Exhibit 10.3
FORM OF DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED
AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE
HARBOR THEREFROM.
US $2,000,000
MICROWARE SYSTEMS CORPORATION
8% CONVERTIBLE DEBENTURE DUE NOVEMBER 28, 2003
FOR VALUE RECEIVED, between MICROWARE SYSTEMS CORPORATION, an Iowa
corporation (the "Company") promises to pay to Elder Court, LLC, a Cayman
Islands limited liability company, the registered holder hereof (the "Holder"),
the principal sum of Two Million Dollars and 00/100 Dollars (US $2,000,000) on
November 28, 2003 (the "Maturity Date") and to pay interest on the principal sum
outstanding from time to time in arrears (i) prior to the Maturity Date,
quarterly, on the last day of March, June, September and December of each year,
(ii) upon conversion as provided herein or (iii) on the Maturity Date, at the
rate of eight percent (8%) per annum accruing from November 28, 2000, the date
of the issuance of this Debenture. Accrual of interest shall commence on the
first such business day to occur after the date hereof and shall continue to
accrue on a daily basis until payment in full of the principal sum has been made
or duly provided for.
This Debenture is subject to the following additional provisions:
1. The Debentures are exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
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3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
4. A. The Holder of this Debenture is entitled, at its option, subject
to the following provisions of this Section 4, to convert all or a portion of
this Debenture into shares of Common Stock of the Company, no par value per
share ("Common Stock") of the Company at any time until the Maturity Date, at a
conversion price for each share of Common Stock (the "Conversion Rate") equal to
the lower of (x) $0.69, or (y) the Current Market Price (as defined below)
multiplied by eighty percent (80%); provided that the principal amount being
converted is the lower of (x) at least $5,000 (unless if at the time of such
election to convert the aggregate principal amount of all Debentures registered
to the Holder is less than Ten Thousand Dollars $5,000, then the whole amount
thereof) or (y) the maximum amount which the Holder can then convert pursuant to
the terms of Section 4.E. hereof.
B. For purposes of this Debenture, the following terms
have the meanings indicated below:
(i) "Current Market Price" means the average of the Market
Price of the Common Stock for any three (3) non-consecutive trading days of the
Common Stock (which may include some consecutive days) during the twenty day
trading period ending on the trading day immediately before the relevant
Conversion Date (as defined below). On the relevant Conversion Date, Holder may
select, in its sole discretion, either of the formulas contained in (A) and (B)
in the immediately preceding sentence.
C. The Holder of this Debenture is entitled, at its option, to
convert this Debenture at any time which is after the earlier of (x) the
thirtieth (30th) day after the Initial Closing Date or (y) the Effective Date of
the Registrable Securities applicable to the Initial Debentures (as those terms
are defined in the Securities Purchase Agreement).
D. Conversion shall be effectuated by surrendering the
Debentures to be converted to the Company's transfer agent, Xxxxx Fargo
Shareowner Services, accompanied by or preceded by facsimile or other delivery
to the Company of the form of conversion notice attached hereto as Exhibit A,
executed by the Holder of the Debenture evidencing such Holder's intention to
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convert this Debenture or a specified portion hereof, and accompanied, if
required by the Company, by proper assignment hereof in blank. Subject to the
provisions of Section 4.E hereof, interest accrued or accruing from the date of
issuance to the date of conversion shall, at the option of the Company, be paid
in cash or Common Stock upon conversion at the Conversion Rate applicable to
such conversion. No fractional shares of Common Stock or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The date on which notice
of conversion is given (the "Conversion Date") shall be deemed to be the date on
which the Holder faxes or otherwise delivers the conversion notice ("Notice of
Conversion"), substantially in the form annexed hereto as Exhibit A, duly
executed, to the Company, provided that the Holder shall deliver to the
Company's transfer agent or the Company the original Debentures being converted
within three (3) business days thereafter (and if not so delivered with such
time, the Conversion Date shall be the date on which the later of the Notice of
Conversion and the original Debentures being converted is received by the
Company). Facsimile delivery of the Notice of Conversion shall be accepted by
the Company at facsimile number (000) 000-0000; ATTN: CHIEF FINANCIAL OFFICER.
Certificates representing Common Stock upon conversion will be delivered within
three (3) business days from the date later of the Notice of Conversion is
delivered to the Company as contemplated in the first sentence of this paragraph
C or the original Debenture is delivered to the Company's transfer agent or the
Company.
E. Notwithstanding any other provision hereof, of the Warrants
or of any of the other Transaction Agreements (as those terms are defined in the
Securities Purchase Agreement), in no event (except (i) with respect to an
automatic conversion, if any, of a Debenture as provided in the Debentures, (ii)
as specifically provided in this Debenture as an exception to this provision, or
(iii) while there is outstanding a tender offer for any or all of the shares of
the Company's Common Stock) shall the Holder be entitled to convert any
Debenture or shall the Company have the obligation, to convert all or any
portion of this Debenture (and the Company shall not have the right to pay
interest on this Debenture) to the extent that, after such conversion, the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures), and (2) the number of shares of Common Stock issuable upon the
conversion of the Debentures or exercise of the Warrants with respect to which
the determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the
Holder upon such conversion or exercise). For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such sentence.
Any issuance by the Company to the Buyer in excess of the limit contained in
this Section 4.E. shall be null and void, AB INITIO, and upon notice of such
invalid issuance, the Company shall correct its books and cause its transfer
agent's books to be corrected forthwith to reflect that the Buyer's ownership of
Common Stock is within the limit set forth herein. Holder shall immediately
deliver any certificates for invalidly issued Common Stock to the Company's
transfer agent. The Company further agrees to (i) immediately reissue
certificates for Common Stock to the extent that a portion of the Common Stock
represented by said
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certificates have been validly issued and (ii) immediately reissue all or a
portion of those shares which were deemed invalidly issued (at the Conversion
Price set forth in the original conversion notice(s) applicable to such shares)
upon notice from Holder that the reissuance of such shares would not cause such
Holder to have a beneficial ownership interest in excess of 4.99%.
Notwithstanding the foregoing, Holder may elect, by providing the Company
written notice at any time prior to the reissuance of shares, to cancel that
portion of a prior conversion applicable to shares of Common Stock surrendered
by it pursuant to this Section 4.E. The Company hereby indemnifies and holds
Holder free and harmless in connection with any and all liabilities, losses,
costs and expenses, including, without limitation, attorneys' fees and costs
arising from or relating to claims made by any third parties alleging that any
Holder has violated Sections 13(d) and/or 16, to the extent such violation is
premised on the fact that, notwithstanding this Section 4.E., the Holder is the
beneficial owner of all of the shares of Common Stock which would be issuable,
from time to time, if Holder converted the entire principal and interest balance
of the Debenture. The Holder, by its acceptance of this Debenture, further
agrees that if the Holder transfers or assigns any of the Debentures to a party
who or which would not be considered such an affiliate, such assignment shall be
made subject to the transferee's or assignee's specific agreement to be bound by
the provisions of this Section 4(E) as if such transferee or assignee were the
original Holder hereof.
F. Anything herein to the contrary notwithstanding, in the
event the Company breaches the provisions of Section 4(g) of the Securities
Purchase Agreement, the Conversion Rate shall be amended to be equal to (i)
87.5% of (ii) the Conversion Rate determined in accordance with the other
provisions of this Debenture without regard to this Section 4.F., and the Holder
may require the Company to immediately redeem the outstanding portion of this
Debenture in accordance with clause (y) of Section 6 hereof.
5. On the condition that the Company is not then in default hereunder,
any portion of the principal balance and accrued interest of the Debentures not
previously converted as of the Maturity Date, shall be deemed to be
automatically converted, without further action of any kind (except the delivery
of unrestricted Common Stock in connection with such conversion) by the Company
or any of its agents, employees or representatives, as of the Maturity Date at
the Conversion Rate applicable on the Maturity Date ("Mandatory Conversion"),
and the Company shall have no further obligation to repay the Debentures. If the
Company is in default hereunder, (i) there shall be no Mandatory Conversion,
(ii) Holder shall retain all of its rights set forth in Section 15 below, and
(iii) Holder may, in addition to its other rights, unilaterally extend the
Maturity Date by one (1) year by providing written notice to the Company on or
before the Maturity Date.
6. The Holder recognizes that the Company may be limited in the number
of shares of Common Stock it may issue by (i) reason of its authorized shares,
or (ii) the applicable rules and regulations of the principal securities market
on which the Common Stock is listed or traded (collectively, the "Cap
Regulations"). Without limiting the other provisions hereof, (i) the Company
will take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such
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steps, the Company still can not issue such shares of Common Stock without
violating the Cap Regulations, the Holder of this Debenture (to the extent the
same can not be converted in compliance with the Cap Regulations (an
"Unconverted Debenture"), shall have the option, exercisable in the Holder's
sole and absolute discretion, to elect any one of the following remedies:
(x) require the Company to issue shares of Common Stock in
accordance with such Holder's Notice of Conversion relating to the
Unconverted Debenture at a conversion purchase price equal to the
average of the closing bid price per share of Common Stock for any five
(5) consecutive trading days (subject to the equitable adjustments for
certain events occurring during such period as provided in this
Debenture) during the sixty (60) trading days immediately preceding the
date of the Notice of Conversion; or
(y) require the Company to redeem each Unconverted Debenture
for an amount (the "Cap Redemption Amount"), payable in cash, equal to:
V x M
--
CP
where:
"V" means the outstanding principal plus accrued interest
through the Cap Redemption Date (as defined below) of an Unconverted
Debenture;
"CP" means the Conversion Rate in effect on the date of
redemption (the "Cap Redemption Date") specified in the notice from the
Holder electing this remedy; and
"M" means the highest closing ask price during the period
beginning on the Cap Redemption Date and ending on the date of payment
of the Cap Redemption Amount.
The holder of an Unconverted Debenture may elect one of the above remedies with
respect to a portion of such Unconverted Debenture and the other remedy with
respect to other portions of the Unconverted Debenture.
7. Subject to the terms of the Securities Purchase Agreement, dated as
of November 28, 2000 (the "Securities Purchase Agreement"), between the Company
and the Holder (or the Holder's predecessor in interest), no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and interest on, this Debenture at
the time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar terms are
direct obligations of the Company.
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8. If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially all of the
assets of the Company (a "Sale"), the Holder hereof shall have the right to
convert by delivering a Notice of Conversion to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company. In the event the Holder
hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture by paying the Redemption Amount
contemplated by Section 5 hereof, less all amounts required by law to be
deducted, upon which tender of payment following such notice, the right of
conversion shall terminate.
9. If, for any reason, prior to the Conversion Date or the Redemption
Payment Date, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets in a
transaction (the "Spin Off") in which the Company does not receive compensation
for such business, operations or assets, but causes securities of another entity
(the "Spin Off Securities") to be issued to security holders of the Company,
then the Company shall cause (i) to be reserved Spin Off Securities equal to the
number thereof which would have been issued to the Holder had all of the
Holder's Debentures outstanding on the record date (the "Record Date") for
determining the amount and number of Spin Off Securities to be issued to
security holders of the Company (the "Outstanding Debentures") been converted as
of the close of business on the trading day immediately before the Record Date
(the "Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
conversion of all or any of the Outstanding Debentures, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by
(y) a fraction, of which (I) the numerator is the principal amount of the
Outstanding Debentures then being converted, and (II) the denominator is the
principal amount of the Outstanding Debentures.
10. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Base Price shall be equitably adjusted to reflect such action.
By way of illustration, and not in limitation, of the foregoing (i) if the
Company effectuates a 2:1 split of its Common Stock, thereafter, with respect to
any conversion for which the Company issues the shares after the record date of
such split, the Base Price shall be deemed to be one-half of what it had been
calculated to be immediately prior to such split; (ii) if the Company
effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect
to any conversion for which the Company issues the shares after the record date
of such reverse split; and
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(iii) if the Company declares a stock dividend of one share of Common Stock for
every 10 shares outstanding, thereafter, with respect to any conversion for
which the Company issues the shares after the record date of such dividend, the
Base Price shall be deemed to be the amount of such Base Price calculated
immediately prior to such record date multiplied by a fraction, of which the
numerator is the number of shares (10) for which a dividend share will be issued
and the denominator is such number of shares plus the dividend share(s) issuable
or issued thereon (11).
11. All payments contemplated hereby to be made "in cash" shall be made
in immediately available good funds 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. All payments of cash and each delivery of shares of
Common Stock issuable to the Holder as contemplated hereby shall be made to the
Holder at the address last appearing on the Debenture Register of the Company as
designated in writing by the Holder from time to time; except that the Holder
can designate, by notice to the Company, a different delivery address for any
one or more specific payments or deliveries.
12. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
13. This Debenture and all agreements entered into in connection
herewith shall be governed by and interpreted in accordance with the laws of the
State of California for contracts to be wholly performed in such state and
without giving effect to the principles thereof regarding the conflict of laws.
Any litigation based thereon, or arising out of, under, or in connection with,
this agreement or any course of conduct, course of dealing, statements (whether
oral or written) or actions of the Company or Holder shall be brought and
maintained exclusively in the state or Federal courts of the State of
California, sitting in the City of Los Angeles. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal Courts of the
State of California for the purpose of any such litigation as set forth above
and irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of California. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property, the Company hereby irrevocably waives such immunity in respect
of its obligations under this Agreement and the related agreements entered into
in connection herewith.
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14. In the event that any action is taken by the Company or Holder in
connection with this Note, or any related document or matter, the losing party
in such legal action, in addition to such other damages as he or it may be
required to pay, shall pay reasonable attorneys' fees to the prevailing party.
15. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal
or interest on this Debenture and same shall continue
for a period of three (3) days after its receipt of
written notice thereof; or
b. Any of the representations or warranties made by the
Company herein, in the Securities Purchase Agreement,
the Registration Rights Agreement or in any
certificate or financial or other written statements
heretofore or hereafter furnished by the Company in
connection with the execution and delivery of this
Debenture or the Securities Purchase Agreement shall
be false or misleading in any material respect at the
time made; or
c. The Company fails to issue shares of Common Stock to
the Holder or to cause its Transfer Agent to issue
shares of Common Stock upon exercise by the Holder of
the conversion rights of the Holder in accordance
with the terms of this Debenture, fails to transfer
or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture and when
required by this Debenture or the Registration Rights
Agreement, and such transfer is otherwise lawful, or
fails to remove any restrictive legend or to cause
its Transfer Agent to transfer on any certificate or
any shares of Common Stock issued to the Holder upon
conversion of this Debenture as and when required by
this Debenture, the Agreement or the Registration
Rights Agreement and such legend removal is otherwise
lawful, and any such failure shall continue uncured
for five (5) business days; or
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of this
Debenture and such failure shall continue uncured for
a period of twenty (20) days after written notice
from the Holder of such failure; or
e. The Company shall fail to perform or observe, in any
material respect, any covenant, term, provision,
condition, agreement or obligation of the Company
under the Securities Purchase Agreement, the
Registration Rights Agreement, the Warrant and
such failure shall continue uncured for a period
of twenty (20) days after written notice from the
Holder of such failure (other than a failure to
cause the Registration Statement to become
effective no later
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than the Required Effective Date, as defined and
provided in the Registration Rights Agreement, as
to which no such cure period shall apply); or
f. The Company shall (1) admit in writing its inability
to pay its debts generally as they mature; (2) make
an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (3)
apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial
part of its property or business; or
g. A trustee, liquidator or receiver shall be
appointed for the Company or for a substantial
part of its property or business without its
consent and shall not be discharged within sixty
(60) days after such appointment; or
h. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within sixty (60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Thousand
($200,000) Dollars in the aggregate shall be entered
or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within sixty (60) days after such
institution or the Company shall by any action or
answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding; or
k. The Company shall have its Common Stock suspended or
delisted from an exchange or the NASD OTC Bulletin
Board from trading for in excess of five (5) trading
days.
l. An Event of Default has occurred under the terms
of any other Debenture (in this series) issued
pursuant to the Securities Purchase Agreement.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may,
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at its option, consider this Debenture immediately due and payable in cash (and
not by conversion into Common Stock), without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein, or any other rights or remedies afforded by law.
16. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
17. In the event for any reason, any payment by or act of the Company
or the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, the IPSO FACTO the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture. If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section 17
or otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section 17 shall control every other
provision of this Debenture.
18. Time is of the essence as to the performance of each and every
obligation of the Company and Holder pursuant to this Debenture.
19. A. On the conditions that the Company (i) is not in default under
this Debenture (and no event has occurred that would ripen into a default with
the passage of time), and (ii) has previously honored all prior Redemption
Notices, the Company may, at its option, repay, in whole or in part, the then
outstanding principal and interest balance of this Debenture on the date of the
Redemption Notice (after deducting the principal and interest subject to
outstanding Conversion Notices) at the Redemption Price (as defined below). This
Debenture is redeemable, in whole or in part, by the Company by providing
written notice (the "REDEMPTION NOTICE") to the Holder via facsimile at its
address set forth herein (the Business Day between the hours of 6:30 a.m. and
3:00 p.m. Pacific Time the Redemption Notice is received by the Holder
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via facsimile is defined to be the "REDEMPTION NOTICE DATE"). Within seven (7)
Trading Days after the Redemption Notice Date the Company shall make payment of
the Redemption Price (as defined below) in immediately available funds to the
Holder (such date of payment referred to as the "REDEMPTION DATE"). Partial
redemptions shall be in an aggregate principal amount of at least $250,000.
B. In the event the Company serves a Redemption Notice, the
Redemption Price shall be equal to the greater of (i) 125% of the outstanding
principal and interest balance of the Debenture, or (ii) the "Economic Benefit"
of the principal and interest of the Debenture which are the subject of such
Redemption Notice. "ECONOMIC BENEFIT" shall mean the dollar value derived if the
principal (and interest) which was the subject of the Redemption Notice was
converted on the Redemption Notice Date and sold on the Redemption Notice Date
at the Closing Bid Price of the Common Stock on the Redemption Notice Date.
C. The Notice of Redemption shall set forth (i) the Redemption
Date and the place fixed for redemption, (ii) the Redemption Price, (iii) a
statement of or reference to the conversion right set forth herein, and (iv)
confirmation that the Company has the full Redemption Price reserved as set
forth in F. below. The notice shall specify the principal and interest balance
hereof to be redeemed. Within seven (7) Trading Days of the Redemption Notice
Date, the Company shall wire transfer the appropriate amount of funds to the
Holder. If the Company fails to comply with the redemption provisions set forth
herein by the seventh Trading Day after the Redemption Notice Date (or in the
case of a public offering as contemplated in F. below, by the seventh Trading
Day after the Redemption Notice Date) relating to the Redemption Notice, the
redemption will be declared null and void and the Company shall not be permitted
to serve another Redemption Notice. For the first five Trading Days after the
Redemption Notice Date, the Holder will retain its conversion rights with
respect to a maximum of twenty percent (20%) of the principal and interest
amount subject to the redemption. If the Holder elects to so convert the said
principal and interest after the receipt of the Redemption Notice, the Company
must receive notice of such election within two (2) business days from the time
the Redemption Notice was received by the Holder. In the event the Company has
not complied with the redemption provisions set forth herein the Company must
comply with the delivery requirements of any then outstanding Conversion Notice
as set forth herein. If the entire balance of interest and principal of this
Debenture is redeemed hereunder, the Holder shall deliver to the Company the
original of this Debenture within three (3) Business Days after it has received
good funds for the Redemption Price.
D. The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price as provided herein and in the event of any
stock dividend, stock split, combination of shares or similar event.
E. Intentionally Deleted.
11
F. The Company shall not be entitled to send any Redemption
Notice and begin the redemption procedure hereunder unless it has:
(a) the full amount of the Redemption Price in cash,
available in a demand or other immediately
available account in a bank or similar financial
institution, specifically allotted for such
redemption;
(b) immediately available credit facilities, in the
full amount of the Redemption Price with a bank or
similar financial institution specifically
allotted for such redemption; or
(c) a combination of the items set forth in (i) and
(ii) above, aggregating the full amount of the
Redemption Price.
Notwithstanding the foregoing, in the event the redemption is expected to be
made contemporaneously with the closing of a public offering of the Company's
securities for an amount in excess of the Redemption Price, the Company shall
not be required to have the full amount of the Redemption Price available to it
as set forth above.
G. Upon its receipt of a Conversion Notice, the Company may, at
its option, repay that portion of the accrued interest of this Debenture which
is subject to such outstanding Conversion Notice, at the Redemption Price,
provided that the Company delivers to Holder a Redemption Notice with respect
thereto within two (2) business days after the date of the subject Conversion
Notice. On the Redemption Date, the Company shall make payment of the Redemption
Price in immediately available funds to the Holder.
12
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: as of November 28, 2000
MICROWARE SYSTEMS CORPORATION, an Iowa
corporation
By:
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(Print Name)
------------------------------------------
(Title)
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________
of the principal amount (and $________________ of accrued interest thereon) of
the above Debenture No. ___ into Shares of Common Stock of MICROWARE SYSTEMS
CORPORATION, an Iowa corporation (the "Company") according to the conditions
hereof, as of the date written below.
Conversion Date*
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Applicable Conversion Price
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Signature
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[Name]
Address:
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* This original Debenture must be received by the Company or its transfer agent
by the third business day following the Conversion Date.
