Exhibit 4.1
THIS NOTE, AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES LAWS OF ANY STATE. THIS NOTE AND ANY OF SUCH SECURITIES MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT RELATING TO SUCH
TRANSACTION UNDER THE ACT AND ALL OTHER APPLICABLE SECURITIES LAWS, OR PURSUANT
TO AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE ACT AND OTHER APPLICABLE
SECURITIES LAWS.
CONVERTIBLE SUBORDINATED NOTE
$__________ September ___ , 2001
FOR VALUE RECEIVED, INFORMATION ANALYSIS INCORPORATED (the "Company"), a
Virginia corporation, hereby promises to pay to the order of _________________
(the "Holder") the sum of _______________dollars ($ ). All
payments to be made by the Company in repayment of principal and interest
hereunder shall be made in currency of the United States of America which at the
time of payment shall be legal tender for the payment of public or private
debts.
1. THE NOTE.
1.1 Related Transactions. This Note is one of a duly authorized series of
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Notes in the aggregate principal amount of up to $500,000 due on September 30,
2004 (the "Notes"). For purposes of this Note, the Noteholder Majority shall
mean those holders of the Notes representing more than fifty percent (50%) of
the outstanding balances then due under the Notes.
1.2 Place of Payment. Principal on this Note shall be payable at the offices
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of the Company at 00000 Xxxxxx Xxxx Xxxx, Xxxxxxx, Xxxxxxxx 00000 or at such
other place as the Holder may from time to time designate in writing to the
Company.
2. PAYMENTS OF PRINCIPAL AND INTEREST.
2.1 Rate of Interest. For the period from the date hereof until all sums due
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hereunder, whether principal, interest, charges, fees or other sums, have been
paid in full, interest shall accrue on the unpaid principal balance of this Note
at the simple rate of twelve percent (12.0%) per annum. Interest on the
outstanding principal balance of the Note will be computed on the basis of a
360-day year comprised of twelve 30 day months.
2.2 Mandatory Principal and Interest Payment. Commencing on March 31, 2002,
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interest hereunder shall be paid semi-annually on March 31 and September 30 of
each calendar year. Unless converted into shares of the Company's common stock,
par value $.01 per share (the "Common Stock"), in accordance with Section 4
hereof, the total amount of principal due under this Note and all accrued and
unpaid interest thereon shall be paid in a single lump sum on September 30, 2004
(herein referred to as the "Repayment Date").
3. CONVERSION OF NOTE.
3.1 Conversion Privilege. Subject to and upon compliance with the provisions
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hereof, at the option of the Holder, any or all of the principal amount and/or
accrued and unpaid interest owing under this Note may be converted, in whole or
in any part, into fully paid and non-assessable shares of Common Stock (the
"Shares") at the Conversion Price (as defined in Section 4.2 below).
3.2 Conversion Price. The price at which shares of Common Stock shall be
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issuable upon conversion of this Note (the "Conversion Price") shall be $.25 per
share.
3.3 Manner of Exercise of Conversion Privilege. In order to exercise the
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conversion privilege under Section 3.1 above, the Holder of this Note shall give
written notice to the Company (in the form of the Conversion Notice attached
hereto) that the Holder elects to convert all or a portion of this Note which
notice shall also specify the amount of principal to which such conversion
relates. Any such notice of conversion shall supersede the actual payment of
the amount against which the conversion is to occur if such notice is received
by the Company prior to
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the actual receipt by the Holder of the payment. The conversion shall become
effective on the date the notice of conversion is received by the Company, and
the person or persons in whose name or names any certificate for the Shares
shall be issuable upon such conversion shall be deemed to have become on said
date the holder or holders of record of the Shares represented by that
certificate and the Note shall be deemed cancelled as of that date.
3.4 Reorganization, Reclassification, Consolidation, Merger or Sale. If any
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capital reorganization or reclassification of the capital stock of the Company,
or any consolidation or merger of the Company with another corporation, or the
sale of all or substantially all of the assets of the Company to another
corporation, or any exchange of capital stock of the Company for cash or any
other securities or assets, shall be effected in such a way that holders of
Shares shall be entitled to receive stock, securities, cash or assets with
respect to or in exchange for Shares, then, as a condition of such
reorganization, reclassification, consolidation, merger, sale or exchange,
lawful and adequate provisions shall be made whereby the Holder hereof shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in this Note and in lieu of the Shares
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities, cash or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding Shares equal to the number of Shares immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby
had such reorganization, reclassification, consolidation, merger, sale or
exchange not taken place. In any such case, appropriate provision shall be made
with respect to the rights and interests of the Holder of this Note to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as may be practicable, in relation to any shares of stock, securities, cash or
assets thereafter deliverable upon the exercise hereof.
3.5 Subdivision or Combination of Stock. In case the Company shall at any
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time subdivide its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Company shall be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
3.6 Other Notices. In case at any time after the issuance of this Note:
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(a) the Company shall declare any dividend upon its Shares payable in
shares of capital stock or make any special dividend or other distribution
(other than regular cash dividends) to the holders of its Shares;
(b) the Company shall offer for subscription pro rata to the holders of
its Shares any additional shares of stock of any class or other rights;
(c) there shall be any capital reorganization or reclassification of the
capital stock of the Company, or any consolidation or merger of the Company
with, or sale of all or substantially all of its assets or the sale of the
patent to, another corporation; or
(d) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then, the Company shall give, by first-class mail, postage prepaid, addressed to
the Holder of this Note at the address of such Holder as shown on the books of
the Company, (i) at least ten (10) days prior written notice of the date on
which the books of the Company shall close or a record shall be taken for
determining the holders of Shares entitled to receive a dividend, distribution
or subscription right or the right to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, and (ii) as to (c) and (d), above, at least ten (10)
days prior written notice of the date when any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place. Such notice in accordance with the foregoing
clause (ii) shall specify the date on which the holders of Shares shall be
entitled to exchange their shares for
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securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
3.7 Company to Provide Stock. The Company shall at all times reserve and
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keep available out of the aggregate of its authorized but unissued capital stock
or its issued capital stock held in its treasury, or both, for the purpose of
effecting the conversion of this Note, such number of shares of Common Stock or
as shall then be issuable upon the conversion of this Note under Section 3.1,
3.3 and 3.4 hereof. The Company covenants that all shares of Common Stock
issued on conversion of this Note shall be duly and validly issued and fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
3.8 Fractional Shares. No fractional Shares shall be issued upon conversion
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of this Note. Instead of any fractional share which would otherwise be issuable
upon conversion of this Note, the Company shall pay a cash adjustment in respect
of such fractional interest in an amount equal to the portion of the then
applicable Conversion Price for each share.
4. SUBORDINATION.
4.1 Subordination. The Company, for itself and its successors and
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assigns, covenants and agrees, and the Holder by its acceptance hereof likewise
covenants and agrees, that notwithstanding any other provision of this Note, the
indebtedness evidenced by this Note and the payment of the principal and
interest on this Note shall be subordinated in right of payment, to the extent
and in the matter hereinafter set forth, to the prior payment in full of all
Senior Indebtedness (as hereinafter defined) at any time outstanding. The
provisions of this Section 5 shall constitute a continuing obligation in favor
of all persons who become the holders of or continue to hold Senior Indebtedness
and such provisions are made for the benefit of the holders of Senior
Indebtedness and such holders of Senior Indebtedness are hereby made obligees
hereunder the same as if their names were written hereinafter as such and they
or any of them may proceed to enforce such provisions against the Company and
the Holder.
4.2 Definition of Senior Indebtedness. The term "Senior Indebtedness"
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shall mean all (i) indebtedness of the Company for money borrowed from a bank or
other commercial lender, (ii) obligations of the Company as lessee under leases
of real or personal property and, in each case with respect to indebtedness
under (i) or (ii), whether outstanding on the date hereof or hereafter created,
or to any entity which refinances, restructures or acquires, in whole or in
part, any such indebtedness of the Company, including, without limitation, all
obligations of the Company for principal, interest (including post-petition
interest, whether or not allowable), fees, penalties, indemnities, reimbursement
obligations and expenses (including reasonable attorneys' fees) and any other
amounts owing in respect of such indebtedness, for the payment of which the
Company is responsible or liable as an obligor, guarantor, indemnitor, or
otherwise (including, without limitation, all amounts committed or permitted to
be advanced pursuant to agreements in respect of such indebtedness under which
the Company is responsible or liable) and all deferrals, renewals, extensions,
amendments, modifications and refundings thereof and (iii) any other
indebtedness of the Company which the Company and the Noteholder Majority may
hereafter agree in writing shall constitute Senior Indebtedness.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include
indebtedness of the Company evidenced by any other notes which shall rank
equally and ratably with this Note.
4.3 Payment of Senior Indebtedness. In the event of any insolvency or
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bankruptcy proceedings under federal or state bankruptcy statutes or any
receivership, liquidation, reorganization, or other similar proceedings in
connection therewith, relative to the Company, or, in the event of any
proceedings for voluntary liquidation, dissolution, or other winding up of the
Company or distribution or marshaling of its assets or any composition with or
assignment for the benefit of all or substantially all of the creditors of the
Company, then and in any such event all Senior Indebtedness shall be paid in
full before any payment or distribution of any character, whether in cash,
securities, or other property, shall be made on account of this Note and any
such payment or distribution, except for payment by means of the transfer of
securities which are subordinate and junior in right of payment to the payment
of all Senior Indebtedness then outstanding on terms of substantially the same
tenor as this Section 5, which would, but for the provisions hereof, be payable
or deliverable in respect of this Note, shall be paid or delivered directly to
the
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holders of Senior Indebtedness (or their duly authorized representatives),
in the proportions in which they hold the same, until all Senior Indebtedness
shall have been paid in full and the Holder, by becoming a Holder, shall have
designated and appointed the holder or holders of Senior Indebtedness (and their
duly appointed representatives) as its agent and attorney-in-fact to file any
necessary proof of claim not otherwise filed. The original and each successor
Holder of this Note, by its acceptance hereof, agrees to execute, at the request
of the Company, a separate agreement with any holder of Senior Indebtedness on
the terms set forth in this Section 5.
4.4 No Payment on Note under Certain Circumstances. In the event that:
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i. Any default occurs in the payment of the principal of or interest on
any Senior Indebtedness and during the continuance of such default until such
payment has been made or such default has been cured or waived in writing by
such holder of Senior Indebtedness;
ii. Any other default occurs with respect to any Senior Indebtedness and
during the continuance of such default for a period of up to one hundred and
twenty (120) days thereafter and thereafter if the maturity of such Senior
Indebtedness has been accelerated by the holder thereof, until such acceleration
has been rescinded or such default has been cured or waived; or
iii. The maturity of any Senior Indebtedness is accelerated by any holder
thereof because of a default with respect thereto and until such acceleration
has been rescinded or said Senior Indebtedness has been paid;
then, during the continuance of any of such events, the Company shall not,
directly or indirectly, make any payment on account of, or transfer any
collateral for, any part of the Note, and the Holder shall not demand or
accept from the Company or any other person any such payment or collateral or
cancel, set off or otherwise discharge any part of the Note, and neither the
Company nor the Holder shall otherwise take or permit any action in violation of
the terms of this subordination. Notwithstanding anything to the contrary
herein, nothing herein shall be deemed at any time to delay or prohibit (a) the
tender to the Company of all or a portion of the principal amount plus accrued
interest of the Note to purchase equity securities of the Company, or (b) the
Company from converting the principal plus accrued interest on the Note any time
into equity securities of the Company.
4.5 Payments Held in Trust. In case any payment or distribution shall be
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paid or delivered to any Holder in violation or contravention of the terms of
this subordination, such payment or distribution shall, upon such Holder's
receipt of notice of such violation or contravention, be held in trust for and
paid and delivered ratably to the holders of Senior Indebtedness.
4.6 Subrogation. Subject to the payment in full of all Senior
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Indebtedness and until this Note shall be paid in full, the Holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent of
payments or distributions previously made to such holders of Senior Indebtedness
pursuant to the provisions of Subsections (b) and (d) of this Section 4) to
receive payments or distributions of assets of the Borrower applicable to the
Senior Indebtedness. No such payments or distributions applicable to the Senior
Indebtedness shall, as between the Company and its creditors (other than the
holders of Senior Indebtedness and the Holder), be deemed to be a payment by the
Company to or on account of this Note and, for purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness to which the
holder of this Note would be entitled except for the provisions of this Section
4 shall, as between the Company and its creditors (other than the holders of
Senior
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Indebtedness and the holder of this Note), be deemed to be a payment by
the Company to or on account of the Senior Indebtedness.
4.7 Scope of Section. The provisions of this Section 4 are intended
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solely for the purpose of defining the relative rights of the Holder, on the one
hand, and holders of the Senior Indebtedness, on the other hand. Nothing
contained in this Section 4 or elsewhere in this Note is intended to, or shall
impair, as between the Company and its creditors (other than the holders of
Senior Indebtedness and the Holder), the obligation of the Company, which is
unconditional and absolute, to deliver to the Holder the principal and accrued
and unpaid interest on this Note as and when the same shall become due and
payable in accordance with the terms hereof, or to affect the relative rights of
the Holder of this Note and creditors of the Company other than the holders of
the Senior Indebtedness, nor shall anything herein prevent, as between the
Company and its creditors (other than the holders of Senior Indebtedness and the
Holder), the Holder from accepting any payment with respect to this Note or
exercising all remedies otherwise permitted by applicable law upon default under
this Note.
4.8 Survival of Rights. The right of any present or future holder of
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Senior Indebtedness to enforce subordination of this Note pursuant to the
provisions of this Section 5 shall not at any time be prejudiced or impaired by
any act or failure to act on the part of the Company or any such holder,
including, without limitation, any forbearance, waiver, consent, compromise,
amendment, extension, renewal, or taking or release of security of or in respect
of any Senior Indebtedness or noncompliance by the Company with the terms of
such subordination regardless of any knowledge thereof such holder may have or
otherwise be charged with.
4.9 Amendment or Waiver. The provisions of this Section 4 shall not be
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amended or waived in any manner without the consent of the Company and of the
holders of all Senior Indebtedness.
4.10 Company to Make Payment of Principal and Accrued and Unpaid Interest.
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Except as provided in this Section 4, the Company shall make payment of
principal and accrued and unpaid interest on this Note in accordance with its
tenor. Upon any payment or distribution of assets of the Company referred to in
Section 5(b), the Holder shall be entitled to rely upon a certificate of the
receiver, trustee in bankruptcy, liquidating trustee. agent, or other person
making any such payment or distribution for the purpose of ascertaining the
person entitled to participate in such distribution, the holders of Senior
Indebtedness and other indebtedness or the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon, and all
other facts pertinent thereto or to this Section 5.
5. EVENTS OF DEFAULT.
5.1 Events of Default Defined. The principal and interest due and owing on
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this Note will become immediately due and payable, at the option of the Holder,
if the Company shall (i) fail to make any payment of principal or interest due
under this Note within forty-five (45) days when due; (ii) admit in writing its
inability to pay its debts generally as they become due, (iii) file a petition
in bankruptcy or petition to take advantage of any insolvency act, (iv) make an
assignment for the benefit of its creditors, (v) consent to the appointment of a
receiver of itself or of the whole of any substantial part of its property, (vi)
on a petition in bankruptcy filed against it, be adjudicated as a bankrupt,
(vii) file a petition or answer seeking reorganization or arrangement under the
federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state thereof, or (viii) distribute any of its assets
upon any dissolution, winding up, liquidation or reorganization of the Company.
For purposes hereof, each of the above events is hereafter referred to as a
"Event of Default".
5.2 Notification. If an Event of Default as defined above shall occur
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without the Holder's knowledge, the Company will notify the Holder promptly in
writing by mail of the Event of Default describing it in reasonable detail,
including a statement of the nature and length of existence thereof, and what
action the Company proposes to take with respect thereto.
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6. SUITS FOR ENFORCEMENT UPON DEFAULT.
If an Event of Default shall have occurred, then and in any such event the
Holder may, at any time at its option, declare the principal of and the accrued
interest due under this Note to be due and payable, whereupon the same shall
forthwith mature and become due and payable without demand, protest, notice of
protest and notice of default, presentment for payment and diligence in
collection, all of which are hereby expressly waived by the Company. In case
any Event of Default shall occur, the Holder may proceed to protect and enforce
its rights hereunder by a suit in equity, action at law or other appropriate
proceeding. The Company covenants that if default be made in any payment of any
principal or interest on this Note, it will pay to the Holder, to the extent
permitted under applicable law, such further reasonable amount as shall be
sufficient to cover the cost and expenses of collection, including reasonable
compensation to the attorneys of the Holder hereof and any court costs incurred
for all services rendered in that connection. In addition, until all amounts
are paid in respect of a Note, interest will accrue, to the extent permitted
under applicable law, on any such unpaid amounts at the rate specified herein as
the rate of interest on the Note. No course of dealing and no delay on the part
of the Holder in exercising any rights shall operate as a waiver thereof or
otherwise prejudice its rights and no consent or waiver shall extend beyond the
particular case involved. During any period of default, the conversion price
set forth in Section 3.2 shall be reduced to $.10 per share.
7. NOTICES.
Any request, demand, authorization, direction, notice, consent, waiver or
other document permitted by this Note to be made upon, given or furnished to, or
filed with the Company or the Holder shall be sufficient for every purpose
hereunder if in writing and mailed to the Company, addressed to it at 00000
Xxxxxx Xxxx Xxxx, Xxxxx 000, Xxxxxxx, Xxxxxxxx 00000 (or such subsequent address
as the Company shall advise the Holder hereof in writing) and if to the Holder
at the address for the Holder reflected in the Company's records (or at such
further address as the Holder hereof shall advise the Company in writing). All
notices required hereunder shall be deemed to have been given or made when
actually delivered to or received by the party to which the notice is addressed
at its respective address.
8. MUTILATION, DESTRUCTION, LOSS, OR REISSUANCE.
8.1 Mutilation. This Note, if mutilated, may be surrendered and thereupon the
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Company shall execute and deliver in exchange therefor a new Note of like tenor
and principal amount.
8.2 Destruction, Loss, Etc. If there is delivered to the Company (i) evidence
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of the destruction, loss, or theft of this Note and (ii) such security or
indemnity as may be required by it to save it harmless, then, in the absence of
notice to the Company that this Note has been acquired by a bona fide purchaser,
the Company shall execute and deliver in lieu of such destroyed, lost or stolen
Note, a new Note of like tenor and principal amount.
9. SUCCESSORS.
All of the covenants, stipulations, promises and agreements in this Note
contained by or on behalf of the Company shall bind and inure to the benefit of
its successors whether so expressed or not and also to the benefit of the
Holder and its successors.
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10. AMENDMENT.
The Noteholder Majority shall have the right to amend the provisions of all
the Notes; provided, however, no such amendment shall be binding on the Holder
if such amendment adversely changes the terms of payment to the Holder or
reduces the rate of interest hereunder.
11. LAWS OF VIRGINIA TO GOVERN.
This Note shall be deemed to be a contract made under the laws of the
Commonwealth of Virginia and for all purposes shall be construed in accordance
with the laws of such State.
12. TRANSFERABILITY OF NOTE.
This Note and the Shares issuable upon conversion hereof are not transferable
except pursuant to an effective registration statement under the Securities Act
of 1933, as amended, or unless an exemption from the registration provisions of
such Act is applicable.
13. HOLDER REPRESENTATION.
The Holder named in this Note hereby represents and warrants to the Company
that (i) such Holder is an "accredited investor" within the meaning of
Regulation D under the Securities Act of 1933, as amended, (ii) no other person
has a direct or indirect beneficial interest in this Note and (iii) this Note
and any shares issued upon conversion hereof is being and will be acquired for
investment only and not with a view to or for sale in connection with a
distribution thereof and not with a view to resale.
IN WITNESS WHEREOF, the Company has caused this Note to be executed in its
corporate name by its duly authorized officers and to be dated as of the day and
year first above written.
ATTEST: INFORMATION ANALSYIS INCORPORATED
__________________________ By:____________________________________
Secretary President
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CONVERSION NOTICE
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Dated: ____________
Pursuant to that certain Convertible Subordinated Note, dated ___________,
2001 in the principal amount of $__________________, the undersigned hereby
irrevocably elects to exercise its right to purchase ______________ shares of
the $.01 par value Common Stock of Information Analysis Incorporated, such right
being and as issued to the undersigned by Information Analysis Incorporated, by
converting $_____________ principal and/or interest amount under the Convertible
Subordinated Note in payment for same in accordance with the Conversion Price
specified in Section 3.2 of said Convertible Subordinated Note.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
____________________________________________
Address
____________________________________________
____________________________________________
(Please typewrite or print in block letters)
________________________________________
Signature
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