EXHIBIT 2.02
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 __, 2006
Original Conversion Price (subject to adjustment herein): $4.50
$_______________
CONVERTIBLE DEBENTURE
DUE NOVEMBER [__], 2009
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 Convertible Debenture, due November [__], 2009 (the
"DEBENTURES").
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FOR VALUE RECEIVED, the Company promises to pay to ________________________
or its registered assigns (the "HOLDER"), the principal sum of $_______________
on November [__], 2009 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 interest equal to the LIBOR
(the London Interbank Offered Rate) offered rates for deposits in U.S. dollars
having a maturity of six months commencing on the fifth London business day
immediately prior to such Interest Payment Date (as defined below), payable
quarterly on March 31, June 30, September 30 and December 31, beginning on June
30, 2006 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
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.
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This Debenture is subject to the following additional provisions:
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.
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;
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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;
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;
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vii) the Ordinary Shares shall not be quoted for trading on the
Nasdaq National Market, the New York Stock Exchange, the Nasdaq
Capital Market 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);
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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 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.
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 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.
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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 19.99% of the number of Ordinary Shares outstanding on
the Trading Day immediately preceding the Original Issue Date,
less the number of Ordinary Shares issued prior to the applicable
Conversion Date upon exercise of any Warrants issued pursuant to
the Purchase Agreement and the Original Purchase Agreement and
the conversion of any debentures pursuant to the Purchase
Agreement and the Original 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 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.
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(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 convertible debentures or 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 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.
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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.
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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 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 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.
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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 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 $4.50 (SUBJECT TO ADJUSTMENT HEREIN) (THE "SET PRICE").
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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 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 (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.
12
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:
13
(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) 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.
14
(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 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.
15
(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 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.
16
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 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.
17
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 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.
18
(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 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.
19
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.
"CAPITAL SHARES" means the Ordinary Shares and any shares of any other
class of securities whether now or hereafter authorized, having the right
to participate in the distribution of earnings and assets of the Company.
"CAPITAL SHARES EQUIVALENTS" means any securities, rights or
obligations that are convertible into or exchangeable for or give any right
to subscribe for or purchase, directly or indirectly, any Capital Shares.
"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.
20
"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.
"EXEMPT ISSUANCES" the issuance or sale of (a) Ordinary Shares or
options to purchase Ordinary Shares to employees, officers, directors or
consultants (but if to consultants, only up to 100,000 shares, subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Ordinary Shares that
occur after the date of this Agreement, in the aggregate among all
consultants during any 12 month period) of the Company pursuant to any
stock or option plan duly adopted by the Board of Directors of the Company,
(b) securities upon the exercise of or conversion of any securities issued
hereunder, convertible securities, options or warrants issued and
outstanding on the date of this Agreement, provided that such securities
have not been amended since the date of this Agreement to increase the
number of such securities (unless such amendment results from the
application of any anti dilution provisions applicable to such securities),
or (c) securities in connection with acquisitions, strategic investments,
or strategic partnering arrangements, the primary purpose of which is not
to raise capital.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"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.
21
"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.
"ORIGINAL PURCHASE AGREEMENT" means the Securities Purchase Agreement,
dated as of March 30, 2004, to which the Company and the purchasers named
therein are parties, as amended, modified or supplemented from time to time
in accordance with its terms.
"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 __, 2006, 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.
"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).
22
"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 the debentures issued pursuant
to the Original Purchase Agreement 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 the existing liens set
forth on Schedule 3.1(y) of the Disclosure Schedules of the Purchase Agreement)
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.
23
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 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 and with the debentures issued
pursuant to the Original Purchase Agreement. So long as at least 20% of the
original principal amount of the Debentures issued on the Original Issue Date
and the debentures issued pursuant to the Original Purchase Agreement 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 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.
24
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 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:
26
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Convertible
Debenture of BluePhoenix Solutions Ltd., an Israeli corporation (the "COMPANY"),
due on November [__], 2009, 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:
27
SCHEDULE 1
CONVERSION SCHEDULE
Convertible Debentures due on November [__], 2009, 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
Remaining
Subsequent to
Conversion
Date of Conversion (or original
(or for first entry, Amount of Principal
Original Issue Date) Conversion Amount) Company Attest
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