Exhibit 4.2
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") AND APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM.
THIS SECURITY, AND PAYMENT AND ENFORCEMENT HEREOF, IS SUBJECT TO
THE TERMS AND PROVISIONS OF THAT CERTAIN SUBORDINATION AGREEMENT
DATED AS OF APRIL 20, 2000 BETWEEN XXXXX FARGO CREDIT, INC. AND
THE HOLDER HEREOF AND ACKNOWLEDGED BY SUCH HOLDER, AS SUCH
SUBORDINATION AGREEMENT MAY BE AMENDED FROM TIME TO TIME.
XXXXXXXX CONTROLS, INC.
7.5% Convertible Subordinated Debenture Due March 31, 2003
No. __ US$
Xxxxxxxx Control, Inc., a Delaware corporation (the "Issuer"), for value
received, hereby promises to pay to
, or registered assigns (the "Registered Holder"), the principal sum of
(US$ ) on March 31, 2003 (the "Maturity
Date"), and to pay interest thereon from April 20, 2000 or from the most recent
Interest Payment Date (as hereinafter defined) to which interest has been paid,
quarterly, in arrears, on March 1, June 1, September 1 and December 1 in each
year, commencing on June 1, 2000 (each an "Interest Payment Date") at the rate
of seven and one-half (7.5%) percent per annum until the principal hereof is
paid. In the event that the Issuer does not make a quarterly interest payment
within fifteen (15) days after the end of the applicable quarter, the interest
rate for such quarter (to the extent that the payment of such interest shall be
legally enforceable) shall be fifteen (15%) percent per annum on any overdue
principal and on any overdue installment of interest, which amount shall accrue
daily, from the date such interest is due hereunder (i.e. the beginning of the
quarter in which such interest payment is due) through and including the date of
payment. The interest so payable, and punctually paid, on any Interest Payment
Date will be paid to the person (the "Registered Holder") in whose name this
Security is registered at the close of business on February 15, May 15, August
15 or November 15 (whether or not a business day) as the case may be (each a
"Regular Record Date"), next preceding such Interest Payment Date. Interest
shall be computed on the basis of the actual number of days elapsed and the
actual number of days in the relevant period.
If this Security is converted into shares of common stock, $.01
par value per share, of Issuer (the "Common Stock") pursuant to Sections 10 or
11 below: (A) on or prior to the initial Regular Record Date, interest shall be
calculated through and including the date of conversion and shall be paid on
such date; or (B) after any (i) Interest Payment Date and on or prior to the
next Regular Record Date, interest shall be calculated through and including the
date of conversion and shall be paid on the date of conversion to the Person in
whose name this Security is registered at the close of business on the date of
conversion; or (ii) Regular Record Date and on or prior to the next succeeding
Interest Payment Date shall be paid on such Interest Payment Date calculated,
however, only through the date of conversion, notwithstanding such conversion,
and such interest shall be paid to the Person in whose name this Security is
registered at the close of business on such Regular Record Date.
Principal of this Security shall be payable at the earliest of the
Maturity Date, Redemption Date or Acceleration Date (each as hereinafter
defined) against surrender hereof at the principal executive offices of the
Issuer in the United States. Payments of principal and of any interest on this
Security shall be made in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts. Payments of principal of this Security shall be made against surrender
hereof, and payments of interest on this Security shall be made, in accordance
with the foregoing and subject to applicable laws and regulations, by check
mailed on or before the due date for such payment to the person entitled thereto
at such person's address appearing on the Security Register (as hereinafter
defined) or to such other address as the Registered Holder may have previously
given notice to the Issuer in writing. Interest shall accrue and be payable on
this Security through the earlier of the Maturity Date, Conversion Date or
Redemption Date. If the principal on this Security is accelerated, interest
shall accrue and be payable until the date of payment. The Issuer covenants
that until this Security has been delivered to it for cancellation, or monies
sufficient to pay the principal of and interest in this Security have been made
available for payment and paid, it will at all times maintain at its principal
executive offices in the United States an office or agency for the payment of
the principal of and interest on the Securities as herein provided.
1. SECURITY.
(a) This Security is one of a duly authorized issue of
securities of the Issuer (herein called the "Securities"), designated as "7.5%
Convertible Subordinated Debenture Due March 31, 2003," limited in aggregate
principal amount to $6,000,000. The Securities have been offered and sold
pursuant to Issuer's Confidential Private Placement Memorandum dated March 27,
2000 (the "Memorandum"). The obligations of the Issuer hereunder are not
secured by any mortgage, pledge, encumbrance, security agreement or other
security device and only the full faith and credit of the Issuer are pledged for
the payment of all principal and interest due under this Security. The
Securities are joint and several direct, unconditional and general obligations
of the Issuer.
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(b) The Securities will be subordinate and inferior to
Issuer's existing secured debt and any secured debt the Issuer may incur in the
future excluding any indebtedness owed to affiliates of the Issuer
(collectively, "Senior Indebtedness"). The Issuer for itself, its successors
and assigns, covenants and agrees and each Registered Holder of this Debenture,
its successors and assigns, by its acceptance of this Debenture likewise
covenants and agrees, that to the extent provided below the payment of the
principal of and interest on this Debenture is hereby expressly subordinated and
junior in right of payment to the extent and in the manner hereinafter set
forth, to all Senior Indebtedness. From time to time, one or more holders of
this Security may enter into a separate subordination agreement (a
"Subordination Agreement") with a holder of Senior Indebtedness (an "Opt-Out
Senior Lender"). In the event that one or more holders of this Security enter
into a Subordination Agreement with an Opt-Out Senior Lender, the terms and
conditions of the Subordination Agreement shall govern as between the holder or
holders of this Security and the Opt-Out Senior Lender, and the terms and
conditions of Sections 1(b) through 1(k) of this Security shall not be
applicable and shall be inoperative as between the holder or holders of this
Security and the Opt-Out Senior Lender.
(c) Upon the acceleration of any Senior Indebtedness or
upon the maturity of the entire principal amount of any Senior Indebtedness by
lapse of time, acceleration or otherwise, all such Senior Indebtedness which has
been so accelerated or matured shall first indefeasibly be paid in full before
any payment is made by the Issuer or any person acting on behalf of the Issuer
on account of any obligations evidenced by this Debenture.
(d) The Issuer shall not pay any principal portion of
this Debenture before the scheduled due date thereof or pay any interest payable
under this Debenture if there exists a Default or Event of Default (as such
terms are defined in the instruments evidencing Senior Indebtedness) with
respect to any Senior Indebtedness (hereinafter referred to as a "Blockage
Event").
(e) The Issuer shall have the right to pay any principal
portion of this Debenture before the scheduled due date thereof and shall resume
payment of interest payable under this Debenture and a Blockage Event shall be
deemed to have terminated:
(i) when such Default or Event of Default on
Senior Indebtedness, as applicable, is cured or waived;
(ii) when the Registered Holder hereof shall have
cured any such Default or Event of Default on Senior Indebtedness to the extent
such Default or Event of Default can be cured by payment of money, which amount
shall be added to the principal amount owing to the Registered Holder pursuant
to this Debenture; or
(iii) 180 days after the occurrence of such Default
or Event of Default, provided, that at the end of such 180 days, if any of the
following events exists or occurs, the Blockage Event shall continue: (A) a
Default in payment of any amount with respect to
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the Senior Indebtedness; (B) an acceleration of the Senior Indebtedness; or (C)
the occurrence of an event of the type described below in subsection 1(k)
hereof, provided, further, that a Blockage Event with respect to a single
specified Default or Event of Default may be deemed to occur only once for each
360 day period.
(f) At any time there exists a Blockage Event, (i) the
Issuer shall not, directly or indirectly, make any payment of any part of this
Debenture, (ii) the Registered Holder hereof shall not demand or accept from
the Issuer or any other person any such payment or cancel, set-off or otherwise
discharge any part of the indebtedness represented by this Debenture, and (iii)
neither the Issuer nor the Registered Holder hereof shall otherwise take or
permit any action prejudicial to or inconsistent with the priority position of
any holder of Senior Indebtedness over the Registered Holder of this Debenture.
Notwithstanding the foregoing or any other provision of this Debenture to the
contrary, the occurrence and continuance of a Blockage Event shall not limit or
in any other manner affect the exercise of the Registered Holder's conversion
rights pursuant to Section10.
(g) Any holder of Senior Indebtedness is hereby
authorized to demand specific performance of this Debenture, whether or not the
Issuer shall have complied with the provisions hereof applicable to it, at any
time when the Registered Holder hereof shall have failed to comply with any
provision hereof applicable to such Registered Holder. The Registered Holder
hereby irrevocably waives any defense based on the adequacy of a remedy at law
which might be asserted as a bar to the remedy of specific performance hereof in
any action brought therefor by any holder of Senior Indebtedness. The
Registered Holder further (i) waives presentment, demand, notice and protest in
connection with all negotiable instruments evidencing Senior Indebtedness,
notice of any loan made, extension granted or other action taken in reliance
hereon and all demands and notices of every kind in connection with this
Debenture or Senior Indebtedness; and (ii) assents to any renewal, extension or
postponement of the time of payment of Senior Indebtedness or any other
indulgence with respect thereto, to any substitution, exchange or release of
collateral therefor and to the addition or release of any person primarily or
secondarily liable thereon.
(h) No right of any holder of Senior Indebtedness to
enforce the subordination of the obligations shall be impaired by any act or
failure to act by the Issuer or the Registered Holder or by their failure to
comply with this Debenture or any other agreement or document evidencing,
related to or securing the obligations hereunder. Without in any way limiting
the generality of the preceding sentence, the holders of Senior Indebtedness
may, at any time and from time to time, without the consent of or notice to the
Registered Holder, without incurring responsibility to the Registered Holder and
without impairing or releasing the subordination provided in this Debenture or
the obligations of the Registered Holder hereof to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment of, or renew or alter, any Senior Indebtedness, or otherwise
amend or supplement in any manner, any Senior Indebtedness, or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (ii) sell, exchange, release or
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otherwise deal with any property pledged, mortgaged or otherwise securing any
Senior Indebtedness; (iii) release any Person or entity liable in any manner
for the collection of any Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Issuer or any other Person or entity.
(i) In the event that the Issuer shall make any payment
or prepayment to the Registered Holder on account of the obligations under this
Debenture which is prohibited by this Section 1, such payment shall be held by
the Registered Holder, in trust for the benefit of, and shall be paid forthwith
over and delivered to, the holders of Senior Indebtedness (pro rata as to each
of such holders on the basis of the respective amounts and priorities of Senior
Indebtedness held by them) to the extent necessary to pay all Senior
Indebtedness due to such holders of Senior Indebtedness in full in accordance
with its terms (whether or not such Senior Indebtedness is due and owing), after
giving effect to any concurrent payment or distribution to or for the holders of
such Senior Indebtedness.
(j) After all Senior Indebtedness indefeasibly is paid
in full and until the obligations under the Debenture are paid in full, the
Registered Holder shall be subrogated to the rights of holders of Senior
Indebtedness to the extent that distributions otherwise payable to the
Registered Holder have been applied to the payment of Senior Indebtedness. For
purposes of such subrogation, no payments or distributions to holders of such
Senior Indebtedness of any cash, property or securities to which the Registered
Holder would be entitled except for the provisions of this Section 1 and no
payment over pursuant to the provisions of this Section 1 to holders of such
Senior Indebtedness by the Registered Holder, shall, as between the Issuer, its
creditors other than holders of such Senior Indebtedness, and the Registered
Holder, be deemed to be a payment by the Issuer to or on account of such Senior
Indebtedness, it being understood that the provisions of this Section 1 are
solely for the purpose of defining the relative rights of the holders of such
Senior Indebtedness, on the one hand and the Registered Holder hereof, on the
other hand.
(k) In any insolvency, receivership, bankruptcy,
dissolution, liquidation or reorganization proceeding, or in any other
proceeding, whether voluntary or involuntary, by or against the Issuer under any
bankruptcy or insolvency law or laws relating to relief of debtors, to
compositions, extensions or readjustments of indebtedness:
(i) the claims of any holders of Senior
Indebtedness against the Issuer shall be paid indefeasibly in full in cash
before any payment is made to the Registered Holder;
(ii) until all Senior Indebtedness is indefeasibly
paid in full in cash any distribution to which the Registered Holder would be
entitled but for this Section 4 shall be made to holders of Senior Indebtedness;
and
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(iii) the holders of Senior Indebtedness shall have
the right to enforce, collect and receive every such payment or distribution and
give acquittance therefor. In furtherance of the foregoing, in the event that
the Issuer shall file or have filed against it a petition under any chapter or
Title 11 of the United States Code or any comparable statute, with the result
that the Issuer is excused from the obligation to pay all or any part of the
amount otherwise payable in respect of the Senior Indebtedness during the period
subsequent to the commencement of such proceedings, the Registered Holder agrees
that all or such part of such amount shall be payable out of, and to that extent
diminish and be at the expense of, the Registered Holder's reorganization
dividends or other distributions in respect of any claim filed by it as a
creditor or interest holder. In the event the holders of Senior Indebtedness
receive amounts in excess of payment in full (cash) of amounts outstanding in
respect of Senior Indebtedness (without giving effect to whether claims in
respect of the Senior Indebtedness are allowed in any insolvency proceeding),
the holders of the Senior Indebtedness shall pay such excess amounts to the
Registered Holder.
2. DENOMINATIONS. The Securities are issuable only in fully
registered form and in minimum authorized denominations of $1,000 and any
integral multiple of $1,000 in excess thereof.
3. RIGHT TO PARTICIPATE. If, within ninety (90) days of the
Final Closing Date, the Company desires to offer any convertible securities to
any party or parties (other than the Debentures offered pursuant to this Private
Placement), the Company shall, prior to the first closing of any such sale of
convertible securities, provide written notice to all holders of the Debentures.
Such notice shall include a description of the proposed transaction and all
documents relating thereto and shall afford each holder of a Debenture the right
to participate in such transaction. Each holder of a Debenture shall have
fifteen (15) days after receiving notice from the Company to deliver written
notice to the Company (together with the original Debenture and such other
documents as the Company shall reasonably request) that such holder desires to
participate in such transaction. Any holder desiring to participate must do so
as to all but not less than all of the Purchase Price paid for the Debenture.
After receipt by the Company of the holder's notice to participate, the Company
will promptly deliver to such holder the convertible security together with a
check for all accrued and unpaid interest received on the Debenture through the
closing date when the new convertible security was sold.
4. TRANSFER.
(a) So long as any Securities remain Outstanding(as
hereinafter defined), the Issuer shall maintain at its principal executives
offices in the United States an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange, where Securities may be surrendered for
conversion pursuant to Sections 10 or 11 hereof, and where notices and demands
to or upon the Issuer in respect of the Securities may be served. The Issuer
will at all times act as its own security registrar and paying and transfer
agent for such purposes and agrees to cause to be kept
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at such office a register (the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Issuer will provide for the
registration of Securities and registration of transfers of Securities. As of
the date this Security was originally issued, such principal executive offices
of the Issuer were located at 00000 XX 00xx Xxxxxx, Xxxxxxxx, Xxxxxx 00000 (the
"Principal Executive Offices"). The Issuer shall not change the location of its
Principal Executive Offices unless Issuer provides all Registered Holders with
no less than thirty (30) days prior written notice.
(b) The transfer of a Security is registrable on the
Security Register upon surrender of such Security at the principal executive
offices of Issuer duly endorsed by, or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Issuer duly executed by the
Registered Holder thereof, or the Registered Holder's attorney duly authorized
in writing, together with any certifications and representations which Issuer
may reasonably require to reflect compliance with all applicable securities
laws, rules and regulations and the due authorization of the transaction. Upon
such surrender of this Security for registration of transfer, the Issuer shall
execute and deliver, in the name of the designated transferee or transferees,
one or more new Securities, dated the date of the execution thereof, of any
authorized denominations and of a like tenor, form and aggregate principal
amount.
(c) At the option of the Registered Holder, upon request
confirmed in writing, Securities may be exchanged for Securities of any
authorized denominations and of a like tenor, form and aggregate principal
amount upon surrender of the Securities to be exchanged at the principal
executive offices of the Issuer. Whenever any Securities are so surrendered for
exchange, the Issuer shall execute and deliver the Securities which the
Registered Holder making the exchange is entitled to receive. Any registration
of transfer or exchange will be effected only upon the Issuer being reasonably
satisfied with the documents of title and identity of the person making the
request and subject to compliance with applicable Federal and state securities
laws.
(d) All Securities issued upon any registration of
transfer or exchange of Securities shall be the valid obligations of the Issuer,
evidencing the same debt, and entitled to the same benefits, as the Securities
surrendered upon such registration of transfer or exchange. No service or other
charges shall be made for any registration of transfer or exchange, but the
Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
(e) Prior to due presentment of this Security for
registration of transfer, the Issuer may treat the person in whose name this
Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and the Issuer shall not be affected by notice to the
contrary.
5. PAYMENTS WHEN BANKING INSTITUTIONS ARE CLOSED. In any case
where the due date for the payment of the principal of or interest on any
Security shall be at any place of payment a day on which banking institutions
are authorized or obligated by law to close, then
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payment of principal or interest, as the case may be, need not be made on such
date at such place but may be made on the next succeeding day at such place
which is not a day on which banking institutions are authorized or obligated by
law to close, with the same force and effect as if made on the date for such
payment, and interest shall accrue and be paid for the period through and
including the date of payment.
6. TAXES.
(a) The Issuer shall pay all stamp and other duties and
taxes, if any, which may be imposed by the United States or any political
subdivision thereof, any state or any political subdivision thereof or any other
taxing authority with respect to the issuance of the Securities.
(b) Except as specifically provided in this Security,
the Issuer shall not be required to make any payment with respect to any tax,
assessment or other governmental charge imposed by any government or any
political subdivision or taxing authorities thereof or therein.
7. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. The Issuer
represents and warrants to the Registered Holder as of April 20, 2000, as
follows:
(a) Issuer is a corporation duly organized, existing and
in good standing under the laws of its state of incorporation and has the
corporate power to conduct the business which it conducts and proposes to
conduct.
(b) The execution, delivery and performance of the
Securities by the Issuer has been duly approved by the Board of Directors of
Issuer and all other actions required to authorize and effect the offer and sale
of the Securities have been duly taken and approved.
(c) The Securities and the Common Stock issuable upon
Conversion of the Securities (the "Conversion Shares") have been duly and
validly authorized. The Securities and Conversion Shares, when issued and paid
for in accordance with the terms hereof, will be fully paid and non-assessable
and valid and binding obligations of the Issuer enforceable in accordance with
their respective terms.
(d) Issuer will, at all times that there are
Outstanding, have authorized and reserved a sufficient number of shares of
Common Stock to provide for conversion of the Securities into shares of Common
Stock.
(e) Issuer has obtained all licenses, permits and other
governmental authorizations necessary to the conduct of its business; such
licenses, permits and other governmental authorizations obtained are in full
force and effect; and Issuer is in all material respects complying therewith.
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(f) Issuer knows of no pending or threatened legal or
governmental proceedings to which Issuer is a party which could materially
adversely affect the business, property, financial condition or operations of
the Issuer.
(g) Issuer is not in violation of or default under, nor
will the execution and delivery of the Securities, the issuance of the Common
Stock upon conversion of the Securities and the incurrence of the obligations
herein and therein set forth and the consummation of the transactions herein or
therein contemplated, result in a violation of, or constitute a default under
the certificate of incorporation or by-laws, the performance or observance of
any material obligations, agreement, covenant or condition contained in any
bond, debenture, note or other evidence of indebtedness or in any material
contract, indenture, mortgage, loan agreement, lease, joint venture or other
agreements or instrument to which the Issuer is a party or by which it or any of
its properties may be bound or in violation of any material order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court, domestic or foreign.
(h) The financial information contained in the
Memorandum presents fairly the financial condition of the Issuer as of the date
and for the periods indicated.
8. COVENANTS OF THE ISSUER. Issuer hereby covenants and
agrees that for so long as any of the Securities shall remain Outstanding:
(a) it will duly and punctually pay the principal of and
any interest on the Securities in accordance with the terms hereof;
(b) it will do or cause to be done all things necessary
to preserve and keep in full force and effect its existence, rights (charters
and statutory) and franchises;
(c) it will cause all material properties used or useful
in the conduct of its business to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the reasonable judgment of Issuer may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that the
foregoing shall not prevent the Issuer from discontinuing the operation or
maintenance of any such properties if such discontinuance is, in the reasonable
judgment of Issuer, desirable in the conduct of its business or the business of
any of its subsidiaries, and not disadvantageous in any material respect to the
holders of Securities; and, PROVIDED, FURTHER, that the failure to comply
herewith shall not be deemed a breach hereof unless such failure would have a
material adverse effect on the business, financial condition or results of
operations of Issuer and its subsidiaries, taken as a whole (a "Material Adverse
Effect");
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(d) it will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges levied or imposed upon the Issuer or upon the income,
profits or property of the Issuer, and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Issuer; PROVIDED, HOWEVER, that the Issuer shall not be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings; and, PROVIDED, FURTHER, that the failure
to comply herewith shall not be deemed a breach if it would not have a Material
Adverse Effect;
(e) it shall furnish to each Registered Holder of
Securities a copy of all documents it is required to send to its shareholders at
the time the same are sent to shareholders, including, without limitation,
annual reports and proxy statements;
(f) as soon as it becomes aware of the same, it shall
give written notice to each Registered Holder of Securities of any event or
occurrence which by itself or with notice or lapse of time or both would entitle
the holders of the Securities to declare the principal of and any interest on
the Securities immediately due and payable pursuant to Section 16 hereof;
(g) it will promptly obtain and maintain from time to
time all authorizations, permits, approvals, consents, licenses and exemptions
which are required under any applicable law or regulation to enable it to
perform all of its payment, conversion and other material obligations under the
Securities or which may be required for the validity or enforceability of the
Securities; provided, however, that the failure to obtain and maintain such
authorizations, permits, approvals, consents, licenses and exemptions as to
material obligations other than payment and conversion shall not constitute a
breach of this provision unless such non-compliance materially adversely affects
the Issuer's ability to comply with its obligations under the Securities;
(h) it will duly and punctually comply with and observe
all statutes now or hereafter in force and all ordinances, regulation and
by-laws thereunder and all requirements and orders of any government or other
public authority; PROVIDED, HOWEVER, that any non-compliance with any such
statute, ordinance, regulation or by-law shall not constitute a breach of this
provision unless such non-compliance materially adversely affects the Issuer's
ability to comply with its obligations under the Securities;
(i) it shall permit any representative of any Registered
Holder or Holders of at least $250,000 aggregate principal amount of the
Securities to make inspections of, and to report on, the property of, and
business operations being carried out by, the Issuer or any of its subsidiaries;
(j) it shall maintain and keep in force with reputable
insurers and in adequate amounts, property, casualty, third party liability,
business interruption and all such
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other insurances as would prudently be effected and maintained in the case of a
company carrying on a business similar to that of the Issuer;
(k) it shall not:
(i) declare or pay any cash dividends on its
Common Stock or purchase, redeem or otherwise acquire or retire for value any
shares of Common Stock (other than under the terms of the Issuer's stock option
plan); provided, however that during such time as any principal or interest
remains outstanding under this Debenture the Issuer may repurchase, at any time
and from time to time, up to an aggregate of $1,000,000 of its Common Stock; or
(ii) consolidate with or merge into any other
Person, where the Issuer is not the surviving corporation, or convey, transfer,
lease or otherwise dispose of all or substantially all of its assets, except in
compliance with the terms and conditions set forth in Section 12 below.
9. REGISTRATION RIGHTS.
(a) As soon as possible after the Final Closing Date (as
defined in the Memorandum), but in no event later than ninety (90) days after
the Final Closing Date (regardless of whether the maximum number of Securities
shall have been sold), Issuer shall, at its sole cost and expense, file a
registration statement on the appropriate form under the 1933 Act with the
Securities and Exchange Commission ("SEC") covering all of the Conversion Shares
and as set forth in this Section 9(a) (collectively, the "Registrable
Securities"), time being of the essence. Issuer will use its best efforts to
have such registration statement declared effective as soon as possible
thereafter, and shall keep such registration statement current and effective for
at least three (3) years from the effective date thereof or until such earlier
date as all of the Registrable Securities registered pursuant to such
registration statement shall have been sold or otherwise transferred. If the
Registration Statement is not filed within such ninety (90) days, the
Conversion Price (as hereinafter defined) shall be reduced (and concomitantly,
the number of shares of Common Stock issuable upon Conversion of the Securities
shall increase) by the percentage resulting from multiplying three (3%) percent
by the number of thirty (30) day periods, or any part thereof, beyond such
ninety (90) day period until the registration statement covering the Registrable
Securities is filed with the SEC. Notwithstanding anything to the contrary
contained herein, and in addition to the adjustments set forth in the preceding
sentence, if the Registration Statement shall not be declared effective within
180 days after the Final Closing Date (regardless of whether the maximum number
of Securities shall have been sold), then the Conversion Price shall be reduced
(and concomitantly the number of shares of Common Stock issuable upon the
conversion of the Securities shall increase) by the percentage resulting from
multiplying three (3%) percent by the number of thirty (30) day perods, or any
part thereof, beyond the 180-day period until the Registration Statement
described herein covering the Registrable Securities is declared effective.
Notwithstanding the foregoing, the Conversion Price
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shall not be reduced pursuant to this Section 9(a) by more than thirty-six (36%)
percent in the aggregate.
(b) In the event Issuer effects any registration under
the 1933 Act of any Registrable Securities pursuant to Sections 9(a) above or
9(g) below, the Issuer shall indemnify, to the extent permitted by law, and hold
harmless any Registered Holder whose Registrable Securities are included in such
Registration Statement (each, a "Seller"), any underwriter, any officer,
director, employee or agent of any Seller or underwriter, and each other person,
if any, who controls any Seller or underwriter within the meaning of Section 15
of the 1933 Act, against any losses, claims, damages or liabilities, judgment,
fines, penalties, costs and expenses, joint or several, or actions in respect
thereof (collectively, the "Claims"), to which each such indemnified party
becomes subject, under the 1933 Act or otherwise, insofar as such Claims arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement or prospectus or any
amendment or supplement thereto or any document filed under a state securities
or blue sky law (collectively, the "Registration Documents") or insofar as such
Claims arise out of or are based upon the omission or alleged omission to state
in any Registration Document a material fact required to be stated therein or
necessary to make the statements made therein not misleading, and will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in investigating or defending any such Claim; provided
that the Issuer shall not be liable in any such case to the extent such Claim is
based upon an untrue statement or alleged untrue statement of a material fact or
omission or alleged omission of a material fact made in any Registration
Document in reliance upon and in conformity with written information furnished
to Issuer by or on behalf of any indemnified party specifically for use in the
preparation of such Registration Document.
(c) In connection with any registration statement in
which any Seller is participating, each Seller, severally and not jointly, shall
indemnify, to the extent permitted by law, and hold harmless Issuer, each of its
directors, each of its officers who have signed the registration statement, each
other person, if any, who controls Issuer within the meaning of Section 15 of
the 1933 Act, each other Seller and each underwriter, any officer, director,
employee or agent of any such other Seller or underwriter and each other person,
if any, who controls such other Seller or underwriter within the meaning of
Section 15 of the 1933 Act against any Claims to which each such indemnified
party may become subject under the 1933 Act or otherwise, insofar as such Claims
(or actions in respect thereof) are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Document, or
insofar as any Claims are based upon the omission or alleged omission to state
in any Registration Document a material fact required to be stated therein or
necessary to make the statements made therein not misleading, and will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in investigating or defending any such claim;
provided, however, that such indemnification or reimbursement shall be payable
only if, and to the extent that, any such Claim arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in any Registration
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Document in reliance upon and in conformity with written information furnished
to Issuer by the Seller specifically for use in the preparation thereof.
(d) Any person entitled to indemnification under
Sections 9(b) or 9(c) above shall notify promptly the indemnifying party in
writing of the commencement of any Claim if a claim for indemnification in
respect thereof is to be made against an indemnifying party under this Section
9(d), but the omission of such notice shall not relieve the indemnifying party
from any liability which it may have to any indemnified party otherwise than
under Section 9(b) or 9(c) above, except to the extent that such failure shall
materially adversely affect any indemnifying party or its rights hereunder. In
case any action is brought against the 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 that it chooses, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that (i) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the Claim within twenty (20) days after receiving notice from
the indemnified party that the indemnified party believes it has failed to do
so; (ii) if the indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified party which
are not available to the indemnifying party; or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except to the
extent any indemnified party or parties reasonably shall have concluded that
there are legal defenses available to such party or parties which are not
available to the other indemnified parties or to the extent representation of
all indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct) and the indemnifying party shall
be liable for any reasonable expenses therefor; provided, that no indemnifying
party shall be subject to any liability for any settlement of a Claim made
without its consent (which may not be unreasonably withheld, delayed or
conditioned). If the indemnifying party assumes the defense of any Claim
hereunder, such indemnifying party shall not enter into any settlement without
the consent of the indemnified party if such settlement attributes liability to
the indemnified party (which consent may not be unreasonably withheld, delayed
or conditioned).
(e) If for any reason the indemnity provided in Section
9(b) or 9(c) above is unavailable, or is insufficient to hold harmless, an
indemnified party, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of any Claim in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other from
the transactions contemplated by this Agreement. If, however, the allocation
provided in the immediately preceding sentence is not permitted by applicable
law, or if the indemnified party
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failed to give the notice required by Section 9(d) above, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the indemnifying party and the indemnified party
as well as any other relevant equitable considerations. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the indemnifying
party or by the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable in respect of any Claim shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such Claim.
Notwithstanding the foregoing, no underwriter or controlling person thereof, if
any, shall be required to contribute, in respect of such underwriter's
participation as an underwriter in the offering, any amount in excess of the
amount by which the total price at which the Registrable Securities underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages wich such underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 0000 Xxx) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The obligation
of any underwriters to contribute pursuant to this subsection (e) shall be
several in proportion to their respective underwriting commitments and not
joint.
(f) The provisions of Sections 9(b) through 9(e) hereof
shall be in addition to any other rights to indemnification or contribution
which any indemnified party may have pursuant to law or contract and shall
remain operative and in full force and effect regardless of any investigation
made or omitted by or on behalf of any indemnified party and shall survive the
transfer of the Registrable Securities by any such party.
(g) If the registration statement as filed pursuant to
Section 9(a) above is not then effective, then Registered Holders shall have
certain "piggy-back" registration rights.
A. If at any time after the Initial Closing Date
(as defined in the Memorandum), Issuer shall file with the SEC a registration
statement under the 1933 Act registering any shares of Common Stock owned by any
person or entity, except for any registration on Forms X-0, X-0 or other similar
or successor Forms, Issuer shall give written notice to each Registered Holder
thereof prior to such filing.
B. Within fifteen (15) days after such notice
from Issuer, each Registered Holder shall give written notice to Issuer whether
or not the Registered Holder desires to have all of the Registered Holder's
Registrable Securities included in the registration statement. If a Registered
Holder fails to give such notice within such period, such Registered Holder
shall not have the right to have such Registered Holder's Registrable Securities
registered pursuant to such registration statement. If a Registered Holder
gives such notice, then Issuer
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shall include such Registered Holder's Registrable Securities in the
registration statement, at Issuer's sole cost and expense, subject to the
remaining terms of this Section 9(g).
C. If the registration statement relates to an
underwritten offering, and the underwriter shall determine in writing that the
total number of shares of Common Stock to be included in the offering, including
the Registrable Securities, shall exceed the amount which the underwriter deems
to be appropriate for the offering, the number of shares of the Registrable
Securities shall be reduced in the same proportion as the remainder of the
shares in the offering and each Registered Holder's Registrable Securities
included in such registration statement will be reduced proportionately. For
this purpose, if other securities in the registration statement are derivative
securities, their underlying shares shall be included in the computation. The
Registered Holders shall enter into such agreements as may be reasonably
required by the underwriters and the Registered Holders shall pay to the
underwriters commissions relating to the sale of their respective Registrable
Securities.
D. The Registered Holders shall have two (2)
opportunities to have the Registrable Securities registered under this Section
9(g).
E. The Registered Holder shall furnish in
writing to Issuer such information as Issuer shall reasonably require in
connection with a registration statement.
(h) If and whenever Issuer is required by the provisions
of this Section 9 to use its best efforts to register any Registrable Securities
under the 1933 Act, Issuer shall, as expeditiously as possible under the
circumstances:
A. Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective as soon as possible and
remain effective.
B. Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
current and to comply with the provisions of the 1933 Act, and any regulations
promulgated thereunder, with respect to the sale or disposition of all
Registrable Securities covered by the registration statement required to effect
the distribution of the securities, but in no event shall Issuer be required to
do so for a period of more than three (3) years following the effective date of
the registration statement.
C. Furnish to the Sellers participating in the
offering, copies (in reasonable quantities) of summary, preliminary, final,
amended or supplemented prospectuses, in conformity with the requirements of the
1933 Act and any regulations promulgated thereunder, and other documents as
reasonably may be required in order to facilitate the disposition of the
securities, but only while Issuer is required under the provisions hereof to
keep the registration statement current.
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D. Use its best efforts to register or qualify
the Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions of the United States as
the Sellers participating in the offering shall reasonably request, and do any
and all other acts and things which may be reasonably necessary to enable each
participating Seller to consummate the disposition of the Registrable Securities
in such jurisdictions.
E. Notify each Seller selling Registrable
Securities, at any time when a prospectus relating to any such Registrable
Securities covered by such registration statement is required to be delivered
under the 1933 Act, of Issuer's becoming aware that the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing, and promptly prepare and furnish to each
such Seller selling Registrable Securities a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
F. As soon as practicable after the effective
date of the registration statement, and in any event within eighteen (18) months
thereafter, make generally available to Sellers participating in the offering an
earnings statement (which need not be audited) covering a period of at least
twelve (12) consecutive months beginning after the effective date of the
registration statement which earnings statement shall satisfy the provisions of
Section 11(a) of the 1933 Act, including, at Issuer's option, Rule 158
thereunder. To the extent that Issuer files such information with the SEC in
satisfaction of the foregoing, Issuer need not deliver the above referenced
earnings statement to Seller.
G. Upon request, deliver promptly to counsel of
each Seller participating in the offering copies of all correspondence between
the SEC and Issuer, its counsel or auditors and all memoranda relating to
discussions with the SEC or its staff with respect to the registration statement
and permit each such Seller to do such investigation at such Seller's sole cost
and expense, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary. Each Seller agrees that it will use its best efforts not to
interfere unreasonably with Issuer's business when conducting any such
investigation and each Seller shall keep any such information received pursuant
to this Subsection G confidential.
H. Provide a transfer agent and registrar
located in the United States for all such Registrable Securities covered by such
registration statement not later than the effective date of such registration
statement.
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I. List the Registrable Securities covered by
such registration statement on such exchanges and/or the NASDAQ as the Common
Stock is then currently listed.
J. Pay all Registration Expenses (as hereinafter
defined) incurred in connection with a registration of Registrable Securities,
whether or not such registration statement shall become effective; provided that
each Seller shall pay all underwriting discounts, commissions and transfer
taxes, and their own counsel fees, if any, relating to the sale or disposition
of such Seller's Registrable Securities pursuant to a registration statement.
As used herein, "Registration Expenses" means any and all reasonable and
customary expenses incident to performance of or compliance with the
registration rights set forth herein, including, without limitation, (i) all
SEC, stock exchange and National Association of Securities Dealers, Inc.
registration and filing fees, (ii) all fees and expenses of complying with state
securities or blue sky laws (including reasonable fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Registrable Securities but no other expenses of the underwriters or their
counsel), (iii) all printing, messenger and delivery expenses, and (iv) the
reasonable fees and disbursements of counsel for Issuer and Issuer's independent
public accountants.
(i) Issuer acknowledges that there is no adequate remedy
at law for failure by it to comply with the provisions of this Section 9 and
that such failure would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Section 9 may be specifically
enforced. In the event that Issuer shall fail to file such registration
statement when required pursuant to Section 9(a) above or to keep any
registration statement effective as provided in this Section or otherwise fails
to comply with its obligations and agreements in this Section 9, then, in
addition to any other rights or remedies the Registered Holders may have at law
or in equity, including without limitation, the right of rescission, the Issuer
shall indemnify and hold harmless the Registered Holders from and against any
and all manner or loss which they may incur as a result of such failure. In
addition, the Issuer shall also reimburse the Registered Holders for any and all
reasonable legal fees and expenses incurred by them in enforcing their rights
pursuant to this Section 9, regardless of whether any litigation was commenced.
10. VOLUNTARY CONVERSION.
(a) Each Registered Holder of Securities may at any time
convert all or any amount of the principal amount of the Securities then owned
by such Registered Holder into shares of Common Stock of Issuer at a conversion
price equal to $ 2.00 per share of Common Stock, subject to adjustment as
provided in this Section 10.
(b) The conversion right granted in Section 10(a) hereof
may be exercised only by a Registered Holder of Securities, in whole or in part,
by the surrender of the certificate or certificates representing the Securities
to be converted at the principal executive offices of the Issuer against
delivery of that number of shares of whole Common Stock as shall
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be computed by dividing the face amount of the Securities being converted by the
Conversion Price on the Conversion Date. At the time of conversion of
Securities, the Issuer shall pay in cash to the Registered Holder thereof an
amount equal to all accrued and unpaid interest, if any, to and including the
Conversion Date. Each Security surrendered for conversion shall be endorsed by
the Registered Holder. Issuer will transmit the Common Stock certificates
issuable upon conversion of any Securities and a certificate representing the
balance of the Securities to the Registered Holder via express courier within
three (3) business days after the Conversion Date. The term "Conversion Date"
shall mean the date the original Notice of Conversion and Securities being
converted are received by the Issuer. The term "Notice of Conversion" shall
mean the written notice from the Registered Holder to the Issuer.
(c) All Common Stock which may be issued upon conversion
of the Securities will, upon issuance, be duly issued, fully paid and
non-assessable and free from all taxes, liens, and charges with respect to the
issue thereof. At all times that any Securities are Outstanding, Issuer shall
have authorized and shall have reserved for the purpose of issuance upon such
conversion into Common Stock of all Securities, a sufficient number of shares of
Common Stock to provide for the conversion of all Outstanding Securities at the
then effective Conversion Price. Without limiting the generality of the
foregoing, if, at any time, the Conversion Price is decreased or increased, the
number of shares of Common Stock authorized and reserved for issuance by Issuer
upon the conversion of the Securities shall be proportionately increased or
decreased, as the case may be.
(d) The Initial Conversion Price is $2.00 per share of
Common Stock ("Initial Conversion Price"). The Initial Conversion Price shall
be adjusted as provided for below in this Section 10(d) (the Initial Conversion
Price and the Initial Conversion Price, as thereafter then adjusted, shall be
referred to as the "Conversion Price") and the Conversion Price from time to
time shall be further adjusted as provided for below in this Section10(d). Upon
each adjustment of the Conversion Price, the Registered Holders of the
Securities shall thereafter be entitled to receive upon conversion, at the
Conversion Price resulting from such adjustment, the number of shares of Common
Stock obtained by dividing the face amount of the Securities being converted by
the Conversion Price, as then adjusted. The Conversion Price shall be adjusted
as follows:
(i) In the case of any amendment to the
Certificate of Incorporation of Issuer to change the designation of the Common
Stock or the rights, privileges, restrictions or conditions in respect to the
Common Stock or division of the Common Stock, the Securities shall be adjusted
so as to provide that upon conversion thereof the Registered Holder shall
receive, in lieu of each share of Common Stock theretofore issuable upon such
conversion, the kind and amount of shares, other securities, money and property
receivable upon such designation, change or division by such holder issuable
upon such conversion had the conversion occurred immediately prior to such
designation, change or division. The Securities shall be deemed thereafter to
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 10. The provisions
of this Subsection
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10d)(i) shall apply in the same manner to successive reclassifications, changes,
consolidations and mergers.
(ii) If Issuer shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, or declare a dividend or make any other distribution upon the Common
Stock payable in shares of Common Stock, the Conversion Price in effect
immediately prior to such subdivision or dividend or other distribution shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common Stock,
the Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(iii) If the Issuer shall at any time issue or
otherwise sell or distribute shares of Common Stock for a consideration per
share in cash or property, or the Issuer shall issue options or warrants to
purchase Common Stock (other than options granted pursuant to the Issuer's
directors' and employee stock option and stock purchase plans existing as of
January 25, 2000) that are exercisable at, or the Issuer shall issue or
otherwise sell or distribute rights to subscribe for or securities convertible
into or exchangeable for Common Stock, at a price less than the then effective
Conversion Price, the Conversion Price then in effect shall automatically be
reduced by multiplying the then Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance, sale or distribution plus the number of shares of Common
Stock which the aggregate consideration received or to be received by the Issuer
for such issuance, sale or distribution (such consideration, if other than cash,
as determined by the Board of Directors including a majority of the Directors
who are not officers or employees of the Issuer or any of its subsidiaries,
whose determination shall be conclusive and described in a resolution of the
Board of Directors) would purchase at the Conversion Price per share, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after giving effect to such issuance, sale or distribution.
Notwithstanding anything herein to the contrary, no adjustment shall be made to
the Conversion Price upon: (i) the exercise of any outstanding options, warrants
or other rights to purchase Common Stock or upon conversion of any securities or
other rights convertible into Common Stock, which options, warrants, securities
or other rights were outstanding prior to March 27, 2000; (ii) the issuance,
sale or distribution of up to 750,000 shares of Common Stock in the aggregate
(regardless of price) or (iii) shares or options issued in connection with an
acquisition of another entity (regardless of whether such acquisition is
consummated by the purchase of assets or equity securities).
(iv) If any capital reorganization or
reclassification of the capital stock of the Issuer, or any consolidation or
merger of the Issuer with another corporation or entity, or the sale of all or
substantially all of the Issuer's assets to another corporation or other entity
shall be effected in such a way that holders of shares of Common Stock shall be
entitled to receive stocks, securities, other evidence of equity ownership or
assets with respect to or in exchange for shares of Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale (except as otherwise provided below in this Section
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10), lawful and adequate provisions shall be made whereby the Registered Holder
shall thereafter have the right to receive upon the basis and upon the terms and
conditions specified herein, such shares of stock, securities, other evidence of
equity ownership or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of Common Stock immediately theretofore purchasable and
receivable upon the Conversion of this Debenture under this Section 10 had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of such Registered Holder to the end that the provisions
hereof (including, without limitation, provisions for adjustments of the
Conversion Price and of the number of shares of Common Stock receivable upon the
Conversion of this Debenture) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities, other evidence of equity
ownership or assets thereafter deliverable upon the Conversion hereof (including
an immediate adjustment, by reason of such consolidation or merger, of the
Conversion Price to the value for the Common Stock reflected by the terms of
such consolidation or merger if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation or merger).
Subject to the terms of this Debenture, in the event of a merger or
consolidation of the Issuer with or into another corporation or other entity as
aresult of which the number of shares of common stock of the surviving
corporation or other entity issuable to holders of Common Stock of the Issuer,
is greater or lesser than the number of shares of Common Stock of the Issuer
outstanding immediately prior to such merger or consolidation, then the
Conversion Price in effect immediately prior to such merger or consolidation
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock of the Issuer. The Issuer
shall not effect any such consolidation, merger or sale, unless, prior to the
consummation thereof, the successor corporation (if other than the Issuer)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed or delivered to
the Registered Holder, the obligation to deliver to the Registered Holder such
shares of stock, securities, other evidence of equity ownership or assets as, in
accordance with the foregoing provisions, the Registered Holder may be entitled
to receive or otherwise acquire. If a purchase, tender or exchange offer is
made to and accepted by the holders of more than fifty (50%) percent of the
outstanding shares of Common Stock of the Issuer, the Issuer shall not effect
any consolidation, merger or sale with the Person having made such offer or with
any Affiliate of such Person, unless prior to the consummation of such
consolidation, merger or sale the Registered Holder of this Debenture shall have
been given a reasonable opportunity to then elect to receive upon the Conversion
of this Debenture the amount of stock, securities, other evidence of equity
ownership or assets then issuable with respect to the number of shares of Common
Stock of the Issuer in accordance with such offer.
(e) Whenever the Conversion Price shall be adjusted
pursuant to Section 10(d) hereof, Issuer shall issue a certificate signed by its
President or Vice President and by its Treasurer, Assistant Treasurer, Secretary
or Assistant Secretary, setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board of
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Directors of Issuer made any determination hereunder), and the Conversion Price
after giving effect to such adjustment, and shall cause copies of such
certificates to be mailed (by first-class mail, postage prepaid) to each
Registered Holder of Securities. Issuer shall make such certificate and mail it
to each such holder promptly after each adjustment.
(f) No fractional Common Stock shall be issued in
connection with any conversion (or forced conversion, if applicable) of
Securities, but in lieu of such fractional shares, the Issuer shall make a cash
payment therefor equal in amount to the product of the applicable fraction
multiplied by the Conversion Price then in effect.
11. FORCED CONVERSION. All, but not less than all, of the
principal amount of the outstanding Securities are convertible, at the option of
Issuer, into shares of Common Stock at the Conversion Price, provided that on
the day that the Forced Conversion Notice (as hereinafter defined) is given by
Issuer to all Registered Holders and on the Forced Conversion Date (as
hereinafter defined), the following conditions are satisfied: (i) the Conversion
Shares have been registered by Issuer pursuant to the 1933 Act as provided for
in Section 9 above and such registration is then currently effective; and (ii)
the average of the closing bid price per share of the Common Stock, as listed or
such exchange or the NASDAQ as the Common Stock then trades, during twenty (20)
trading days out of the thirty (30) consecutive trading days ending five (5)
trading days prior to the date the Forced Conversion Notice is sent, is at least
two hundred (200%) percent of the Conversion Price. Any notice of Conversion
("Forced Conversion Notice") must be given by Issuer to all Registered Holders
no less than thirty (30) days nor more than forty-five (45) days prior to the
date set forth for conversion (the "Forced Conversion Date"). The Forced
Conversion Notice shall remain effective only if the registration statement
provided for in Section 9 remains effective continually throughout the notice
period. On the Forced Conversion Date, the Issuer shall pay to all Registered
Holders of Securities, all accrued and unpaid interest on the Securities through
and including the Forced Conversion Date.
12. CHANGE OF CONTROL.
(a) In the event that there is a "Change of Control Event"
of the Issuer, the Issuer shall immediately notify each holder hereof. Each
holder may, within fifteen (15) days after written notice from the Issuer, elect
to accelerate the maturity date of the Debentures owned by such holder to a date
not less than 30 but not more than 45 days after the date of such notice from
Issuer ("Redemption Date").
(b) For purposes hereof, a "Change of Control Event" shall
be deemed to have occurred if (i) any "person" (as such term is defined at
Section 13(d) of the Securities Exchange Act of 1934) other than the Issuer or
an entity then controlled by the Issuer is or becomes the beneficial owner,
directly or indirectly of securities of the Issuer representing fifty (50%)
percent or more of the combined voting power of the Issuer's then outstanding
securities, including securities such person may have acquired directly from the
Issuer; (ii) the Issuer merges or consolidates with another corporation and an
entity controlled by the Issuer
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immediately prior to the merger or consolidation is not the surviving entity or
if the Issuer is the surviving entity, holders of eighty (80%) percent or more
of the voting power of the Issuer immediately prior to the merger or
consolidation do not own, immediately after the merger or consolidation,
sixty-five (65%) percent or more of the voting power of the surviving entity; or
(iii) a sale, lease, exchange or other disposition of all or substantially all
of the assets of the Issuer takes place.
13. ISSUANCE OF NEW SECURITIES.
(a) If any mutilated Security is surrendered to the
Issuer, the Issuer shall execute and deliver in exchange therefor a new Security
of like tenor and principal amount, bearing a number not contemporaneously
outstanding.
(b) If there is delivered to the Issuer (a) evidence to
its reasonable satisfaction of the destruction, loss or theft of any Security
and (b) such reasonable security or indemnity as may be required by it to save
it harmless, then, in the absence of notice to the Issuer that such Security has
been acquired by a bona fide purchaser, the Issuer shall execute and deliver in
lieu of any such destroyed, lost or stolen Security a new Security of like tenor
and principal amount and bearing a number not contemporaneously outstanding.
(c) Upon the issuance of any new Security under this
Section 13, the Issuer may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expenses connected therewith.
(d) Any new Security delivered pursuant to this Section 13
shall be so dated that neither gain nor loss in interest shall result from such
exchange.
(e) The provisions of this Section 13 are exclusive and
shall preclude (to the extent lawful) all other rights and remedies with respect
to the replacement or payment of mutilated, destroyed, lost or stolen
Securities.
14. MEETINGS.
(a) A meeting of holders of the Securities may be called
at any time and from time to time to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
the Securities to be made, given or taken by holders of Securities or to modify,
amend or supplement the terms of the Securities as hereinafter provided. Notice
of every meeting of holders of Securities, setting forth the time and the place
of such meeting and in general terms the action proposed to be taken at such
meeting, shall be given as provided for in the terms of the Securities, not less
than fifteen (15) nor more than sixty (60) days prior to the date fixed for the
meeting. Such meetings may be called at any time for any such purpose by the
Issuer or by the holders of at least twenty-five (25%) percent in the aggregate
principal amount of the Outstanding Securities by, in the case of the holders,
written
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request to the Issuer setting forth in reasonable detail the action proposed to
be taken at the meeting. Upon receipt of any such request, the Issuer shall
call such meeting for such purposes by giving notice thereof.
(b) To be entitled to vote at any meeting of holders of
Securities, a person shall be a registered holder of Outstanding Securities or a
person duly appointed by an instrument in writing as proxy for such a holder.
The persons entitled to vote more than fifty (50%) percent in principal amount
of the Outstanding Securities shall constitute a quorum. The Issuer may make
such reasonable and customary regulations as it shall deem advisable for any
meeting of holders of Securities with respect to the appointment of proxies in
respect of holders of Securities, the record date for determining the registered
owners of Securities who are entitled to vote at such meeting (which date shall
be set forth in the notice calling such meeting hereinabove referred to and
which shall be not less than fifteen (15) nor more than sixty (60) days prior to
such meeting), the adjournment and chairmanship of such meeting, the appointment
and duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall deem appropriate.
(c) At any meeting of holders of Securities duly called
and held as specified above, upon the affirmative vote, in person or by proxy
thereunto duly authorized in writing, of the Registered Holders of not less than
seventy-five (75%) percent in aggregate principal amount of Outstanding
Securities, or with the written consent of the Registered Holders of not less
than seventy-five (75%) percent in aggregate principal amount of Outstanding
Securities, the Issuer may modify, amend or supplement the terms of the
Securities in any way, and the holders of Securities may make, take or give any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by the terms of the Securities to be made, given or taken by
holders of Securities; PROVIDED, HOWEVER, that no such action may, without the
consent of Registered Holders of Securities owning ninety (90%) percent or more
in the aggregate principal amount of Outstanding Securities affected thereby,
(a) change the due date for the payment of the principal of or any installment
of interest on any Security, (b) reduce the principal amount of any Security,
the portion of such principal amount which is payable upon acceleration of the
maturity of such Security or the interest rate thereon, (c) change the coin or
currency in which or the required places at which payment with respect to
interest or principal in respect of Securities is payable, (d) permit the Issuer
to redeem the Securities (other than as specifically provided in this Security),
or (e) reduce the proportion of the principal amount of Securities the vote or
consent of the holders of which is necessary to modify, amend or supplement the
terms and conditions of the Securities or to make, take or give any request,
demand, authorization, direction, notice, consent, waiver or other action
provided hereby or thereby to be made, taken or given.
(d) Any instrument given by or on behalf of any Registered
Holder of a Security in connection with any consent to or vote for any such
modification, amendment, supplement, request, demand, authorization, direction,
notice, consent, waiver or other action will be irrevocable once given and will
be conclusive and binding on all subsequent holders of
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such Security or any Security issued directly or indirectly in exchange or
substitution therefor or in lieu thereof. Any such modification, amendment,
supplement, request, demand, authorization, direction, notice, consent, waiver
or other action will be conclusive and binding on all holders of Securities,
whether or not they have given such consent or cast such vote, and whether or
not notation of such modification, amendment, supplement, request, demand,
authorization, direction, notice, consent, waiver or other action is made upon
the Securities. Notice of any modification or amendment of, supplement to, or
request, demand, authorization, direction, notice, consent, waiver or other
action with respect to the Securities shall be given to each registered holder
of Securities affected thereby, in all cases as provided herein.
(e) Securities executed and delivered after the
effectiveness of any such modification, amendment, supplement, request, demand,
authorization, direction, notice, consent, waiver or other action shall bear a
notation in the form reasonably approved by the Issuer as to any matter provided
for in such modification, amendment, supplement, request, demand, authorization,
direction, notice, consent, waiver or other action. New Securities modified to
conform to any such modification, amendment, supplement, request, demand,
authorization, direction, notice, consent, waiver or other action may be
prepared by the Issuer and executed and delivered in exchange for Outstanding
Securities.
(f) For purposes of the provisions of the Securities, any
Security executed and delivered by the Issuer shall, as of any date of
determination, be deemed to be "Outstanding", EXCEPT:
(i) Securities theretofore canceled by the Issuer
or delivered to the Issuer for conversion or cancellation or held by the Issuer
for reissuance but not reissued by the Issuer; or
(ii) Securities that have become due and payable
at Maturity or otherwise and with respect to which monies sufficient to pay the
principal thereof and any interest thereon shall have been made available to the
Registered Holders thereof; or
(iii) Securities in lieu of or in substitution for
which other Securities shall have been authenticated and delivered pursuant to
the terms of the Securities;
PROVIDED, HOWEVER, that in determining whether the Registered Holders of the
requisite principal amount of Outstanding Securities are present at a meeting of
holders of Securities for quorum purposes or have consented to or voted in favor
of any request, demand, authorization, direction, notice, consent, waiver,
amendment, modification or supplement hereunder, Securities owned directly or
indirectly by the Issuer or any Affiliate of the Issuer shall be disregarded and
deemed not to be Outstanding.
15. NOTICE. Where the terms of the Securities provide for
notice to the holders of any event, such notice shall be sufficiently given if
given in writing and mailed, first class
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postage prepaid, to each Registered Holder affected by such event, at his
address as it appears in the register for the Securities. Any notice may be
waived in writing by the Person entitled thereto, either before or after the
event, and such waiver shall be equivalent of such notice.
16. EVENTS OF DEFAULT. In the event of:
(a) default in the payment of any interest on any
Security for a period of ten (10) days after Maturity; or
(b) default in the payment of the principal of any
Security at Maturity; or
(c) the breach by the Issuer of any of the
representations and warranties set forth in Section 6 of the Securities; or
(d) default in the performance or breach of any other
material covenant or agreement contained in the Securities for a period of
thirty (30) days after the date on which written notice of such default
requiring the Issuer to remedy the same and stating that such notice is a
"Notice of Default", shall first have been given to the Issuer by a Registered
Holder or Holder(s) owning fifteen (15%) percent or more of Securities; or
(e) default under one or more bonds, debentures, notes
or other evidence of Indebtedness in excess of $250,000 in the aggregate,
whether such Indebtedness is secured or unsecured and whether such Indebtedness
now exists or shall hereinafter be created, which has not been cured within a
period of thirty (30) days; or
(f) any misstatement of a material fact in the
Memorandum or omission of a material fact necessary to make the information in
the Memorandum not misleading (regardless of any investigation made by any
Registered Holders); or
(g) the entry by a court having jurisdiction of (i) a
decree or order for relief in respect of the Issuer in an involuntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization or other
similar law or (ii) a decree or order adjudging the Issuer a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Issuer under any
applicable law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Issuer or of any
substantial part of the property of the Issuer, or ordering the winding up or
liquidation of the affairs of the Issuer, and any such decree or order for
relief or any such other decree or order shall continue unstayed and in effect
for a period of sixty (60) consecutive days; or
(h) commencement by any Issuer of a voluntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization or other
similar law or of any other
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case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by
the Issuer to the entry of a decree or order for relief in respect of the Issuer
in an involuntary case or proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Issuer, or the filing by
the Issuer of a petition or answer or consent seeking reorganization or relief
under any such applicable law, or the consent by the Issuer to the filing of
such petition or to the appointment of or the taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Issuer or of any substantial part of its property, or the making by the
Issuer of an assignment for the benefit of creditors, or the taking of action by
the Issuer in furtherance of any such action;
then a Registered Holder or Registered Holders owning fifteen (15%) percent or
more of the Securities may, at their option, declare the principal of this
Security and the interest accrued hereon to be due and payable immediately (such
date being the "Acceleration Date") by written notice to the Issuer at its
principal executive offices, and unless all such defaults shall have been cured
by the Issuer prior to receipt of such written notice, the principal of this
Security and the interest accrued thereon shall become and be immediately due
and payable.
17. AMENDMENTS AND MODIFICATIONS. In the event that any of the
terms of this Agreement are modified or amended, other than the date of issuance
and face value of the Debenture, at any time after one or more Closings, the
Issuer shall notify each Lender, in writing, of such modification(s) or
amendment(s). Each Registered Holder in debentures may accept all such terms,
at the sole discretion of such Registered Holder by providing written notice to
the Issuer within fifteen (15) days after having received such notification from
the Issuer. If no such acceptance is received by the Issuer within said fifteen
(15) days, the term of this Debenture shall remain unmodified by such
modification(s) or amendment(s).
18. GOVERNING LAW; JURISDICTION. This Security shall be
governed by and construed in accordance with the laws of New York without regard
to the conflicts-of-laws principles thereof. The Issuer hereby irrevocably (a)
submits to the exclusive jurisdiction of, and agrees that any action, suit or
other proceeding at law, in equity or otherwise, shall only be brought in the
Supreme Court, New York County, or Federal District Court for the Southern
District of New York, for the purpose of any such suit, action or other
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby ("Action"); (b) waives, to the extent not prohibited by
applicable law, rule or regulation, and agrees not to assert, by way of motion,
as a defense or otherwise, in any such Action, any claim that any such person is
not subject personally to the jurisdiction of the aforementioned courts, that
its property is exempt or immune from attachment or execution, that any such
action brought in the aforementioned court is brought in an inconvenient forum,
that the venue of any such action brought in the aforementioned court is
improper, or that this Agreement, or the transactions contemplated hereby
enforced in or by such court, and (c) consents to service of process in any such
Action by recognized overnight courier service. Nothing herein shall affect the
right to serve process in any other manner permitted by law.
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19. DEFINITIONS. The following terms shall have the meaning
ascribed to them below:
"Affiliate" means any Person directly or indirectly
controlling, controlled by or under direct or indirect control with another
Person.
"Contingent Obligations", as applied to any Person, means
any direct or indirect liability, contingent or otherwise, of that Person (i)
with respect to any Indebtedness, lease, dividend or other obligation of another
if the primary purpose or intent thereof by the Person incurring the Contingent
Obligation is to provide assurance to the obligee of such obligation of another
that such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected (in whole or in part) against loss in respect
thereof, (ii) with respect to any letter of credit issued for the account of
that person, unpaid bankers' acceptances, bankers' assurances or guarantees or
similar items, or (iii) under any Interest Rate Protection Agreement or any
long-term foreign currency exchange contract, currency swap agreement, currency
futures contract, currency option contract, synthetic capital or similar
arrangement designed to protect the Person entering into the same against
fluctuations in currency values. Contingent Obligations shall include, without
limitation, (A) the direct or indirect guaranty, endorsement, co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, (B) the obligation to make take-or-pay or similar payments if
required regardless of non-performance by any other party or parties to an
agreement, and (C) any liability of such Person for the obligations of another
through any agreement (contingent or otherwise) (x) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), (y) to maintain
the solvency, any balance sheet item, level of income or financial condition of
another, or (z) to make take-or-pay or similar payments if required regardless
of non-performance by any other party or parties to an agreement (provided that,
in the case of any agreement described under Sub-clauses (C)(x) or (C)(y) of
this sentence, the primary purpose or intent thereof is as described in the
preceding sentence). The amount of any Contingent Obligation of a Person shall
be equal to the amount of the obligation so guaranteed or otherwise supported,
subject to any limitation as to amount contained in the instrument or agreement
creating or evidencing such Contingent Obligation; or in the case of Contingent
Obligations referred to in clause (iii) above, the xxxx-to-market value of such
Contingent Obligation at the relevant date of determination.
"Control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Indebtedness" of any Person means, at any date of
determination, without duplication, (i) all obligations of such Person for
borrowed money, (ii) that portion of obligations
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with respect to capital leases that is properly classified as a liability on a
balance sheet of such Person in conformity with GAAP, (iii) notes payable and
drafts accepted of such Person representing extensions of credit whether or not
representing obligations for borrowed money, (iv) any obligation of such Person
owed for all or any part of the deferred price of the property or services,
which price or obligation is (x) due more than (or has not been discharged prior
to) three (3) months from the date of incurrence of the obligation in respect
thereof, or (y) evidenced by a note, instrument or other written agreement, (v)
all Contingent Obligations of such Person, and (vi) all indebtedness of the type
described in clauses (i) through (v) above that is secured by any Lien on any
property or asset owned or held by such person (provided that the amount of such
indebtedness included as Indebtedness under this clause (vi) shall not exceed
the market value of the property or asset subject to such Lien).
"Lien" means any mortgage, pledge, hypothecation, security
interest, encumbrance, charge or lien (statutory or otherwise) or assignment,
deposit arrangement or other preferential arrangement in respect of an interest
in property intended to secure, support or otherwise assure payment of an
obligation (including, without limitation, any conditional sale or other title
retention agreement and any lease having substantially the same economic effect
as the foregoing).
"Maturity" when used with respect to any Security, means
the date on which the principal of such Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration or acceleration, call for redemption or otherwise.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether Federal, state, county, city, municipal or otherwise, including without
limitation, any instrumentality, division, agency, body or department thereof).
"Stated Maturity" when used with respect to any Security or
any installment of interest thereon, means the date specified in such Security
as the fixed date on which the principal of such Security or such installment of
interest is due and payable.
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IN WITNESS WHEREOF, the Issuer has caused this instrument to be
duly executed and it corporate seal to be affixed hereto.
XXXXXXXX CONTROLS, INC.
By:
------------------------------
Name:
Title:
Dated: April __, 2000 [SEAL]
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