EXHIBIT 2.02
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NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: March 30, 2004
Original Conversion Price (subject to adjustment herein): $5.70
$---------------
2% CONVERTIBLE DEBENTURE
DUE NOVEMBER 30, 2006
THIS DEBENTURE is one of a series of duly authorized and issued
Convertible Debentures of BluePhoenix Solutions Ltd., an Israeli company, having
a principal place of business at 0 Xxxxxx Xxxxxx, Xxxxxxx 00000, Xxxxxx (the
"Company"), designated as its 2% Convertible Debenture, due November 30, 2006
(the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "Holder"), the principal
sum of $_______________ on November 30, 2006 or such earlier date as the
Debentures are required or permitted to be repaid as provided hereunder (the
"Maturity Date"), and to pay interest to the Holder on the aggregate unconverted
and then outstanding principal amount of this Debenture at the rate of 2% per
annum, payable quarterly on March 31, June 30, September 30 and December 31,
beginning on June 30, 2004 and on each Conversion Date (as to that principal
amount then being converted) and on the Maturity Date (except that, if any such
date is not a Business Day, then such payment shall be due on the next
succeeding Business Day) (each such date, an "Interest Payment Date"), in cash
or Ordinary Shares at the Interest Conversion Rate, or a combination thereof;
provided, however, payment in Ordinary Shares may only occur if during the 10
Trading Days immediately prior to the applicable Interest Payment Date all of
the Equity
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Conditions have been met and the Company shall have given the Holder notice in
accordance with the notice requirements set forth below. Subject to the terms
and conditions herein, the decision whether to pay interest hereunder in
Ordinary Shares or cash shall be at the discretion of the Company. Not less than
10 Trading Days prior to each Interest Payment Date, the Company shall provide
the Holder with written notice of its election to pay interest hereunder either
in cash or Ordinary Shares (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Within 10 Trading Days prior to an Interest Payment Date, the
Company's election (whether specific to an Interest Payment Date or continuous)
shall be irrevocable as to such Interest Payment Date. Subject to the
aforementioned conditions, failure to timely provide such written notice shall
be deemed an election by the Company to pay the interest on such Interest
Payment Date in cash. Interest shall be calculated on the basis of a 360-day
year and shall accrue daily commencing on the Original Issue Date until payment
in full of the principal sum, together with all accrued and unpaid interest and
other amounts which may become due hereunder, has been made. Payment of interest
in Ordinary Shares shall otherwise occur pursuant to Section 4(b) and only for
purposes of the payment of interest in shares, the Interest Payment Date shall
be deemed the Conversion Date. Interest shall cease to accrue with respect to
any principal amount converted, provided that the Company in fact delivers the
Underlying Shares within the time period required by Section 4(b)(i). Interest
hereunder will be paid to the Person in whose name this Debenture is registered
on the records of the Company regarding registration and transfers of Debentures
(the "Debenture Register"), and with respect to cash interest payments, such
interest payments will only be made in accordance with written instructions
provided by the Holder to the Company. Except as otherwise provided herein, if
at anytime the Company pays interest partially in cash and partially in Ordinary
Shares, then such payment shall be distributed ratably among the Holders based
upon the principal amount of Debentures held by each Holder. All overdue accrued
and unpaid interest to be paid hereunder shall entail a late fee at, as to the
first 30 days, the prime rate on the last Trading Day of such 30 day period as
reported by the Wall Street Journal plus 300 basis points and a rate of 18% per
annum thereafter (or such lower maximum amount of interest permitted to be
charged under applicable law) ("Late Fee") which will accrue daily, from the
date such interest is due hereunder through and including the date of payment.
Notwithstanding anything to the contrary contained herein, if on any Interest
Payment Date the Company has elected to pay interest in Ordinary Shares and is
not able to pay accrued interest in the form of Ordinary Shares because it does
not then satisfy the conditions for payment in the form of Ordinary Shares set
forth above, then, at the option of the Holder, the Company, in lieu of
delivering either Ordinary Shares pursuant to this Section 4 or paying the
regularly scheduled cash interest payment, shall deliver, within three Trading
Days of each applicable Interest Payment Date, an amount in cash equal to the
product of the number of Ordinary Shares otherwise deliverable to the Holder in
connection with the payment of interest due such Interest Payment Date and the
highest VWAP during the period commencing on the Interest Payment Date and
ending on the Trading Day prior to the date such payment is made. The Company
may not prepay any portion of the principal amount of this Debenture without the
prior written consent of the Holder.
This Debenture is subject to the following additional provisions:
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Section 1. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same; provided, however, that the Holder may not
exchange this Debenture for new Debentures having principal amounts of less than
$100,000. No service charge will be made for the registration of any permitted
transfer or exchange.
Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations. Prior to due
presentment to the Company for transfer of this Debenture, the Company and any
agent of the Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 3. Events of Default.
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a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
i) any default in the payment of (A) the principal of amount
of any Debenture, or (B) interest (including Late Fees) on, or
liquidated damages in respect of, any Debenture, in each case free
of any claim of subordination, as and when the same shall become due
and payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of an
interest payment or other default under clause (B) above, is not
cured, within 10 Trading Days;
ii) the Company shall fail to observe or perform any other
covenant or agreement contained in this Debenture or any of the
other Transaction Documents (other than a breach by the Company of
its obligations to deliver Ordinary Shares to the Holder upon
conversion which breach is addressed in clause (xii) below, or the
occurrence of an Event under the Registration Rights Agreement which
is addressed in clauses (ix), (x) and (xi) below) which failure is
not cured, if possible to cure, within the earlier to occur of (A)
10 Trading Days after notice of such default sent by the Holder or
by any other Holder and (B) 15 Trading Days after the Company shall
become aware of such failure;
iii) a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or
instrument and other than Events of Default covered by clauses (ix)
- (xii) below) shall occur under any of the Transaction Documents
other than the Debentures;
iv) any representation or warranty made herein or in any other
Transaction Document by the Company shall be untrue or incorrect in
any material respect as of the date when made or deemed made;
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v) the Company or any subsidiary thereof that accounts for
more than 20% of the Company's annual consolidated revenue or more
than 20% of the Company's consolidated assets (each a "Material
Subsidiary") shall commence, or there shall be commenced against the
Company or any Material Subsidiary a case under any applicable
bankruptcy or insolvency laws as now or hereafter in effect or any
successor thereto, or the Company or any Material Subsidiary
commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether
now or hereafter in effect relating to the Company or Material
subsidiary or there is commenced against the Company or any Material
Subsidiary any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or the Company or any
Material Subsidiary is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding
is entered; or the Company or any Material Subsidiary suffers any
appointment of any custodian or the like for it or any substantial
part of its property which continues undischarged or unstayed for a
period of 60 days; or the Company or any Material Subsidiary makes a
general assignment for the benefit of creditors; or the Company
shall fail to pay, or shall state that it is unable to pay, or shall
be unable to pay, its debts generally as they become due; or the
Company or any Material Subsidiary shall by any act or failure to
act expressly indicate its consent to, approval of or acquiescence
in any of the foregoing; or any corporate or other action is taken
by the Company or any Material Subsidiary for the purpose of
effecting any of the foregoing;
vi) the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an
amount exceeding $250,000, whether such indebtedness now exists or
shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable;
vii) the Ordinary Shares shall not be quoted for trading on
the Nasdaq National Market, the New York Stock Exchange, the Nasdaq
Small-Cap Market
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or the American Stock Exchange and shall not again be quoted for
trading thereon within 10 Trading Days;
viii) the Company shall redeem or repurchase more than, in the
aggregate while 20% or more of the principal amount of the
Debentures issued on the Original Issue Date remain outstanding,
$200,000 in value of its outstanding Ordinary Shares or other equity
securities of the Company (other than redemptions of Underlying
Shares and repurchases of Ordinary Shares or other equity securities
of departing officers and directors of the Company; provided such
repurchases shall not exceed $100,000, in the aggregate, for all
officers and directors so long as 20% or more of the principal
amount of the Debentures issued on the Original Issue Date remain
outstanding);
ix) a Registration Statement shall not have been declared
effective by the Commission on or prior to the 210th calendar day
after the Closing Date or any other Event (as defined in the
Registration Rights Agreement) shall have occurred;
x) if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the
Registration Statement lapses for any reason or the Holder shall not
be permitted to resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Registration Statement, in
either case, for more than 25 consecutive Trading Days or 60
non-consecutive Trading Days during any 12 month period; provided,
however, that in the event that the Company is negotiating a merger,
consolidation, acquisition or sale of all or substantially all of
its assets or a similar transaction and in the written opinion of
counsel to the Company, the Registration Statement would be required
to be amended to include information concerning such transactions or
the parties thereto that is not available or may not be publicly
disclosed at the time, the Company shall be permitted an additional
15 consecutive Trading Days during any 12 month period relating to
such an event;
xi) an Event (as defined in the Registration Rights Agreement)
shall not have been cured to the satisfaction of the Holder prior to
the expiration of forty-five days from the Event Date (as defined in
the Registration Rights Agreement) relating thereto (other than an
Event resulting from a failure of a Registration Statement to be
declared effective by the Commission on or prior to the
Effectiveness Date (as defined in the Registration Rights
Agreement), which shall be covered by clause (ix) or maintained
effective which shall be covered by clause (x) above);
xii) the Company shall fail for any reason to deliver
certificates to a Holder prior to the seventh Trading Day after a
Conversion Date pursuant to and
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in accordance with Section 4(b) or the Company shall provide notice
to the Holder, including by way of public announcement, at any time,
of its intention not to comply with requests for conversions of any
Debentures in accordance with the terms hereof; or
(xiii) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within ten
days after notice thereof is delivered hereunder.
b) If any Event of Default occurs, the full principal amount of this
Debenture, together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become, at the Holder's
election, immediately due and payable in cash. The aggregate amount
payable upon an Event of Default shall be equal to the Mandatory
Prepayment Amount. Commencing 5 days after the occurrence of any Event of
Default that results in the eventual acceleration of this Debenture, the
interest rate on this Debenture shall accrue at, as to the first 30 days,
the prime rate on the last Trading Day of such 30 day period as reported
by the Wall Street Journal plus 300 basis points and a rate of 18% per
annum thereafter, or such lower maximum amount of interest permitted to be
charged under applicable law. All Debentures for which the full Mandatory
Prepayment Amount hereunder shall have been paid in accordance herewith
shall promptly be surrendered to or as directed by the Company. The Holder
need not provide and the Company hereby waives any presentment, demand,
protest or other notice of any kind, and the Holder may immediately
enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Xxxxxx at any time prior to payment hereunder
and the Holder shall have all rights as a Debenture holder until such
time, if any, as the full payment under this Section shall have been
received by it. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 4. Conversion.
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a) i) At any time after the Original Issue Date until this Debenture
is no longer outstanding, this Debenture shall be convertible into
Ordinary Shares at the option of the Holder, in whole or in part at
any time and from time to time (subject to the limitations on
conversion set forth in Section 4(a)(ii) hereof). The Holder shall
effect conversions by delivering to the Company the Notice of
Conversion attached hereto as Annex A (a "Notice of Conversion"),
specifying therein the principal amount of Debentures to be
converted and the date on which such conversion is to be effected (a
"Conversion Date"). If no Conversion Date is specified in a Notice
of Conversion, the Conversion Date shall be the date that such
Notice of Conversion is provided hereunder. To effect conversions
hereunder, the Holder shall not be required to physically surrender
Debentures to the Company unless the entire principal amount of this
Debenture plus all accrued
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and unpaid interest thereon has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture in an amount equal to the
applicable conversion. The Holder and the Company shall maintain
records showing the principal amount converted and the date of such
conversions. The Company shall deliver any objection to any Notice
of Conversion within 2 Business Days of receipt of such notice. The
Holder and any assignee, by acceptance of this Debenture,
acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the
unpaid and unconverted principal amount of this Debenture may be
less than the amount stated on the face hereof.
ii) Conversion Limitations.
(A) Notwithstanding anything herein to the contrary, if
the Company has not obtained Shareholder Approval (as defined
below), if required by the applicable rules and regulations of
the Principal Market (or any successor entity), then the
Company may not issue upon conversion of the Debentures, in
the aggregate, in excess of 19.999% of the number of Ordinary
Shares outstanding on the Trading Day immediately preceding
the Original Issue Date, less the number of shares of Common
Stock issued prior to the applicable Conversion Date upon
exercise of any Warrants issued pursuant to the Purchase
Agreement (such number of shares, the "Issuable Maximum").
Each Holder shall be entitled to a portion of the Issuable
Maximum equal to the quotient obtained by dividing (x) the
aggregate principal amount of the Debenture(s) issued and sold
to such Holder on the Original Issue Date by (y) the aggregate
principal amount of all Debentures issued and sold by the
Company on the Original Issue Date. If any Holder shall no
longer hold the Debenture(s), then such Holder's remaining
portion of the Issuable Maximum shall be allocated pro-rata
among the remaining Holders. If on any Conversion Date: (1)
the applicable Set Price then in effect is such that the
shares issuable under this Debenture on any Conversion Date
together with the aggregate number of Ordinary Shares that
would then be issuable upon conversion in full of all then
outstanding Debentures would exceed the Issuable Maximum, and
(2) the Company's shareholders shall not have previously
approved the transactions contemplated by the Transaction
Documents, as may be required by the applicable law or
applicable rules and regulations of the Principal Market (or
any successor entity), if any (the "Shareholder Approval"),
then the Company shall issue to the Holder requesting a
conversion a number of Ordinary Shares equal to such Holder's
pro-rata portion (which shall be calculated pursuant to the
terms hereof) of the Issuable Maximum and, with respect to the
remainder of the
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aggregate principal amount of the Debentures (including any
accrued interest) then held by such Holder for which a
conversion in accordance with the applicable conversion price
would result in an issuance of Ordinary Shares in excess of
such Holder's pro-rata portion (which shall be calculated
pursuant to the terms hereof) of the Issuable Maximum (the
"Excess Principal"), the Company shall be prohibited from
converting such Excess Principal, and shall notify the Holder
of the reason therefor. This Debenture shall thereafter be
unconvertible to such extent until and unless Shareholder
Approval is subsequently obtained or is otherwise not
required, but this Debenture shall otherwise remain in full
force and effect.
(B) The Company shall not effect any conversion of this
Debenture, and the Holder shall not have the right to convert
any portion of this Debenture, pursuant to Section 4(a)(i) or
otherwise, to the extent that after giving effect to such
conversion, the Holder (together with the Holder's
affiliates), as set forth on the applicable Notice of
Conversion, would beneficially own in excess of 4.99% of the
number of Ordinary Shares outstanding immediately after giving
effect to such conversion; provided, however, such percentage
shall be 9.99% for purposes of a Forced Conversion under
Section 4(b)(iv) only. For purposes of the foregoing sentence,
the number of Ordinary Shares beneficially owned by the Holder
and its affiliates shall include the number of Ordinary Shares
issuable upon conversion of this Debenture with respect to
which the determination of such sentence is being made, but
shall exclude the number of Ordinary Shares which would be
issuable upon (A) conversion of the remaining, nonconverted
portion of this Debenture beneficially owned by the Holder or
any of its affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other
Debentures or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 4(a)(ii), beneficial ownership shall
be calculated in accordance with Section 13(d) of the Exchange
Act. To the extent that the limitation contained in this
section applies, the determination of whether this Debenture
is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is
convertible shall be in the sole discretion of such Holder. To
ensure compliance with this restriction, the Holder will be
deemed to represent to the Company each time it delivers a
Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and the
Company shall have no obligation to verify or confirm the
accuracy of such
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determination. For purposes of this Section 4(a)(ii), in
determining the number of outstanding Ordinary Shares, the
Holder may rely on the number of outstanding Ordinary Shares
as reflected in (x) the Company's most recent Form 20-F, (y) a
more recent public announcement by the Company or (z) any
other notice by the Company or the Company's Transfer Agent
setting forth the number of Ordinary Shares outstanding. Upon
the written or oral request of the Holder, the Company shall
within two Trading Days confirm orally and in writing to the
Holder the number of Ordinary Shares then outstanding. In any
case, the number of outstanding Ordinary Shares shall be
determined after giving effect to the conversion or exercise
of securities of the Company, including this Debenture, by the
Holder or its affiliates since the date as of which such
number of outstanding Ordinary Shares was reported.
iii) Underlying Shares Issuable Upon Conversion of Principal
Amount. The number of Ordinary Shares issuable upon a conversion
shall be determined by the quotient obtained by dividing (x) the
outstanding principal amount of this Debenture to be converted by
(y) the Set Price.
(b) i) Not later than five Trading Days after any Conversion Date,
the Company will deliver to the Holder a certificate or certificates
representing the Underlying Shares which shall be free of
restrictive legends and trading restrictions (other than those
required by the Purchase Agreement) representing the number of
Ordinary Shares being acquired upon the conversion of Debentures
(including, if so timely elected by the Company, Ordinary Shares
representing the payment of accrued interest) and (B) a bank check
in the amount of accrued and unpaid interest (if the Company is
required to pay accrued interest in cash). The Company shall, if
available and if allowed under applicable securities laws, use its
best efforts to deliver any certificate or certificates required to
be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established
clearing corporation performing similar functions. If in the case of
any Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the fifth
Trading Day after a Conversion Date, the Holder shall be entitled by
written notice to the Company at any time on or before its receipt
of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the
certificates representing the principal amount of Debentures
tendered for conversion.
ii) If the Company fails for any reason to deliver to the
Holder such certificate or certificates pursuant to Section 4(b)(i)
by the fifth Trading Day after the Conversion Date, the Company
shall pay to such Holder, in cash, as liquidated
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damages and not as a penalty, for each $10,000 of principal amount
being converted, $50 per Trading Day (increasing to $100 per Trading
Day after 3 Trading Days after such damages begin to accrue) for
each Trading Day after such fifth Trading Day until such
certificates are delivered. Notwithstanding anything hereunder to
the contrary, for any periods during which partial liquidated
damages are accruing (and no rescission election has been made)
under both this Section 4.1(d) of the Purchase Agreement and this
Section 4(b)(ii) of the Debenture, the holder of the Debenture shall
only have the right to recover partial liquidated damages, at the
option of such holder, under one such provision. The Company's
obligations to issue and deliver the Underlying Shares upon
conversion of this Debenture in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction
by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach
or alleged breach by the Holder or any other Person of any
obligation to the Company and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of such Underlying Shares;
provided, however, such delivery shall not operate as a waiver by
the Company of any such action the Company may have against the
Holder. Nothing herein shall limit a Xxxxxx's right to pursue actual
damages or declare an Event of Default pursuant to Section 3 herein
for the Company's failure to deliver Conversion Shares within the
period specified herein and such Holder shall have the right to
pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.
iii) In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) by the
seventh Trading Day after the Conversion Date, and if after such
seventh Trading Day the Holder is required by its brokerage firm to
purchase (in an open market transaction or otherwise) Ordinary
Shares to deliver in satisfaction of a sale by such Holder of the
Underlying Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Company shall (A) pay in cash to
the Holder (in addition to any remedies available to or elected by
the Holder) the amount by which (x) the Holder's total purchase
price (including brokerage commissions, if any) for the Ordinary
Shares so purchased exceeds (y) the product of (1) the aggregate
number of Ordinary Shares that such Holder anticipated receiving
from the conversion at issue multiplied by (2) the actual sale price
of the Ordinary Shares at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase
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obligation and (B) at the option of the Holder, either reissue
Debentures in principal amount equal to the principal amount of the
attempted conversion or deliver to the Holder the number of Ordinary
Shares that would have been issued had the Company timely complied
with its delivery requirements under Section 4(b)(i). For example,
if the Holder purchases Ordinary Shares having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with respect to which the actual sale price
of the Underlying Shares at the time of the sale (including
brokerage commissions, if any) giving rise to such purchase
obligation was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of
the Buy-In. Notwithstanding anything contained herein to the
contrary, if a Holder requires the Company to make payment in
respect of a Buy-In for the failure to timely deliver certificates
hereunder and the Company timely pays in full such payment, the
Company shall not be required to pay such Holder liquidated damages
under Section 4(b)(ii) in respect of the certificates resulting in
such Buy-In.
iv) Notwithstanding anything herein to the contrary, if after
the Effective Date each of the VWAPs for any 20 consecutive Trading
Days (such period commencing only after the Effective Date, such
period the "Threshold Period")) exceeds 125% of the then Set Price,
the Company may, within 2 Trading Days of the end of any such
period, deliver a notice to the Holder (a "Forced Conversion Notice"
and the date such notice is received by the Holder, the "Forced
Conversion Notice Date") to cause the Holder to immediately convert
all or part (and if part, pro-rata in proportion to each Holders
initial purchase of the Debentures) of the then outstanding
principal amount of Debentures pursuant to Section 4(a)(i) (a
"Forced Conversion"). The Company may only effect a Forced
Conversion Notice if all, or to the extent that all, of the Equity
Conditions are met through the applicable Threshold Period until the
date of the applicable Forced Conversion. Any Forced Conversion
shall be applied ratably to all Holders based on their initial
purchases of Debentures pursuant to the Purchase Agreement.
(c) i) The conversion price in effect on any Conversion Date shall
be equal to $5.70 (subject to adjustment herein)(the "Set Price").
ii) If the Company or any subsidiary thereof, as applicable,
at any time while the Debentures are outstanding: (A) shall pay a
stock dividend or otherwise make a distribution or distributions on
Ordinary Shares or any other equity or equity equivalent securities
payable in Ordinary Shares (which, for avoidance of doubt, shall not
include any Ordinary Shares issued by the Company
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pursuant to this Debenture, including as interest thereon), (B)
subdivide outstanding Ordinary Shares into a larger number of
shares, (C) combine (including by way of reverse stock split)
outstanding Ordinary Shares into a smaller number of shares, or (D)
issue by reclassification of the Ordinary Shares any Ordinary
Shares, then the Set Price shall be multiplied by a fraction of
which the numerator shall be the number of Ordinary Shares
(excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of Ordinary Shares
outstanding after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for
the determination of shareholders entitled to receive such dividend
or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
iii) If the Company at any time while Debentures are
outstanding, shall offer, sell, grant any option to purchase or
offer, sell or grant any right to reprice its securities, or
otherwise dispose of or issue (or announce any offer, sale, grant or
any option to purchase or other disposition) any Capital Shares or
Capital Shares Equivalents entitling any Person to acquire Ordinary
Shares, at an effective price per share less than the then Set Price
("Dilutive Issuance"), as adjusted hereunder, then (A) from the
Original Issue Date until the 6th month anniversary of the Effective
Date (if the Registration Statement is unavailable for use by the
Holder during such period, such period shall be extended for such
number of unavailable days), the Set Price shall be reduced to equal
the effective conversion, exchange or purchase price for such
Capital Shares or Capital Shares Equivalents (including any reset
provisions thereof) at issue and (B) after the 6th month anniversary
of the Effective Date (or longer if extended in clause (a)) and
subject to Section 4.18 of the Purchase Agreement, the Set Price
shall be adjusted by multiplying the Set Price in effect immediately
prior to such record date by a fraction, of which the denominator
shall be the number of the Ordinary Shares (excluding treasury
shares, if any) issued and outstanding on the date of issuance of
such rights or warrants plus the number of additional Ordinary
Shares offered for subscription or purchase, and of which the
numerator shall be the number of the Ordinary Shares (excluding
treasury shares, if any) issued and outstanding on the date of
issuance of such rights or warrants plus the number of shares which
the aggregate offering price of the total number of shares so
offered would purchase at the Set Price on the record date. Such
adjustment shall be made whenever such Capital Shares or Capital
Shares Equivalents are issued. The Company shall notify the Holder
in writing, no later than 5 Business Days following the issuance of
any Capital Shares or Capital Shares Equivalents subject to this
section, indicating therein the applicable issuance price, or if
applicable, reset price, exchange price, conversion price and other
pricing terms. Notwithstanding the foregoing, no adjustment will be
made under this paragraph
12
(c)(iii) in respect of (1) an Exempt Issuance, or (2) registered
offerings by the Company of its securities whereby the Holders
purchase 100% of such offering.
iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Ordinary Shares (and
not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each
such case the Set Price shall be determined by multiplying such
price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution
by a fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the numerator
shall be such VWAP on such record date less the then fair market
value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding
Ordinary Share as determined by the Board of Directors in good
faith. In either case the adjustments shall be described in a
statement provided to the Holders of the portion of assets or
evidences of indebtedness so distributed or such subscription rights
applicable to one Ordinary Share. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(v) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 4, the number of Ordinary Shares
outstanding as of a given date shall be the sum of the number of
Ordinary Shares (excluding treasury shares, if any) outstanding.
vi) For purposes of determining the adjusted Set Price under
Section 4(c)(ii) - (v) hereof, all securities exercisable,
convertible into or exchangeable for Ordinary Shares ("Convertible
Securities") shall be deemed outstanding immediately after the
issuance of such Ordinary Shares. Such adjustment shall be made
whenever such Ordinary Shares or Convertible Securities are issued.
More specifically:
(A) If the Company in any manner issues or grants any
warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Ordinary Shares
or Convertible Securities (such warrants, rights and options
to purchase Ordinary Shares or Convertible Securities are
hereinafter referred to as "Options") and the effective price
per share for which Ordinary Shares are issuable upon the
exercise of such Options is less than the Set Price ("Below
Base Price Options"), then the maximum total number of
Ordinary Shares issuable upon the exercise of all such Below
Base Price Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable)
13
will, as of the date of the issuance or grant of such Below
Base Price Options, be deemed to be outstanding and to have
been issued and sold by the Company for such price per share
and the maximum consideration payable to the Company upon such
exercise (assuming full exercise, conversion or exchange of
Convertible Securities, if applicable) will be deemed to have
been received by the Company. For purposes of the preceding
sentence, the "effective price per share for which Ordinary
Shares are issuable upon the exercise of such Below Base Price
Options" is determined by dividing (i) the total amount, if
any, received or receivable by the Company as consideration
for the issuance or granting of all such Below Base Price
Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the
exercise of all such Below Base Price Options, plus, in the
case of Convertible Securities issuable upon the exercise of
such Below Base Price Options, the minimum aggregate amount of
additional consideration payable upon the exercise, conversion
or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii)
the maximum total number of Ordinary Shares issuable upon the
exercise of all such Below Base Price Options (assuming full
conversion of Convertible Securities, if applicable). No
further adjustment to the Set Price will be made upon the
actual issuance of such Ordinary Shares upon the exercise of
such Below Base Price Options or upon the exercise, conversion
or exchange of Convertible Securities issuable upon exercise
of such Below Base Price Options, unless the terms thereof
have been amended or adjusted.
(B) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of
Options) and the effective price per share for which Ordinary
Shares are issuable upon such exercise, conversion or exchange
is less than the Set Price, then the maximum total number of
Ordinary Shares issuable upon the exercise, conversion or
exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be deemed
to be outstanding and to have been issued and sold by the
Company for such price per share and the maximum consideration
payable to the Company upon such exercise (assuming full
exercise, conversion or exchange of Convertible Securities, if
applicable) will be deemed to have been received by the
Company. For the purposes of the preceding sentence, the
"effective price per share for which Ordinary Shares are
issuable upon such exercise, conversion or exchange" is
determined by dividing (i) the total amount, if any, received
or receivable by the Company as
14
consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the
exercise, conversion or exchange thereof at the time such
Convertible Securities first become exercisable, convertible
or exchangeable, by (ii) the maximum total number of Ordinary
Shares issuable upon the exercise, conversion or exchange of
all such Convertible Securities. No further adjustment to the
Set Price will be made upon the actual issuance of such
Ordinary Shares upon exercise, conversion or exchange of such
Convertible Securities unless the terms thereof have been
amended or adjusted.
(C) If there is a change at any time in (i) the amount
of additional consideration payable to the Company upon the
exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the
exercise, conversion or exchange of any Convertible
Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Ordinary
Shares (in each such case, other than under or by reason of
provisions designed to protect against dilution), the Set
Price in effect at the time of such change will be readjusted
to the Set Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed
conversion rate, as the case may be, at the time initially
granted, issued or sold; provided, however, if any such
adjustment results in an increase in the Set Price, such
adjustment will not be effective until the 10th Trading Day
following notice to the Holder of such adjustment.
(D) If any Ordinary Shares, Options or Convertible
Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Debenture
will be the amount received by the Company therefor, before
deduction of reasonable commissions, underwriting discounts or
allowances or other reasonable expenses paid or incurred by
the Company in connection with such issuance, grant or sale.
In case any Ordinary Shares, Options or Convertible Securities
are issued or sold for a consideration part or all of which
shall be other than cash, the amount of the consideration
other than cash received by the Company will be the fair
market value of such consideration, except where such
consideration consists of securities, in which case the amount
of consideration received by the Company will be the fair
market value (closing bid price, if traded on any market)
thereof as of the date of receipt. In case any Ordinary
Shares, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the
Company is the surviving
15
corporation, the amount of consideration therefor will be
deemed to be the fair market value of such portion of the net
assets and business of the non-surviving corporation as is
attributable to such Ordinary Shares, Options or Convertible
Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined
in good faith by an investment banker or other appropriate
expert of national reputation selected by the Company and
reasonably acceptable to the holder hereof, with the costs of
such appraisal to be borne by the Company.
(E) Notwithstanding the foregoing, no adjustment will be
made under this Section 4(c)(ii) - (vi) in respect of (1) an
Exempt Issuance or (2) registered offerings by the Company of
its securities whereby the Holders purchase 100% of such
offering.
vii) Whenever the Set Price is adjusted pursuant to any of
Section 4(c)(ii) - (vi), the Company shall promptly mail to each
Holder a notice setting forth the Set Price after such adjustment
and setting forth a brief statement of the facts requiring such
adjustment. If the Company issues a variable rate security, despite
the prohibition thereon in the Purchase Agreement, the Company shall
be deemed to have issued Capital Shares or Capital Shares
Equivalents at the lowest possible conversion or exercise price at
which such securities may be converted or exercised in the case of a
Variable Rate Transaction (as defined in the Purchase Agreement) as
of any future Conversion Date.
viii) If (A) the Company shall declare a dividend (or any
other distribution) on the Ordinary Shares; (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of
the Ordinary Shares; (C) the Company shall authorize the granting to
all holders of the Ordinary Shares rights or warrants to subscribe
for or purchase any shares of any class or of any rights; (D) the
approval of any shareholders of the Company shall be required in
connection with any reclassification of the Ordinary Shares, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company,
of any compulsory share exchange whereby the Ordinary Shares are
converted into other securities, cash or property; (E) the Company
shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in
each case, the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of the Debentures,
and shall cause to be mailed to the Holders at their last addresses
as they shall appear upon the Debenture Register, at least 20
calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of
16
such dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of the
Ordinary Shares of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined
or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that
holders of the Ordinary Shares of record shall be entitled to
exchange their Ordinary Shares for securities, cash or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer or share exchange; provided, that the failure
to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be
specified in such notice. Holders are entitled to convert Debentures
during the 20-day period commencing the date of such notice to the
effective date of the event triggering such notice.
ix) Fundamental Transaction/Change of Control/Sale of Assets.
If, at any time while this Debenture is outstanding, (A) the Company
effects any merger or consolidation of the Company with or into
another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer made by the
Company is completed pursuant to which holders of Ordinary Shares
are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any
reclassification of the Ordinary Shares or any compulsory share
exchange pursuant to which the Ordinary Shares are effectively
converted into or exchanged for other securities, cash or property
(in any such case, a "Fundamental Transaction"), then upon any
subsequent conversion of this Debenture, the Holder shall have the
right to receive, for each Underlying Share that would have been
issuable upon such conversion absent such Fundamental Transaction,
the same kind and amount of securities, cash or property as it would
have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of one Ordinary Share (the
"Alternate Consideration"). For purposes of any such conversion, the
determination of the Set Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one Ordinary Share in
such Fundamental Transaction, and the Company shall apportion the
Set Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the
Alternate Consideration. If holders of Ordinary Shares are given any
choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any
conversion of this Debenture following such Fundamental Transaction.
To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in
17
such Fundamental Transaction shall issue to the Holder a new
debenture consistent with the foregoing provisions and evidencing
the Holder's right to convert such debenture into Alternate
Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring
any such successor or surviving entity to comply with the provisions
of this paragraph (c) and insuring that this Debenture (or any such
replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction. If a Change of
Control Transaction occurs or the Company shall sell or dispose of
all or in excess of 45% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction) in any 12 month period, then at the request of the
Holder delivered before the 90th day after such Change of Control
Transaction or sale, the Company (or any such successor or surviving
entity) will purchase the Debenture from the Holder for a purchase
price, payable in cash within five Trading Days after such request
(or, if later, on the effective date of the Fundamental
Transaction), equal to the 105% of the remaining unconverted
principal amount of this Debenture on the date of such request, plus
all accrued and unpaid interest thereon, plus all other accrued and
unpaid amounts due hereunder.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Ordinary Shares solely for
the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other
than the Holders, not less than such number of Ordinary Shares as shall
(subject to any additional requirements of the Company as to reservation
of such shares set forth in the Purchase Agreement) be issuable (taking
into account the adjustments and restrictions of Section 4(b)) upon the
conversion of the outstanding principal amount of the Debentures and
payment of interest hereunder. The Company covenants that all Ordinary
Shares that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the Registration
Statement is then effective under the Securities Act, registered for
public resale in accordance with such Registration Statement.
(e) Upon a conversion hereunder the Company shall not be required to
issue share certificates representing fractions of Ordinary Shares, but
may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the VWAP at such time. If the Company elects
not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole
Ordinary Share.
(f) The issuance of certificates for Ordinary Shares on conversion
of the Debentures shall be made without charge to the Holders thereof for
any documentary
18
stamp or similar taxes that may be payable in respect of the issue or
delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such Debentures so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been
paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any
Notice of Conversion, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service,
addressed to the Company, at the address set forth above, facsimile number
(000) 0-00000000, Attention: Xxxx Xxxxx and Xxxx Xxxxxx or such other
address or facsimile number as the Company may specify for such purposes
by notice to the Holders delivered in accordance with this Section. Any
and all notices or other communications or deliveries to be provided by
the Company hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile telephone number or address of
such Holder appearing on the Debenture Register, or if no such facsimile
telephone number or address appears, at the principal place of business of
the Holder as provided by the Holder to the Company. Any notice or other
communication or deliveries hereunder shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:30 p.m. (New York City time), (ii)
the date after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in
this Section later than 5:30 p.m. (New York City time) on any date and
earlier than 11:59 p.m. (New York City time) on such date, (iii) the
second Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given.
Section 5. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
"Business Day" means any day except Friday, Saturday, Sunday and any
day which shall be a federal legal holiday in the United States or Israel
or a day on which banking institutions in the State of New York or Israel
are authorized or required by law or other government action to close.
19
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) any transaction, or series or transactions whereby
Formula Systems (1985) Ltd. ("Formula"), together with each of its
affiliates (as defined in Rule 144(a)(1) of the Securities Act),
beneficially own (as determined in accordance with Rule 13d-3 of the
Exchange Act) less than 25% of the Company's Ordinary Shares and a third
party, unrelated to Formula or any of its affiliates, beneficially
acquires 25% or more of the Company's then outstanding Ordinary Shares, or
(ii) a replacement at one time or within a three year period of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving
as members of the board of directors on any date whose nomination to the
board of directors was approved by a majority of the members of the board
of directors who are then members of the board), or (iii) the execution by
the Company of an agreement to which the Company is a party or by which it
is bound, providing for any of the events set forth above in (i) or (ii).
"Commission" means the Securities and Exchange Commission.
----------
"Conversion Date" shall have the meaning set forth in Section
4(a)(i) hereof.
"Equity Conditions" shall mean, during the period in question, (i)
the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Conversion
Notices, if any, (ii) all liquidated damages and other amounts owing in
respect of the Debentures shall have been paid; (iii) there is an
effective Registration Statement pursuant to which the Holder is permitted
to utilize the prospectus thereunder to resell all of the shares issuable
pursuant to the Transaction Documents (and the Company believes, in good
faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iv) the Ordinary Shares are trading on the Principal
Market and all of the shares issuable pursuant to the Transaction
Documents are qualified for trading on the Principal Market, (v) there is
a sufficient number of authorized but unissued and otherwise unreserved
Ordinary Shares for the issuance of all of the shares issuable pursuant to
the Transaction Documents, (vi) there is then existing no Event of Default
or event which, with the passage of time or the giving of notice, would
constitute an Event of Default and (vii) all of the shares issued or
issuable pursuant to the Transaction Documents in full, ignoring for such
purposes any conversion or exercise limitations herein and therein, would
not violate the limitations set forth in Section 4(a)(ii)(A), (viii) all
of the shares issued or issuable in full pursuant to the Debentures held
by the Holder, ignoring for such purposes any conversion limitation
herein, would not violate the limitations set forth in Section 4(a)(ii)(B)
and (ix) no public announcement of a pending or proposed Fundamental
Transaction or acquisition transaction has occurred that has not been
consummated.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
20
"Interest Conversion Rate" means 90% of the average of the 20 VWAPs
immediately prior to the applicable Interest Payment Date.
"Late Fees" shall have the meaning set forth in the second
paragraph to this Debenture.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the greater of: (A) 105% of the principal amount of Debentures to
be prepaid, plus all accrued and unpaid interest thereon, or (B) the
principal amount of Debentures to be prepaid, plus all other accrued and
unpaid interest hereon, divided by (1) the Set Price on (x) the date the
Mandatory Prepayment Amount is demanded or otherwise due or (y) the date
the Mandatory Prepayment Amount is paid in full, whichever is less,
multiplied by (2) the VWAP on (x) the date the Mandatory Prepayment Amount
is demanded or otherwise due or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is greater, and (ii) all other amounts,
costs, expenses and liquidated damages due in respect of such Debentures.
"Ordinary Shares" means the ordinary shares, NIS 0.01 par value per
share, of the Company and shares of any other class into which such shares
may hereafter have been reclassified or changed.
"Original Issue Date" shall mean the date of the first issuance of
the Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of March __, 2004, to which the Company and the original Holders are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holders are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering
among other things the resale of the Underlying Shares and naming the
Holder as a "selling shareholder" thereunder.
21
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Set Price" shall have the meaning set forth in Section 4(c)(i).
"Trading Day" means any day during which the Principal Market shall
be open for business.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"Underlying Shares" means the Ordinary Shares issuable upon
conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Ordinary Shares are then listed
or quoted on the Principal Market, the daily volume weighted average price
of the Ordinary Shares for such date (or the nearest preceding date) as
reported by Bloomberg Financial L.P. (based on a trading day from 9:30
a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the Ordinary Shares
are not then listed or quoted on the Principal Market and if prices for
the Ordinary Shares are then quoted on the OTC Bulletin Board, the volume
weighted average price of the Ordinary Shares for such date (or the
nearest preceding date) on the OTC Bulletin Board; (c) if the Ordinary
Shares are not then listed or quoted on the OTC Bulletin Board and if
prices for the Ordinary Shares are then reported in the "Pink Sheets"
published by Pink Sheets LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per Ordinary Share so reported; or (d) in all other cases, the fair
market value of an Ordinary Share as determined by the Company's Board of
Directors in good faith.
Section 6. So long as at least 20% of the original principal amount of the
Debentures issued on the Original Issue Date and, if issued at such time, the
debentures issued pursuant to Section 4.16 remains outstanding, the Company will
not and will not permit any of its subsidiaries to, directly or indirectly,
enter into, create, incur, assume or suffer to exist (other than as permitted
pursuant to Section 4.16 of the Purchase Agreement and other than the existing
liens set forth on Schedule 3.1(y) of the Disclosure Schedules) any indebtedness
or liens of any kind, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or profits
therefrom that is senior to, or pari passu with, in any respect, the Company's
obligations under the Debentures without the prior consent of a majority in
interest of the Holders.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in
22
the coin or currency, herein prescribed. This Debenture is a direct debt
obligation of the Company. This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms set forth herein. So long as
at least 20% of the original principal amount of the Debentures issued on the
Original Issue Date and, if issued at such time, the debentures issued pursuant
to Section 4.16 remains outstanding, the Company shall not, without the consent
of a majority in interest of the Debentures, (a) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holder in a way that does not adversely affect all of the holders
of the Ordinary Shares; (b) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than, in the aggregate while this Debenture is
outstanding, $200,000 in value of its Ordinary Shares or other equity securities
other than as to the Underlying Shares to the extent permitted or required under
the Transaction Documents or as otherwise permitted by the Transaction
Documents; or (c) enter into any agreement with respect to any of the foregoing.
Section 8. If this Debenture shall be mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Company.
Section 9. All questions concerning the construction, validity, enforcement
and interpretation of this Debenture shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without
regard to the principles of conflicts of law thereof. Each party agrees that all
legal proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the "New York
Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any
23
legal proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
Section 10. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
Section 11. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
Section 13. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
*********************
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[SIGNATURE PAGE TO 2% CONVERTIBLE DEBENTURE]
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to
be duly executed by a duly authorized officer as of the date first above
indicated.
BLUEPHOENIX SOLUTIONS LTD.
By:_____________________________
Name:
Title:
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 2% Convertible
Debenture of BluePhoenix Solutions Ltd., an Israeli corporation (the "Company"),
due on November ____, 2006, into ordinary shares, NIS 0.01 par value per share
(the "Ordinary Shares"), of the Company according to the conditions hereof, as
of the date written below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates and opinions
as reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Company's Ordinary Shares does
not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
Ordinary Shares.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debentures to be Converted:
Payment of Interest in Ordinary Shares __yes __ no
If yes, $_____ of Interest Accrued on
Account of Conversion at Issue.
Number of Ordinary Shares to be issued:
Signature:
Name:
Address:
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Schedule 1
CONVERSION SCHEDULE
2% Convertible Debentures due on November 30, 2006, in the aggregate principal
amount of $____________ issued by BluePhoenix Solutions Ltd. This Conversion
Schedule reflects conversions made under Section 4 of the above referenced
Debenture.
Dated:
Aggregate
Principal
Amount
Date of Conversion Remaining
(or for first entry, Amount of Subsequent Company Attest
Original Issue Date) Conversion to Conversion
(or original
Principal
Amount)
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