIES LAWS. THIS DEBENTURE IS SUBJECT TO THE TERMS AND
PROVISIONS OF THE SECURITIES PURCHASE AGREEMENT (THE "PURCHASE AGREEMENT") AMONG
EXCHANGE APPLICATIONS, INC., EXSTATIC SOFTWARE, INC. AND THE PURCHASERS THEREIN,
DATED AS OF AUGUST 29, 2001, AS AMENDED FROM TIME TO TIME, AND THE HOLDERS OF
THIS DEBENTURE ARE ENTITLED TO THE BENEFITS THEREOF.
EXCHANGE APPLICATIONS, INC.
12% SENIOR SECURED SUBORDINATED
CONVERTIBLE DEBENTURE
New York, New York
U.S. $8,000,000 August 29, 2001
SECTION 1. GENERAL; INTEREST; ADJUSTMENTS.
(a) General. For value received, EXCHANGE APPLICATIONS, INC.,
a Delaware corporation (the "Company") and EXSTATIC SOFTWARE, INC. (f/k/a Xxxx
Xxxxxxx, Inc.), a Washington corporation ("eXstatic") (the Company and eXstatic,
including any successors of the Company or eXstatic (by way of merger,
consolidation, sale or otherwise) together, the "Payors"), hereby promise to pay
to the order of THK Private Equities or such payee's assigns (the "Payee"),
$8,000,000 or such lesser principal amount, plus any accrued and unpaid interest
thereon, which may be outstanding hereunder on the earlier to occur of: (i)
January 10, 2005 (the "Maturity Date") and (ii) the date of the occurrence of
any event prior to the Maturity Date, as expressly set forth in Section 2 and
Section 3 hereof. The unpaid principal amount of this Debenture and the accrued
and unpaid interest thereon, shall be payable by wire transfer of immediately
available funds to the account of each Payee or by certified or official bank
check payable to each Payee mailed to each Payee at the address of each Payee as
set forth on the records of the Payors or such other address as shall be
designated in writing by each Payee to the Payors. Capitalized terms used and
not otherwise defined herein have the meanings ascribed thereto in the Purchase
Agreement. Anything to the contrary notwithstanding, in no event shall the Payee
be entitled to convert (in the aggregate) Conversion Amounts (as defined below)
(together with "Conversion Amounts" in respect of PIK Debentures that may be
issued
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from time to time under this Debenture) in excess of 75% of the original
principal amount of this Debenture until such time as the Company shall have
increased the authorized number of shares of Common Stock to at least
225,000,000 (or the Company otherwise has sufficient authorized and unissued
shares to enable the Company to issue Common Stock upon the conversion or
exercise, as the case may be, of all of the Transaction Securities outstanding
at such time).
(b) Interest. The Payors promise to pay interest on the
outstanding principal amount of this Debenture at the rate of (i) 12% per annum
for the period commencing on the date hereof ending on August 28, 2003 and (ii)
15% per annum for the period commencing on August 29, 2003 and ending on the
Maturity Date or such earlier date that all obligations under this Debenture
have been paid in full (the "Initial Rate of Interest") ; provided, however,
that upon the occurrence of an Event of Default, the Payors promise to pay
interest on the outstanding principal amount of this Debenture at the rate of
the Initial Rate of Interest plus 2% from the date that such Event of Default
has occurred and is continuing until the date such Event of Default is cured,
waived in writing by the Payees or otherwise satisfied by the Payors in full;
provided, further, that the Initial Rate of Interest shall be increased to 20%
or to the maximum rate allowed under applicable law if raising the Interest
Amount (as defined below) to 20% would violate any law (which increase shall be
retroactive to the date hereof) if either: (i) the Company's stockholders fail
to approve an amendment to the Company's Certificate of Incorporation increasing
the authorized number of shares of Common Stock to at least 225,000,000 (as the
same may be adjusted for any stock split, reverse split, combination,
recapitalization or similar event after the date hereof) (or the Company
otherwise has sufficient authorized and unissued shares to enable the Company to
issue Common Stock upon the conversion or exercise, as the case may be, of all
of the Transaction Securities outstanding at such time) on or before December
15, 2001, or (ii) the Company has failed to comply with all requirements
specified in the NASDAQ letter on or before September 10, 2001. Anything to the
contrary notwithstanding, if the Initial Rate of Interest is increased to 20% in
accordance with the last proviso of the preceding sentence and the failure
giving rise to such increase is subsequently cured, the Initial Rate of Interest
shall automatically be reduced as of the date of such cure to the rate that
would otherwise have been in effect had such failure not occurred. The Payors
shall pay interest quarterly in arrears on each of March 31, June 30, September
30 and December 31 of each year or, if any such date shall not be a Business
Day, on the next succeeding Business Day to occur after such date (each date
upon which interest shall be so payable, an "Interest Payment Date"). Interest
shall be payable, at the option of the Payors, in (i) cash by wire transfer of
immediately available funds equal to such Interest Amount, (ii) the principal
amount of additional Debentures equal to the aggregate Interest Amount due to
the Payees on such Interest Payment Date ("PIK Debentures") or (iii) a
combination of cash and PIK Debentures. The Payors shall signify their election
to make payment of an Interest Amount in the form of cash or PIK Debentures, or
a combination of cash and PIK Debentures, by notifying each Payee of such
election at least 20 days prior to each Interest Payment Date; provided,
however, that if the cash payment of the Interest Amount is prohibited by the
Subordination Agreement, payment shall be automatically made in PIK Debentures.
Interest on this Debenture shall accrue daily, and compound quarterly, from the
date of issuance until the date of repayment in full of the principal amount of
this Debenture, plus any accrued and unpaid interest thereon. Interest shall be
computed on the basis of a 365-day year and the actual number of days elapsed.
Subject to applicable law, any interest that shall accrue on overdue interest on
this Debenture as provided in this Section 1(b) and shall not have been paid in
full on or before the next Interest Payment Date to occur after the Interest
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Payment Date on which the overdue interest became due and payable shall itself
be deemed to be overdue interest on this Debenture.
(c) Adjustments. The Payors irrevocably authorize the Payees
to make, or cause to be made, an appropriate notation on the grid attached as
Schedule 1 hereto, or the continuation of such grid or any other similar record,
including computer records, to reflect any changes to the allocations among the
Payees and any adjustments thereto, as appropriate. The Payees shall provide to
the Payors an update of Schedule 1 to reflect any such allocations or
adjustments. The outstanding amount of this Debenture set forth on such grid, or
the continuation of such grid, or any other similar record, including computer
records maintained by the Payees with respect to this Debenture, shall be prima
facie evidence of the principal amount, and the accrued interest thereon, owing
and unpaid by the Payors to the Payees, but the failure to record, or any error
in so recording any such amount on any such grid, or any continuation thereof,
or other record shall not limit or otherwise affect the obligation of the Payors
hereunder to make payments of principal and interest on this Debenture when due.
Each Payor can rely on the latest copy of Schedule 1 delivered to each Payor by
the Payees.
(d) The Company will not enter into any binding agreement to
consummate a Sale Event if the fair market value of the consideration per share
of Common Stock (assuming the conversion of (i) all of the Aggregate Convertible
Debentures; and (ii) all other securities convertible into Common Stock and with
an exercise price or conversion price less than the fair market value of such
consideration) to be paid in connection with such Liquidity Event is less than
the Conversion Price (as defined below) in effect at such time (assuming the
conversion of all principal and accrued and unpaid interest on all of the
outstanding Aggregate Convertible Debentures) unless the Company has made
arrangements to provide each holder of the Aggregate Convertible Debentures,
pursuant to the definitive documents for such Sale Event, the right to elect and
to receive upon consummation of and out of the consideration to be paid in
connection with such Sale Event, consideration having a fair market value (as
determined below) determined as of the date of the execution and delivery of the
definitive documents for such Sale Event equal to the Conversion Amount (as
defined below) for such holder's Debentures as of such date of execution and
delivery. As used herein "Sale Event" shall mean (i) the issuance, sale or
transfer of the outstanding shares of capital stock or other voting securities
of the Company, or (ii) the merger or consolidation of the Company with another
person or entity, in each case in clauses (i) or (ii) above under circumstances
in which the holders of the voting power of the outstanding shares of capital
stock and other voting securities of the Company, immediately prior to such
transaction, own less than 15% in voting power of the outstanding shares of
capital stock and other voting securities of the Company or the surviving or
resulting corporation or acquirer, as the case may be, immediately following
such transaction.
(i) In any of such events, if the consideration received by
the Company is other than cash, its value will be deemed its fair market value.
The fair market value of any securities shall be determined as follows:
(A) Securities not subject to any other restrictions
on free marketability covered by (B) below:
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(1) If traded on a securities exchange or through
the Nasdaq National market, the fair market value shall be
deemed to be the average of the closing prices of the
securities on such exchange or system over the thirty (30) day
trading period ending three (3) days prior to the
determination date;
(2) If actively traded over-the-counter, the fair
market value shall be deemed to be the average of the closing
bid or sale prices (whichever is applicable) over the thirty
(30) trading days period ending three (3) days prior to the
determination date; and
(3) If there is not active public market, the fair
market value shall be the fair market value thereof, as
mutually determined by the Company and the holders of at least
a majority of the outstanding Aggregate Convertible Debentures
acting in good faith (on a principal amount basis).
(B) The method of valuation of securities subject to any
restrictions on free marketability shall be to make an appropriate
discount from the market value to reflect the approximate fair market
value thereof, as mutually determined by the Company and the holders of
at least a majority of the outstanding Aggregate Convertible Debentures
acting in good faith (on a principal amount basis).
(e) Each Payor shall be jointly and severally liable to the
Payees for all of the monetary and other obligations of the Payors under this
Debenture.
SECTION 2. PREPAYMENT.
(a) Prepayment at the Option of the Payors. The principal
amount of this Debenture, together with the accrued and unpaid interest thereon,
may not be prepaid in whole or in part at the option of the Payors at any time.
(b) Prepayment at Option of the Payees. At any time following
the earliest of (i) the occurrence of each Event of Default (and only during the
continuation of each such Event of Default), (ii) immediately upon (or
immediately prior to) the consummation of a Liquidity Event or (iii) January 10,
2004, each Payee may elect, at any time and from time to time, to have each
Payor prepay in whole or in part the aggregate principal amount of this
Debenture, plus any accrued and unpaid interest thereon (the "Prepayment
Amount"), at a price equal to the sum of (x) the product of (1) the Prepayment
Amount (excluding any accrued and unpaid interest thereon) and (2) 103%, plus
(y) any accrued and unpaid interest thereon calculated on the date (a
"Prepayment Date") of such prepayment (the "Prepayment Price"). Each Payee shall
give written notice to the Payors of such election (the "Notice of Election"),
whereupon the Payors shall be obligated to prepay such Prepayment Amount on such
Prepayment Date, which date shall be determined by the Payors, but in any event
shall not be later than 10 days after the date on which the Notice of Election
is delivered to the Payors. All such prepayments shall be made by wire transfer
of immediately available funds to a bank account designated by each Payee.
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(c) General.
(i) The Payees shall not be entitled to any interest
accruing on the Prepayment Amount after the payment of such Prepayment
Amount by the Payors to the Payees on the Prepayment Date.
(ii) Anything contained in this Section 2 to the
contrary notwithstanding, the outstanding principal amount of this
Debenture, plus any accrued but unpaid interest thereon, shall remain
subject to optional prepayment provisions of this Section 2 and the
optional conversion provisions of Section 4 at all times up to the date
on which the full amount of the principal amount of this Debenture,
plus any accrued but unpaid interest thereon, is paid in full to the
Payees.
SECTION 3. EVENTS OF DEFAULT.
(a) Definition. In each case of the happening of the following
events (each of which is an "Event of Default" or, if the giving of notice or
the lapse of time or both is required, then, prior to such notice or lapse of
time, a "Default"):
(i) if a default occurs in the due observance or
performance of any covenant or agreement oft the Payor to be observed
or performed pursuant to the terms of the Financing Documents and such
default shall continue for more than fifteen (15) days after notice
thereof from any Payee;
(ii) if a default occurs in the payment of any
principal or interest under any of the Aggregate Convertible
Debentures, whether at the stated date of maturity or any accelerated
date of maturity or any other date fixed for payment;
(iii) if any representation or warranty of the Payor
or any of its Subsidiaries in any Financing Document or in any other
document or instrument delivered pursuant to the Purchase Agreement
shall prove to have been false in any material respects (with the
foregoing materiality standard not to be construed in any manner giving
duplicative effect to any materiality standard contained in the terms
of such representation and warranty) upon the date when made or deemed
to have been made;
(iv) if a default occurs in the due observance or
performance of any covenant or agreement on the part of any Payor to be
observed or performed pursuant to the terms of such Payor's or any
Subsidiary's Indebtedness in an aggregate principal amount in excess of
$500,000 (other than Indebtedness evidenced by the Loan and Security
Agreement, dated April 25, 2001 (the "SVB Facility") among the Payors
and Silicon Valley Bank ("SVB");
(v) if (i) a default occurs in the payment of any
principal or interest under any senior credit facility provided by a
commercial lender, (ii) any commercial lender accelerates the payment
of principal or interest under any Indebtedness of the Payors or any
subsidiary thereof, or (iii) any commercial lender commences an
enforcement action against any Payor or any Subsidiary thereof to
collect such Indebtedness or otherwise enforce its rights of any amount
due under any Indebtedness;
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(vi) if a default occurs in the due observance or
performance of any covenant or agreement, including but not limited to,
the failure of the Company or any Subsidiary to pay any stated amount
or any accrued and unpaid dividends on the Series A Preferred Stock
when the same shall become due or payable at anytime, or the breach of
any representation or warranty on the part of the Company or any
Subsidiary to be observed or performed pursuant to the terms of the
documentation entered into in connection with the issuance of the
Series A Preferred Stock by the Company to the Payees and such default
shall continue for more than fifteen (15) days after the notice thereof
from any Payee;
(vii) if any Payor shall (1) discontinue its
business, (2) apply for or consent to the appointment of a receiver,
trustee, custodian or liquidator of it or any of its property, (3)
admit in writing its inability to pay its debts as they mature, (4)
make a general assignment for the benefit of creditors, or (5) file a
voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors, or to take advantage
of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation Laws, or an answer admitting the material
allegations of a petition filed against it in any Proceeding under any
such Law;
(viii) there shall be filed against any Payor an
involuntary petition seeking reorganization of such Payor or the
appointment of a receiver, trustee, custodian or liquidator of such
Payor or a substantial part of its assets, or an involuntary petition
under any bankruptcy, reorganization or insolvency Law of any
jurisdiction, whether now or hereafter in effect and such petition or
appointment shall continue unstayed and in effect for a period of 30
consecutive days; and
(ix) if final judgment(s) for the payment of money
in excess of an aggregate amount of $500,000 not covered by insurance
shall be rendered against any Payor and shall remain undischarged for a
period of 30 consecutive days during which such judgment and any levy
or execution thereof shall not have been effectively stayed or vacated;
then, upon each and every such Event of Default and at any time thereafter
during the continuance of such Event of Default, at the election of a Designated
Investor Majority (as such term is defined in the Collateral Agency and
Intercreditor Agreement), any and all Indebtedness of the Payors to the Payees
under this Debenture shall immediately become due and payable, including as to
principal and interest (including any deferred interest and any accrued and
unpaid interest), without presentment, demand, or protest, all of which are
hereby expressly waived, anything contained herein or in the Purchase Agreement
or other evidence of such indebtedness to the contrary notwithstanding. Anything
to the contrary notwithstanding, no Event of Default shall occur unless the
Payors shall have received written notice to such effect from a Designated
Investor Majority (as defined in the Collateral Agency and Intercreditor
Agreement) with respect to the occurrence of any event set forth above in this
Section 3(a); provided, that this provision shall not apply to any event
described in Section 3(a)(vii) or (viii), the occurrence of which shall
automatically be a Default or Event of Default, as the case may be, and shall
result in all amounts hereunder becoming immediately due and payable, in each
without requiring any action by any
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Investor, group of Investors or the Collateral Agent. Events of Default may be
waived by consent of a Designated Investor Majority.
(b) Remedies on Default, Etc.
In case any one or more Events of Default shall occur and be continuing
and acceleration of this Debenture or any other Indebtedness of the Payors to
the Payees shall have occurred, each Payee may, among other things, proceed to
protect and enforce its rights by an action at law, suit in equity or other
appropriate Proceeding, whether for the specific performance of any agreement
contained herein or any of the other Financing Documents, or for an injunction
against a violation of any of the terms hereof or thereof or in and of the
exercise of any power granted hereby or thereby or by Law. No right conferred
upon each Payee hereby or by the Purchase Agreement shall be exclusive of any
other right referred to herein or therein or now or hereafter available at law,
in equity, by statute or otherwise. Notwithstanding anything to the contrary,
each Payee acknowledges and agrees that its rights, benefits and remedies and
the exercise thereof are subject to the terms and provisions of the Collateral
Agency and Intercreditor Agreement dated as of the date hereof among the Payee,
the other Purchasers, Insight and the other parties thereto and the
Subordination Letter Agreement dated as of the date hereof among SVB and the
Purchasers.
SECTION 4. CONVERSION OF THIS DEBENTURE.
(a) Conversion at the Option of the Payees. From and after the
10th day following the date of mailing of the notice to the Company's
stockholders pursuant to NASD Rule 4350(i)(2), subject to and in compliance with
the applicable provisions of this Section 4, each Payee shall have the right, at
such Payee's option, at any time and from time to time, to convert all or any
portion of this Debenture, plus any accrued and unpaid interest thereon up to
the conversion date (the "Conversion Amount"), into that number of fully paid
and nonassessable shares of Common Stock equal to the quotient obtained by
dividing (1) the sum of (x) the product of (A) the Conversion Amount (excluding
any accrued and unpaid interest thereon) and (B) 103% plus (y) any accrued and
unpaid interest thereon calculated on any conversion date, by (2) the Conversion
Price, as last adjusted and then in effect. The "Conversion Price" shall
initially equal $.3183. The Conversion Price shall be subject to adjustment from
time to time as set forth in paragraph (c) below. The Payors shall give the
Payees not less than 30 Business Days prior notice of a Sale of the Company,
including the price and material terms and conditions thereof, in order to
provide the Payees reasonable opportunity to consider whether to convert the New
Debentures into Common Stock at or prior to such Sale of the Company. If the
price or material terms or conditions of such transaction thereafter change, the
Payors shall promptly deliver written notice to the Payees specifying such
changes. Upon conversion, the Company will issue cash in lieu of fractional
shares of Common Stock.
(b) Conditional Exercise or Exchange. If the Payees so elect,
they may condition the conversion of this Debenture on a Sale of the Company or
other transaction being undertaken by the Company and such conversion shall not
be deemed to have occurred except concurrently with the Sale of the Company or
such other transaction, except that, for purposes of determining whether such
conversion is timely it shall be deemed to have occurred one day prior to a Sale
of the Company or such other transactions. If any exercise of this Debenture is
so conditioned,
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then, subject to delivery of the items required by Section 4(d), the Payees
shall deliver the certificates and other evidence of ownership of other
securities or other property in such manner as the Payors shall direct as
required in connection with the consummation of a Sale of the Company or such
other transactions upon which the conversion is conditioned. At any time that
the Payors shall give notice to the Payees that the proposed Sale of the Company
or other transaction has been abandoned or the Company has withdrawn from
participation in such transaction, the Payors shall return the items delivered
pursuant to Section 4(d), and the Payees election to convert this Debenture
shall be deemed rescinded.
(c) Adjustments.
(i) No adjustment in the Conversion Price shall be
made in respect of the issuance of additional Securities except as
expressly provided below:
(A) If the Company shall, at any time or from
time to time after the date hereof, issue any Securities
(other than Excluded Securities) (including any shares of
Common Stock deemed to have been issued pursuant to
subdivision (C) of clause (ii) below) without consideration
or for a consideration per share less than the Conversion
Price in effect immediately prior to each such issuance,
then such Conversion Price shall forthwith be lowered to the
price equal to the consideration per share received in such
issuance.
(ii) For the purposes of any adjustment of the
Conversion Price pursuant to clause (i) above, the following provisions
shall be applicable:
(A) In the case of the issuance of Common Stock
for cash in a public offering or private placement, the
consideration shall be deemed to be the amount of cash paid
therefor after deducting therefrom any discounts,
commissions or placement fees payable by the Company to any
underwriter or placement agent in connection with the
issuance and sale thereof.
(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, in the case of any
Securities that are traded on an established United States
securities exchange or reported through the NASDAQ, or
otherwise traded over the counter or traded on Portal (in
the case of Securities eligible for trading pursuant to Rule
144A under the Securities Act) ("Marketable Securities"), be
deemed to be the Market Price and in all other cases, the
value of such consideration shall be set by the Board acting
reasonably and in good faith.
(C) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, Securities
by their terms convertible into or exchangeable for Common
Stock, or options to purchase or rights to subscribe for
such convertible or exchangeable Securities:
(1) The aggregate maximum number of shares
of Common Stock deliverable upon exercise of such
options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at
the
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time such options or rights were issued and for a
consideration equal to the consideration (determined
in the manner provided in subdivisions (A) and (B)
above), if any, received by the Company upon the
issuance of such options or rights plus the minimum
purchase price provided in such options or rights
for the Common Stock covered thereby.
(2) The aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
Securities or upon the exercise of options to
purchase or rights to subscribe for such convertible
or exchangeable Securities and subsequent conversion
or exchange thereof shall be deemed to have been
issued at the time such Securities, options, or
rights were issued and for a consideration equal to
the consideration received by the Company for any
such Securities and related options or rights
(excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the Company
upon the conversion or exchange of such Securities
or the exercise of any related options or rights
(the consideration in each case to be determined in
the manner provided in subdivisions (A) and (B)
above).
(3) On any change in the number of shares or
exercise price of Common Stock deliverable upon the
exercise of any such options or rights or the
conversion or exchange of such convertible or
exchangeable Securities, the Conversion Price shall
forthwith be readjusted to such Conversion Price as
would have been obtained had the adjustment made
upon the issuance of such options, rights or
Securities not converted prior to such change or
options or rights related to such Securities not
converted prior to such change been made upon the
basis of such change.
(4) On the expiration of any such options or
rights, the termination of any such rights to
convert or exchange or the expiration of any options
or rights related to such convertible or
exchangeable Securities, the Conversion Price shall
forthwith be readjusted to such Conversion Price as
would have obtained had the adjustment made upon the
issuance of such options, rights, Securities or
options or rights related to such Securities been
made upon the basis of the issuance of only the
number of shares of Common Stock actually issued
upon the exercise of such options or rights, upon
the conversion or exchange of such convertible or
exchangeable Securities, or upon the exercise of the
options or rights related to such convertible or
exchangeable Securities and subsequent conversion or
exchange thereof.
(5) In any case in which shares of Common
Stock are deemed to have been issued pursuant to
subdivisions (1) or (2) above, no further
adjustments in the Conversion Price shall be made
upon the subsequent issuance of such Common Stock
upon exercise, conversion or exchange.
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(iii) If, at any time after the date hereof, the
number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or
split-up of shares of Common Stock, then, following the record date for
the determination of holders of Common Stock entitled to receive such
stock dividend, subdivision or split-up (or if no record date is set,
the date such stock dividend, subdivision of stock split is
consummated), the Conversion Price shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of
this Debenture shall be increased in proportion to such increase in
outstanding shares of Common Stock.
(iv) If, at any time after the date hereof, the
number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock, then, following
the record date for such combination, the Conversion Price shall be
appropriately increased so that the number of shares of Common Stock
issuable on conversion of this Debenture shall be decreased in
proportion to such decrease in outstanding shares of Common Stock.
(v) In the event of any capital reorganization of
the Company, any reclassification of the stock of the Company (other
than a change in par value or from no par value to par value or from
par value to no par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or any consolidation
or merger of the Company, this Debenture shall after such
reorganization, reclassification, consolidation or merger be
convertible into the kind and number of shares of stock or other
Securities or property of the Company or of the company resulting from
such consolidation or surviving such merger to which the holder of the
number of shares of Common Stock deliverable (immediately prior to the
time of such reorganization, reclassification, consolidation or merger)
upon conversion of this Debenture would have been entitled upon such
reorganization, reclassification, consolidation or merger. The
provisions of this clause shall similarly apply to successive
reorganizations, reclassifications, consolidations or mergers.
(vi) If any event occurs of the type similar to
those contemplated by the provisions of this Section 4(d) but not
expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Board shall make
an appropriate reduction in the Conversion Price so as to protect the
rights of the holders of the Debentures.
(vii) All calculations under this paragraph shall be
made to the nearest one hundredth (1/100) of a cent.
(viii) In any case in which the provisions of this
paragraph (c) shall require that an adjustment shall become effective
immediately after a record date of an event, the Company may defer
until the occurrence of such event (1) issuing to the holder of this
Debenture converted after such record date and before the occurrence of
such event the shares of capital stock issuable upon such conversion by
reason of the adjustment required by such event in addition to the
shares of capital stock issuable upon such
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conversion before giving effect to such adjustments, and (2) paying to
such holder any amount in cash in lieu of a fractional share of capital
stock pursuant to paragraph 4(a) or 4(b) above; provided, however, that
the Company shall deliver to such holder an appropriate instrument
evidencing such holder's right to receive such additional shares and
such cash upon the occurrence of such event. If after the determination
of such record date the event to which such record date relates does
not occur, then the Conversion Price shall be appropriately adjusted to
eliminate any adjustment previously made on account of such record
date.
(ix) Whenever the Conversion Price shall be adjusted
as provided in this paragraph (c), the Company shall make available for
inspection during regular business hours, at its principal executive
offices or at such other place as may be designated by the Company, a
statement, signed by its chief executive officer, showing in detail the
facts requiring such adjustment and the Conversion Price that shall be
in effect after such adjustment. The Company shall also cause a copy of
such statement to be sent by first class certified mail, return receipt
requested and postage prepaid, to each holder of this Debenture at such
holder's address appearing on the Company's records. Where appropriate,
such copy may be given in advance and may be included as part of any
notice required to be mailed under the provisions of paragraph (x)
below.
(x) If the Company shall propose to take any action
of the types described in clauses (ii), (iii), (iv) or (v) of this
paragraph (c), the Company shall give notice to each holder of this
Debenture, in the manner set forth in paragraph (ix) above, which
notice shall specify the record date, if any, with respect to any such
action and the date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the
Conversion Price and the number, kind or class of shares or other
Securities or property which shall be deliverable or purchasable upon
the occurrence of such action or deliverable upon conversion of this
Debentures. In the case of any action which would require the fixing of
a record date, such notice shall be given at least 10 days prior to the
date so fixed, and in case of all other action, such notice shall be
given at least 10 days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect
the legality or validity of any such action.
(xi) Each Payor will not, or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by such Payor, but will at all times in
good faith assist in the carrying out of all the provisions of this
Section 4(c) and in the taking of all such action as may be necessary
or appropriate in order to protect the conversion rights of this
Debenture against impairment.
(xii) The computations of all amounts under this
Section 4(c) shall be made assuming all other anti-dilution or similar
adjustments to be made to the terms of all other Securities resulting
from the transaction causing an adjustment pursuant to this Section
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4(d) have previously been made so as to maintain the relative economic
interest of this Debenture vis a vis all other securities issued by the
Company.
(xiii) The Company shall take or cause to be taken
such steps as shall be necessary to ensure that the par value per share
of Common Stock is at all time less than or equal to the Conversion
Price.
(xiv) In the event the Company grants, issues or
sells any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders
of any class of Common Stock (the "Purchase Rights"), then this
Debenture shall be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate number or amount of such stock,
warrants, securities or other property which such Payee could have
acquired if such Payee had held the Common Stock acquirable upon
complete conversion of their Debenture immediately before the date on
which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of the
grant, issue or sale of such Purchase Rights.
(d) Conversion Mechanics. Each conversion of this Debenture
into shares of Common Stock shall be effected by the delivery of written notice
and surrender of this Debenture by the Payees to the Payors stating that such
Payees desire to convert the Conversion Amount into the number of shares of the
class into which such shares may be converted (the "Converted Securities"). Such
notice shall also state the name or names (with addresses) in which the
Converted Securities are to be issued and shall include instructions for the
delivery thereof. A Payee may make any such notice of conversion conditional
upon the happening of any event or the passage of such time as is specified by
such Payee in such conversion notice, and may rescind any notice of conversion
prior to the effective time thereof specified in any such notice. Not less than
5 Business Days after such surrender and the receipt of such written notice of
conversion (each, a "Conversion Payment Date"), the Company will issue, deliver
or pay in accordance with the surrendering Payee's instructions (A) the
certificate or certificates evidencing the Converted Securities issuable upon
such conversion, (B) cash in lieu of fractional shares of Common Stock, as
determined pursuant to this Section 4 and (C) a debenture that represents the
portion of this Debenture which was not converted on terms identical to this
Debenture. Such conversion, to the extent permitted by Law, shall be deemed to
have been effected as of the close of business on the date on which such
debenture or debentures shall have been surrendered and such notice shall have
been received by the Company and becomes effective by its terms (each, a
"Surrender Date") and at such time the rights of each Payee as such Payee shall
cease with respect to the Conversion Amount and the person or persons in whose
name or names the certificate or certificates for the Converted Securities are
to be issued upon such conversion shall be deemed to have become the holder or
holders of record of the Converted Securities. Upon issuance of shares in
accordance with this Section 4, such Converted Securities shall be deemed to be
duly authorized, validly issued, fully paid and non-assessable, with no personal
liability attaching to the ownership thereof and free from all taxes, liens or
charges with respect thereto due to any action of the Company. The Company shall
take all such actions as may be necessary to assure that all such shares may be
so issued without violation of any applicable Law or any requirements of any
domestic securities exchange upon which such shares may be listed (except for
official notice of issuance which will be immediately
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transmitted by the Company upon issuance). The Company shall not close its books
against the transfer of securities in any manner which would interfere with the
timely conversion of any securities. The issuance of certificates for Converted
Securities shall be made without charge to the holders of such securities for
any issuance tax in respect thereof or other cost incurred by the Company in
connection with such conversion and/or the issuance of such securities;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than that of the holder of the Converted
Securities. In the event the holder of shares converted hereunder, in connection
with the conversion of securities hereunder, shall be required to file a
notification pursuant to the Xxxx-Xxxxx-Xxxxxx Anti-Trust Improvements Act of
1976, each Payor and the holder shall take all actions necessary to comply with
such notification requirement and the conversion hereunder of the Conversion
Amount shall become effective upon the expiration of the applicable waiting
period. Subject to Sections 4(a) and (b), no fractional shares of Common Stock
or scrip shall be issued upon conversion of any securities. The number of full
shares issuable upon conversion shall be computed on the basis of the Conversion
Amount to be converted by a Payee. Instead of any fractional shares which would
otherwise be issuable upon conversion of the Conversion Amount, the Company
shall pay a cash adjustment in respect of such fractional interest in an amount
equal to the product of (i) the Market Price of one share of such Common Stock
and (ii) such fractional interest. Subject to Sections 4(a) and (b), the holders
of fractional interests shall not be entitled to any rights as stockholders of
the Company in respect of such fractional interests.
SECTION 5. DEFENSES.
The obligations of the Payors under this Debenture shall not be subject
to reduction, limitation, impairment, termination, defense, set-off,
counterclaim or recoupment for any reason.
SECTION 6. EXCHANGE OR REPLACEMENT OF DEBENTURE.
(a) The Payees collectively may, at their option, in person or
by duly authorized attorney, surrender this Debenture for exchange, at the
principal business office of any Payor, and the Payees, or each Payee, as the
case may be, will receive in exchange therefor, a new Debenture or Debentures,
as the case may be, in the same principal amount as the unpaid principal amount
of this Debenture, or such Payees percentage allocation (as set forth on
Schedule 1 hereto) of the unpaid principal amount, as the case may be, and
bearing interest at the same annual rate as this Debenture, such new Debenture,
or Debentures, as the case may be, to be dated as of the date of this Debenture
and to be in such principal amount as remains unpaid and payable to such person
or persons, or order, as the Payees may designate in writing.
(b) Upon receipt by the Payors of evidence satisfactory to it
of the loss, theft, destruction, or mutilation of this Debenture, and (in case
of loss, theft or destruction) of an indemnity reasonably satisfactory to it,
and upon surrender and cancellation of this Debenture, if mutilated, the Payors
will deliver a new Debenture of like tenor in lieu of this Debenture. Any
Debenture delivered in accordance with the provisions of this Section 6 shall be
dated as of the date of this Debenture.
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SECTION 7. EXTENSION OF MATURITY.
Should the principal of or interest on this Debenture become due and
payable on other than a Business Day, the maturity date thereof shall be
extended to the next succeeding Business Day, and, in the case of principal,
interest shall be payable thereon at the rate per annum herein specified during
such extension.
SECTION 8. ATTORNEYS' AND COLLECTION FEES.
Should the indebtedness evidenced by this Debenture or any part hereof
be collected at law or in equity or in bankruptcy, receivership or other court
proceedings, or this Debenture be placed in the hands of attorneys for
collection, the Payors agree to pay, in addition to principal and interest due
and payable hereon, all reasonable costs of collection, including reasonable
attorneys' fees and expenses, incurred by the Payees in collecting or enforcing
this Debenture.
SECTION 9. WAIVERS.
(a) Each Payor hereby waives presentment, demand for payment,
notice of dishonor, notice of protest and all other notices or demands in
connection with the delivery, acceptance, performance or default of this
Debenture.
(b) No delay by any Payee in exercising any power or right
hereunder shall operate as a waiver of any power or right, nor shall any single
or partial exercise of any power or right preclude other or further exercise
thereof, or the exercise of any other power or right hereunder or otherwise; and
no waiver whatsoever or modification of the terms hereof shall be valid unless
set forth in writing by any Payee and then only to the extent set forth therein.
SECTION 10. AMENDMENTS AND WAIVERS.
Except for amendments that are made to reflect transfers among the
Payee and/or its affiliates, and do not increase the overall amount of
indebtedness hereunder (and such amendments may be made by unanimous agreement
among Payees), no provision of this Debenture may be amended or waived except if
such amendment and waiver is in writing and is signed, in the case of an
amendment, by the Payee, or, in the case of a waiver, by the party against whom
the waiver is to be effective.
SECTION 11. GOVERNING LAW.
This Debenture is made and delivered in, and shall be governed by and
construed in accordance with the laws of the State of New York (without giving
effect to principles of conflicts of laws).
SECTION 12. NOTICES.
The terms and provisions of Section 8.5 of the Purchase Agreement are
expressly incorporated into this Debenture.
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SECTION 13. SEVERABILITY.
If any provision of this Debenture is held in any jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Debenture or affecting the validity or enforceability of such
provision in any other jurisdiction. Notwithstanding the foregoing, such
provision shall automatically be amended to the extent (but only to the extent)
necessary to make it not invalid, prohibited or unenforceable in such
jurisdiction, without invalidating the remaining provisions of this Debenture or
amending or affecting the validity or enforceability of such provision in any
other jurisdiction.
SECTION 14. ASSIGNMENT.
Neither the Payors nor the Payee may assign their rights or obligations
hereunder to any Person, except that the Payee may assign any of its rights and
obligations hereunder to its members, limited partners or any Affiliate of such
Payee; provided, that the assignment assigns at least $500,000 in face amount of
this Debenture.
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IN WITNESS WHEREOF, each Payor has duly executed and delivered this
Debenture as of the date first written above.
EXCHANGE APPLICATIONS, INC.
By: _____________________________________
Name: F. Xxxxxx Xxxxx
Title: Chief Financial Officer
EXSTATIC SOFTWARE, INC.
By: _____________________________________
Name: F. Xxxxxx Xxxxx
Title: Chief Financial Officer
