NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
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.
No. A-1 $3,000,000
IAT MULTIMEDIA, INC.
SERIES A 5% CONVERTIBLE DEBENTURE
DUE JUNE 19, 2001(1)
THIS DEBENTURE is the sole duly authorized issued debenture(2) of IAT
Multimedia, Inc., a Delaware corporation, having a principal place of business
at Geschaftshaus Xxxxxxxxxxxxx Xxxxxxxxxxx 00, XX-0000 Xxxxxxxxx-Xxxxx,
Xxxxxxxxxxx (the "Company"), designated as its Series A 5% Convertible
Debentures, due June 19, 2001(3) (the "Debentures"), in an aggregate principal
amount of $3,000,000. All references to $ and dollars shall be to US$ or United
States dollars.
FOR VALUE RECEIVED, the Company promises to pay to JNC Opportunity
Fund Ltd., or registered assigns (the "Holder"), the principal sum of Three
Million Dollars ($3,000,000), on or prior to June 19, 2001(4) or such earlier
date as the Debentures are required to be repaid as provided hereunder (the
"Maturity Date") and to pay interest to the Holder on the principal sum at the
rate of 5% per annum, payable quarterly in arrears commencing June 30, 1998(5),
but in no event later than the earlier to occur of a Conversion Date (as
defined below) for such principal amount or the Maturity Date. Interest shall
accrue daily commencing on the Original Issue Date (as defined in Section 6)
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
except that interest shall cease to accrue if the Per Share Market Value (as
defined in Section 6) shall be equal to or greater than $13.50 for 30
consecutive Trading Days (as defined in Section 6) during any calendar quarter.
Interest shall be calculated on the basis of a 360-day year and for the actual
number of days elapsed.
--------------
(1) Adjust for Series B Debentures.
(2) Adjust for Series B Debentures.
(3) Adjust for Series B Debentures.
(4) Adjust for Series B Debentures.
(5) Adjust for Series B Debentures.
Interest hereunder will be paid to the Person (as defined in Section 6) in
whose name this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the "Debenture Register"). All
overdue, accrued and unpaid interest and other amounts due hereunder shall bear
interest at the rate of 15% per annum (to accrue daily) from the date such
interest is due hereunder through and including the date of payment. The
principal of, and interest on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address of the Holder
last appearing on the Debenture Register, except that interest due on the
principal amount (but not overdue interest) may, at the Company's option, be
paid in shares of Common Stock (as defined in Section 6) calculated based upon
the Conversion Price (as defined below) on the date such interest was due. All
amounts due hereunder other than such interest shall be paid in cash.
Notwithstanding anything to the contrary contained herein, the Company may not
issue shares of Common Stock in payment of interest on the principal amount if:
(i) the number of shares of Common Stock at the time authorized, unissued and
unreserved for all purposes, or held as treasury stock, is insufficient to pay
interest hereunder in shares of Common Stock; (ii) if such interest is due on
or after the earlier of (x) the date that an Underlying Securities Registration
Statement (as defined in Section 6) is declared effective by the Commission (as
defined in Section 6) and (y) the Effectiveness Date (as defined under the
Registration Rights Agreement), such shares are not either registered for
resale pursuant to an Underlying Securities Registration Statement or freely
transferable without volume restrictions pursuant to Rule 144(k) promulgated
under the Securities Act, as determined by counsel to the Company pursuant to a
written opinion letter addressed and in form and substance reasonably
acceptable to the Holder and the transfer agent for such shares; (iii) such
shares are not listed or quoted on the Nasdaq National Market ("NASDAQ") or on
the New York Stock Exchange, American Stock Exchange or the Nasdaq SmallCap
Market (each, a "Subsequent Market"); or (iv) unless the recipient shall have
waived the restriction of this clause (iv), the issuance of such shares would
result in the recipient thereof beneficially owning more than 4.999% of the
issued and outstanding shares of Common Stock as determined in accordance with
Rule 13d-3 under the Exchange Act; provided, that any interest not payable in
shares of Common Stock because of this clause (iv) may be deferred (without
being deemed overdue) until such time as the recipient notifies the Company
either of its waiver of the restriction set forth in this clause (iv) or that
such restriction is no longer applicable for such interest payment. Payment of
interest on the principal amount in shares of Common Stock is further subject
to the provisions of Section 4(a)(ii).
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 but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of
Debentures outstanding to such Holder. No service charge will be made for such
registration of 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 (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due
-2-
presentment to the Company for transfer of this Debenture, the Company and any
agent of the Company may treat the Person (as defined in Section 6) 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 the principal of, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether
on the applicable quarterly interest payment date, a Conversion Date or the
Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach of, this
Debenture, the Purchase Agreement or the Registration Rights Agreement, and
such failure or breach shall not have been remedied within 15 days after
the date on which notice of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or there
shall be commenced against the Company or any such subsidiary a case under
any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company 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
any subsidiary thereof or there is commenced against the Company or any
subsidiary thereof any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 90 days; or the Company or any
subsidiary thereof 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 subsidiary thereof 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 90 days; or the Company
or any subsidiary thereof 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 subsidiary thereof shall call a meeting
of its creditors with a view to arranging a composition or adjustment of
its debts; or the Company or any subsidiary thereof shall by any act or
failure to act 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 subsidiary thereof for the purpose of effecting any of the
foregoing;
-3-
(iv) the Company shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount exceeding
two hundred fifty thousand dollars ($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;
(v) the Common Stock shall be delisted from the NASDAQ or shall be
suspended from trading on the NASDAQ without resuming trading and/or being
relisted thereon or on a Subsequent Market or having such suspension
lifted, as the case may be, within three (3) days;
(vi) the Company shall be a party to any Change of Control Transaction
(as defined in Section 6), shall agree to sell or dispose all or in excess
of 50% of its assets in one or more transactions (whether or not such sale
would constitute a Change of Control Transaction), or shall redeem more
than a de minimis number of shares of Common Stock or other equity
securities of the Company (other than redemptions of Underlying Shares(6));
(vii) an Underlying Securities Registration Statement shall not have
been declared effective by the Commission on or prior to the Effectiveness
Date;
(viii) an Event (as hereinafter defined) shall not have been cured to
the satisfaction of the Holder prior to the expiration of thirty (30) days
from the Event Date (as defined below) relating thereto (other than an
Event resulting from a failure of an Underlying Securities Registration
Statement to be declared effective by the Commission on or prior to the
Effectiveness Date); or
(ix) the Company shall fail for any reason to deliver certificates to
a Holder prior to the twelfth (12th) day after the Conversion Date pursuant
to 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
(x) the Company shall fail for any reason to deliver the payment in
cash pursuant to a Buy-In within seven (7) days after notice is deemed
delivered hereunder.
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become, immediately
due and payable in cash. The aggregate amount payable upon an Event of Default
shall be equal to the sum of (i) the Mandatory Prepayment Amount plus (ii) the
product of (A) the number
--------------
(6) Adjust for Series B Debentures to permit redemption of Series A
Debenture Underlying Shares.
-4-
of Underlying Shares issued in respect of conversions hereunder or as payment
of interest hereunder, in either case, within thirty (30) days of the date of a
declaration of an Event of Default and then held by the Holder and (B) the Per
Share Market Value on the date prepayment is due or the date the full
prepayment price is paid, whichever is greater. Interest shall accrue on the
prepayment amount hereunder from the seventh day after such amount is due
(being the date of an Event of Default) through the date of payment in full
thereof at the rate of 15% per annum. All Debentures and Underlying Shares for
which the full repayment price hereunder shall have been paid in accordance
herewith shall be promptly 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 and without
expiration of any grace period 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. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon.
Section 4. Conversion.
(a) (i) Conversion at Option of Holder. This Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in whole
or in part but subject to the limitations set forth herein, at any time and
from time to time, after the Original Issue Date; provided, that the Holder may
not resell Underlying Shares issued upon conversions of Debentures under this
Section 4(a)(i) until the 270th day after the Original Issue Date. During any
30-day period thereafter, the number of Underlying Shares issued upon
conversions under this Section 4(a)(i) that the Holder shall be permitted to
resell shall be limited to the greater of (x) the number of Underlying Shares
issuable upon conversion of $1,000,000 of Debentures (measured by the
Conversion Price on the applicable Conversion Date, as defined below) and (y)
25% of the average of the daily trading volume of Common Stock during such
30-day period. The number of shares of Common Stock issuable upon a conversion
hereunder shall be determined by dividing the outstanding principal amount of
this Debenture to be converted, plus all accrued but unpaid interest thereon,
by the Conversion Price (as defined below). The Holder shall effect conversions
by surrendering the Debentures (or such portions thereof) to be converted,
together with the form of conversion notice attached hereto as Exhibit A (a
"Holder Conversion Notice") to the Company. Each Holder Conversion Notice shall
specify the principal amount of Debentures to be converted and the date on
which such conversion is to be effected, which date may not be prior to the
date such Holder Conversion Notice is deemed to have been delivered hereunder
(a "Holder Conversion Date"). If no Holder Conversion Date is specified in a
Holder Conversion Notice, the Holder Conversion Date shall be the date that
such Holder Conversion Notice is deemed delivered hereunder. Subject to Section
4(b), each Holder Conversion Notice, once given, shall be irrevocable. If the
Holder is converting less than all of the principal amount represented by the
Debenture(s) tendered by the Holder with the Holder Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall honor such conversion to the extent permissible hereunder and shall
promptly deliver to such Holder (in the manner and within the time set forth in
Section 4(b)) a new Debenture for such principal amount as has not been
converted.
-5-
(ii) Conversion at the Option of the Company. Subject to the
provisions of this paragraph, this Debenture shall be convertible into shares
of Common Stock at the option of the Company, in whole or in part, at any time
and from time to time, after the date that the Commission declares effective an
Underlying Securities Registration Statement. The number of shares of Common
Stock issuable upon a conversion hereunder shall be determined by dividing the
outstanding principal amount of this Debenture to be converted, plus all
accrued but unpaid interest thereon, by the Conversion Price, as subject to
adjustment as provided hereunder. Notwithstanding the foregoing, the Company
shall not be permitted to deliver requests for the conversion of Debentures if
(a)(1) an Underlying Securities Registration Statement is not then effective or
(2) the Holder is permitted to resell Underlying Shares pursuant to Rule 144(k)
promulgated under the Securities Act, without volume restrictions, as evidenced
by an opinion letter of counsel to the Company and reasonably acceptable to the
Holder and the transfer agent for the Common Stock; (b) there are not
sufficient shares of Common Stock authorized and reserved for issuance upon
such conversion; or (c) the Company shall have defaulted on its covenants and
obligations hereunder or under the Purchase Agreement or Registration Rights
Agreement and such default shall be continuing or the Company shall have failed
to timely deliver Underlying Shares upon conversions hereunder which failure to
deliver Underlying Shares shall not have been cured within five (5) days after
such delivery was due. The Company shall exercise its right to require
conversions by delivering to the Holder the form of conversion notice attached
hereto as Exhibit B (a "Company Conversion Notice"). Each Company Conversion
Notice shall specify the principal amount of Debentures to be converted and the
date on which such conversion is to be effected, which date may not be prior to
the date such Company Conversion Notice is deemed to have been delivered
hereunder (a "Company Conversion Date"). If no Company Conversion Date is
specified in a Company Conversion Notice, the Company Conversion Date shall be
the date that such Company Conversion Notice is deemed delivered hereunder.
Subject to Section 4(b) hereof, each Company Conversion Notice, once given,
shall be irrevocable. If the Company is requiring conversion of less than all
of the principal amount represented by the Debenture(s) tendered by the Holder
in response to such Company Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall honor such
conversion to the extent permissible hereunder and shall promptly deliver to
such Holder (in the manner and within the time set forth in Section 4(b)) a new
Debenture for such principal amount as has not been converted. Notwithstanding
anything to the contrary contained herein, a conversion pursuant to this
Section shall not be subject to the provisions of Section 4(a)(iv)(A). A Holder
Conversion Date, a Company Conversion Date and the date that a conversion under
Section 4(a)(iii) is required are each sometimes referred to herein as the
"Conversion Date" and a Holder Conversion Notice and a Company Conversion
Notice are sometimes referred to as a "Conversion Notice."
(iii) Automatic Conversion. Subject to the provisions in this
paragraph, the principal amount of Debentures for which Conversion Notices have
not previously been received or for which prepayment has not been made or
required hereunder shall be automatically converted on the second anniversary
of the date that the Commission declares effective an Underlying Securities
Registration Statement, at the Conversion Price on such date. The conversion
contemplated by this paragraph shall not occur if (a) neither (1) an Underlying
Securities Registration Statement is then effective nor (2) the Holder is
permitted to resell Underlying Shares pursuant to Rule 144(k) promulgated under
the Securities Act, without volume restrictions, as evidenced by an opinion
letter of counsel to the
-6-
Company and reasonably acceptable to the Holder and the transfer agent for the
Common Stock; (b) there are not sufficient shares of Common Stock authorized
and reserved for issuance upon such conversion; and (c) the Company shall have
defaulted on its covenants and obligations hereunder or under the Purchase
Agreement or Registration Rights Agreement and such default shall be
continuing. Any days after the date that the Underlying Securities Registration
Statement is declared effective by the Commission for which the Holder is not
permitted to resell Underlying Shares thereunder shall be added to the days
before which the conversion under this paragraph shall be triggered.
Notwithstanding anything to the contrary contained herein, a conversion
pursuant to this Section shall not be subject to the provisions of Section
4(a)(iv)(A).
(iv) Certain Conversion Restrictions
(A) The Holder agrees not to convert Debentures to the extent
such conversion would result in the Holder beneficially owning (as determined
in accordance with Section 13(d) of the Exchange Act and the rules thereunder)
in excess of 4.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of the Debentures held by such Holder
after application of this Section. To the extent that the limitation contained
in this Section applies, the determination of whether Debentures are
convertible (in relation to other securities owned by a Holder) and of which
portion of the principal amount of such Debentures are convertible shall be in
the sole discretion of the Holder, and the submission of Debentures for
conversion shall be deemed to be the Holder's determination of whether such
Debentures are convertible (in relation to other securities owned by the
Holder) and of which portion of such Debentures are convertible, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of the Holder to convert
Debentures at such time as such conversion will not violate the provisions of
this Section. The provisions of this Section will not apply to any conversion
pursuant to Section 4(a)(ii) or 4(a)(iii) of this Debenture, and may be waived
by a Holder (but only as to itself and not to any other Holder) upon not less
than 75 days prior notice to the Company (in which case, the Holder shall make
such filings with the Commission, including under Rule 13D or 13G, as are
required by applicable law), and the provisions of this Section shall continue
to apply until such 75th day (or later, if stated in the notice of waiver).
Other Holders shall be unaffected by any such waiver.
(B) Notwithstanding anything to the contrary contained herein,
the principal amount of Debentures subject to conversion pursuant to Sections
4(a)(ii) and 4(a)(iii) shall not exceed the principal amount of Debentures
that, when converted, would result in an issuance to the Holder of a number of
shares of Common Stock which, when added to all other shares of Common Stock
beneficially owned by the Holder at the time of such conversion (as determined
in accordance with Section 16(a) of the Exchange Act), would result in the
Holder beneficially owning in excess of 9.999% of the then issued and
outstanding shares of Common Stock (as determined in accordance with Section 16
(a) of the Exchange Act). Any portion of the principal amount of the Debentures
for which conversion shall not be permitted because of this Section shall occur
from time to time thereafter (at the option of the Company), at the Conversion
Price at the time of such subsequent conversion, to the extent that the
resulting issuance of Underlying Shares would not then result in a violation of
this Section.
-7-
(C) Notwithstanding anything to the contrary contained herein, if
(x) the Common Stock is listed for trading on the NASDAQ or the Nasdaq SmallCap
Market and (y) the Company shall not have previously obtained the vote of
shareholders (the "Shareholder Approval"), if any, as may be required by the
applicable rules and regulations of the Nasdaq Stock Market (or any successor
entity) to approve the issuance of shares of Common Stock in excess of the
Issuable Maximum (as defined below) in a private placement whereby shares of
Common Stock are deemed to have been issued at a price that is less than the
greater of book value or fair market of the Common Stock, then the maximum
number of shares of Common Stock issuable upon conversion of Debentures and the
Company's Series B 5% Convertible Debentures ("Series B Debentures")(7), if
any, that are issued pursuant to the Purchase Agreement, and, in each case, as
payment of interest thereon, at a conversion price that is less than the
closing sales price of the Common Stock on the Series A Closing Date, is
1,939,419, subject to adjustment as a result of stock splits, combinations,
reclassifications and other similar events (such number of shares of Common
Stock, the "Issuable Maximum"). If on any Conversion Date, the Company would be
required to issue a number of shares of Common Stock that, when added to all
other shares of Common Stock previously issued in respect of conversions of
Debentures and Series B Debentures, and as payment of interest thereon, would
exceed the Issuable Maximum, then the Company shall issue to the Holder upon
such a conversion a number of shares of Common Stock equal to the Issuable
Maximum and, with respect to the remainder of the principal amount of
Debentures and Series B Debentures, if any, then held by such Holder for which
a conversion in accordance with the Conversion Price would result in a issuance
of shares of Common Stock in excess of the Issuable Maximum (the "Excess
Principal"), the Company shall have the option, exercisable by written notice
to the Holders delivered within seven (7) days after the triggering Conversion
Date, to use its best efforts to obtain the Shareholder Approval applicable to
such issuance (without penalty or stepped up interest unless such Shareholder
Approval is not obtained in a timely fashion hereunder) as soon as possible,
but in any event not later than the 90th day after the date of such notice. If
the Company does not deliver timely a notice of its election to seek the
Shareholder Approval under this Section or shall, if it shall have delivered
such a notice, fail to obtain the Shareholder Approval in the time period
provided in the immediately prior sentence, then the Holders representing 50%
of the then outstanding aggregate principal amount of Debentures and Series B
Debentures(8) shall have the option to declare any such notice by the Company,
if given, to be null and void ab initio and require the Company to pay cash to
the Holders in an amount equal to the sum of (1) 130% of the Excess Principal
and (2) all other amounts, accrued and unpaid interest, costs, expenses and
liquidated damages due in respect of such Debentures and the Series B
Debentures. Interest shall accrue on the prepayment price under this Section at
the rate of 15% per annum commencing the Conversion Date that would result in
the issuance of Underlying Shares in excess of the Issuable Maximum but for the
provisions hereof, and shall continue to accrue until such prepayment price,
plus all such accrued interest, shall have been paid in full. The prepayment
price, plus all interest thereon, shall be due and payable on the earlier to
occur of the date that is 22 months following the (x) date that the Commission
declares effective an Underlying Securities Registration Statement and (y) the
Effectiveness Date.
--------------
(7) With applicable changes for Series B Debentures.
(8) With applicable changes for Series B Debentures.
-8-
(b) (i) Not later than three Trading Days after the Conversion Date,
the Company will deliver or cause to be delivered to the Holder (i) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement) representing the number of shares of the Common Stock being
acquired upon the conversion of Debentures, (ii) Debentures in a principal
amount equal to the principal amount of Debentures not converted; (iii) a bank
check in the amount of all accrued and unpaid interest (if the Company has
elected to pay accrued interest in cash), together with all other amounts then
due and payable in accordance with the terms hereof, in respect of Debentures
tendered for conversion, and (iv) if the Company has elected and is permitted
hereunder to pay accrued interest in shares of the Common Stock, certificates,
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement), representing such
number of shares of the Common Stock as equals such interest divided by the
Conversion Price calculated on the Conversion Date; provided, however, that the
Company shall not be obligated to issue certificates evidencing the shares of
the Common Stock issuable upon conversion of the principal amount of Debentures
until Debentures are delivered for conversion to the Company or the Holder
notifies the Company that such Debenture has been mutilated, lost, stolen or
destroyed and complies with Section 9 hereof. If such certificate or
certificates, including for purposes hereof, any shares of the Common Stock to
be issued on the Conversion Date on account of accrued but unpaid interest
hereunder, are not delivered to or as directed by the Holder by the third
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 (whether subject to a
Holder Conversion Notice, a Company Conversion Notice or a conversion pursuant
to Section 4(a)(iii)), in which event the Company shall immediately return the
Debentures tendered for conversion. If the Company fails to deliver to the
Holder such certificate or certificates pursuant to this Section, including for
purposes hereof, any shares of the Common Stock to be issued on the Conversion
Date on account of accrued but unpaid interest hereunder, by the third Trading
Day after the Conversion Date, the Company shall pay to such Holder, in cash,
as liquidated damages and not as a penalty, $2,500 for each day thereafter
until the Company delivers such certificates (such amount shall be also be due
for each Trading Day after the date that the Holder may rescind such conversion
until such date as the Holder shall have received the return of the principal
amount of Debentures relating to such rescission).
(ii) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), including for purposes hereof, any shares of
Common Stock to be issued on the Conversion Date on account of accrued but
unpaid interest hereunder, by the third Trading Day after the Conversion Date,
and if after such the third Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock 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 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 shares of Common Stock so purchased
exceeds (y) the aggregate principal amount of Debentures for which such
conversion was not timely honored. For example, if the Holder purchases shares
of Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of $10,000 aggregate principal amount of
Debentures, the Company shall be
-9-
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.
(c)(i) The conversion price (the "Conversion Price") in effect on any
Conversion Date shall be the lesser of (A) 120% of the Average Price calculated
on the Original Issue Date (the "Initial Conversion Price")(9), and (B) 87%
(the "Discount Rate") of the average of the five lowest Per Share Market Values
during the 15 Trading Days immediately preceding the Conversion Date; provided,
that such 15 Trading Day period shall be extended for the number of Trading
Days during such period in which (A) trading in the Common Stock is suspended
by the NASDAQ or a Subsequent Market on which the Common Stock is then listed,
or (B) after the date declared effective by the Commission, the Underlying
Securities Registration Statement is not effective, or (C) after the date
declared effective by the Commission, the Prospectus included in the Underlying
Securities Registration Statement may not be used by the Holder for the resale
of Underlying Shares. If (a) an Underlying Securities Registration Statement is
not filed on or prior to the Filing Date (as defined under the Registration
Rights Agreement) (if the Company files such Underlying Securities Registration
Statement without affording the Holder the opportunity to review and comment on
the same as required by Section 3(a) of the Registration Rights Agreement, the
Company shall not be deemed to have satisfied this clause (a) until the
Purchasers shall have had four (4) Business Days to review and approve such
Underlying Securities Registration Statement or, if the Purchasers shall have
comments on such Underlying Securities Registration Statement, an amendment
including such comments shall have been filed with the Commission), or (b) the
Company fails to file with the Commission a request for acceleration in
accordance with Rule 12d1-2 promulgated under the Exchange Act, within five (5)
days of the date that the Company is notified (orally or in writing, whichever
is earlier) by the Commission that an Underlying Securities Registration
Statement will not be "reviewed," or not subject to further review, or (c) the
Underlying Securities Registration Statement is not declared effective by the
Commission on or prior to the Effective Date, or (d) such Underlying Securities
Registration Statement is filed with and declared effective by the Commission
but thereafter ceases to be effective as to all Registrable Securities at any
time prior to the expiration of the "Effectiveness Period" (as defined in the
Registration Rights Agreement), without being succeeded within ten (10) days by
an amendment to such Underlying Securities Registration Statement or by a
subsequent Underlying Securities Registration Statement filed with and declared
effective by the Commission, or (e) the Common Stock shall be delisted or
suspended from trading on the NASDAQ or on any Subsequent Market for more than
three (3) Business Days, (f) the conversion rights of the Holders are suspended
for any reason or (g) an amendment to the Underlying Securities Registration
Statement is not filed by the Company with the Commission within ten (10) days
of the Commission's notifying the Company that such amendment is required in
order for the Underlying Securities Registration Statement to be declared
effective (any such failure or breach being referred to as an "Event," and for
purposes of clauses (a), (c), (f) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five (5) day period is exceeded,
or for purposes of clauses (d) and (g) the date which such 10 day-period is
exceeded, or for purposes of clause (e) the date on which such three (3)
Business Day-period is exceeded, being referred to as "Event Date"), then each
of the Initial Conversion Price and the Discount Rate shall be decreased by
2.0% on the Event Date and each monthly anniversary thereof until the earlier
to
--------------
(9) $13.45 for the Series A Debentures.
-10-
occur of the second month anniversary after the Event Date and such time as the
applicable Event is cured (i.e., the Discount Rate would be lowered to 85% as
of the Event Date and 83% as of the one month anniversary of such Event Date).
Commencing on the second month anniversary after the Event Date, the Holder
shall have the option to either (x) require further cumulative 2.0% discounts
to continue or (y) require the Company to pay to the Holder 2.0% of the
aggregate principal amount of Debentures then held by such Holder, in cash, as
liquidated damages and not as a penalty, on the first day of each monthly
anniversary of the Event Date, until such time as the applicable Event is
cured. Any decrease in the Initial Conversion Price and the Discount Rate
pursuant to this Section shall remain in effect notwithstanding the fact that
the Event causing such decrease has been subsequently cured and further monthly
decreases have ceased. The provisions of this Section are not exclusive and
shall in no way limit the Company's obligations under the Registration Rights
Agreement.
(ii) If the Company, at any time while any Debentures are outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the determination
of stockholders 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 any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common Stock
(and not to Holders of Debentures) entitling them to subscribe for or purchase
shares of the Common Stock at a price per share less than the Per Share Market
Value of the Common Stock at the record date mentioned below, the Initial
Conversion Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock (excluding treasury shares,
if any) outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of the Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the
Common Stock (excluding treasury shares, if any) 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 such Per Share Market Value. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights or warrants. However, upon the expiration of any right or warrant
to purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this Section, if any
such right or warrant shall expire and shall not have been exercised, the
Initial Conversion Price shall immediately upon such expiration be recomputed
and effective immediately upon such expiration be increased to the price which
it would have been (but reflecting any other adjustments in the Initial
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Conversion Price made pursuant to the provisions of this Section 4 after the
issuance of such rights or warrants) had the adjustment of the Initial
Conversion Price made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that number of shares
of the Common Stock actually purchased upon the exercise of such rights or
warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable with
respect to Common Stock Equivalents (as defined below), at any time while
Debentures are outstanding, shall issue shares of Common Stock or rights,
warrants, options or other securities or debt that is convertible into or
exchangeable for shares of Common Stock ("Common Stock Equivalents") entitling
any Person to acquire shares of Common Stock at a price per share less than the
Conversion Price, then the Conversion Price shall be multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of shares of Common Stock or such
Common Stock Equivalents plus the number of shares of Common Stock which the
offering price for such shares of Common Stock or Common Stock Equivalents
would purchase at the Conversion Price, and the denominator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior
to such issuance plus the number of shares of Common Stock so issued or
issuable, provided, that for purposes hereof, all shares of Common Stock that
are issuable upon exercise or exchange of Common Stock Equivalents shall be
deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued.
(v) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of the Common Stock (and not to Holders of
Debentures) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of the Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market
Value of the Common Stock 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 share of the Common Stock as
determined by the Board of Directors in good faith; provided, however, that in
the event of a distribution exceeding ten percent (10%) of the net assets of
the Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an "Appraiser")
selected in good faith by the holders of a majority in interest of Debentures
then outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
-12-
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts
then owing hereunder in respect of this Debenture only into the shares of stock
and other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock
of the Company into which the then outstanding principal amount, together with
all accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay the aggregate of its outstanding principal amount of
Debentures, plus all interest and other amounts due and payable thereon, at a
price determined in accordance with Section 3(b). The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vii) 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.
(viii) Whenever the Initial Conversion Price is adjusted pursuant to
any of Section 4(c)(ii) - (v), the Company shall promptly mail to each Holder
of Debentures a notice setting forth the Initial Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(ix) If (A) the Company shall declare a dividend (or any other
distribution) on its Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock
of the Company, 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 of exchange whereby the Common Stock is 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, and 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 of Debentures at their
last addresses as they shall appear upon the stock books of the Company, 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 Common Stock 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 Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, sale,
-13-
transfer or share exchange; provided, however, 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.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock 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 shares of the Common Stock 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(c)) upon the conversion
of the outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, registered for
public sale in accordance with such Underlying Securities Registration
Statement.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value 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
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock 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 of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed to
the Company, at 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, XX 00000 (facsimile number
(000) 000-0000), attention Xxxxx Xxxx, 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, with a copy to Xxxxx & XxXxxxxx, 000
Xxxxx Xxxxxx, Xxx Xxxx, XX 00000 (facsimile number (000) 000-0000), attention
Xxxxxxx Xxxxxxxxxxx. 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 or sent by certified or registered mail, postage prepaid,
-14-
addressed to each Holder of the Debentures at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. 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 8:00 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 8:00 p.m. (New York City time) on
any date and earlier than 11:59 p.m. (New York City time) on such date, (iii)
four days after deposit in the United States mail, (iv) the Business Day
following the date of mailing, if send by nationally recognized overnight
courier service, or (v) upon actual receipt by the party to whom such notice is
required to be given.
Section 5. Optional Prepayment.
(a) The Company shall have the right to prepay, exercisable at any
time upon twenty (20) days prior written notice to the Holders of the
Debentures to be prepaid and accompanied by any waiver required by holders of
senior indebtedness of the Company for such prepayment (the "Optional
Prepayment Notice"), from funds legally available therefor at the time of such
prepayment, all or any portion of the outstanding principal amount of the
Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered hereunder, at a price equal to the
Optional Prepayment Price (as defined below). Any such prepayment by the
Company shall be in cash and shall be free of any claim of subordination. The
Holders shall have the right to tender, and the Company shall honor, Conversion
Notices delivered prior to the expiration of the twentieth (20th) day after
receipt by the Holders of an Optional Prepayment Notice for such Debentures
(such date, the "Optional Prepayment Date").
(b) If any portion of the Optional Prepayment Price shall not be paid
by the Company by the second Business Day following the Optional Prepayment
Date, the Optional Prepayment Price shall be increased by 15% per annum (to
accrue daily) until paid (which amount shall be paid as liquidated damages and
not as a penalty). In addition, if any portion of the optional Prepayment Price
remains unpaid through the expiration of the Optional Prepayment Date, the
Holder subject to such prepayment may elect by written notice to the Company to
either (x) demand conversion in accordance with the formula and the time period
therefor set forth in Section 4 of any portion of the principal amount of
Debentures for which the Optional Prepayment Price, plus accrued liquidated
damages thereof, has not been paid in full (the "Unpaid Prepayment Principal
Amount"), in which event the applicable Per Share Market Value shall be the
lower of the Per Share Market Value calculated on the Optional Prepayment Date
and the Per Share Market Value as of the Holder's written demand for
conversion, or (y) invalidate ab initio such optional redemption,
notwithstanding anything herein contained to the contrary. If the Holder elects
option (x) above, the Company shall within three (3) Trading Days such election
is deemed delivered hereunder to the Holder the shares of Common Stock issuable
upon conversion of the Unpaid Prepayment Principal Amount subject to such
conversion demand and otherwise perform its obligations hereunder with respect
thereto; or, if the Holder elects option (y) above, the Company shall promptly,
and in any event not later than three Trading Days from receipt of notice of
such election, return to the Holder new Debentures for
-15-
the full Unpaid Prepayment Principal Amount. If, upon an election under option
(x) above, the Company fails to deliver the shares of Common Stock issuable
upon conversion of the Unpaid Prepayment Principal Amount within the time
period set forth in this Section, the Company shall pay to the Holder in cash,
as liquidated damages and not as a penalty, $2,500 per day until the Company
delivers such Common Stock to the Holder.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Average Price" on any date means the average Per Share Market Value
for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other government action to close.
"Change of Control Transaction" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of in
excess of 33% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, unless following such transaction, the holders of the Company's
securities continue to hold at least 33% of such securities following such
transaction or (iv) 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), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $.01 par value per share, of
the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion 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
the Average Price on (x) the date the Mandatory Prepayment Amount is demanded
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.
"Optional Prepayment Price" for any Debentures shall equal the sum of
(i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided
-16-
by the Conversion Price on (x) the Optional Prepayment Date or (y) the date the
Optional Prepayment Price is paid in full, whichever is less, multiplied by the
Average Price on (x) the Optional Prepayment Date or (y) the date the Optional
Prepayment Price is paid in full, whichever is greater, and (ii) all other
amounts, expenses, costs and liquidated damages due in respect of such
principal amount.
"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.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on the NASDAQ or on such
Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ
or on such Subsequent Market on the date nearest preceding such date, or (b) if
the Common Stock is not then listed or quoted on the NASDAQ or a Subsequent
Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the Holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the
Holders of a majority in interest of the principal amount of Debentures then
outstanding.
"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 Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holders of Debentures, 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 Original Issue Date, between the Company and the
original Holders of Debentures, as amended, modified or supplemented from time
to time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Day" means (a) a day on which the Common Stock is traded on
the NASDAQ or on such Subsequent Market on which the Common Stock is then
listed or quoted, or (b) if the Common Stock is not listed on the NASDAQ or a
Subsequent Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices);
-17-
provided, however, that in the event that the Common Stock is not listed or
quoted as set forth in (a), (b) and (c) hereof, then Trading Day shall mean any
day except Saturday, Sunday and any day which shall be a legal holiday or a day
on which banking institutions in the State of New York are authorized or
required by law or other government action to close.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of Debentures or as payment of interest in accordance with the terms
hereof.
"Underlying Securities 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 stockholder" thereunder.
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 obligation of
the Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. 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 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holders hereby irrevocably
submit to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, 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 that such
suit, action or proceeding is improper. Each of the Company and the Holder
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by receiving a copy thereof
sent to the Company at the address in effect for notices to it under this
instrument and agrees that such service shall constitute good and sufficient
service of process and
-18-
notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.
Section 11. 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 12. 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.
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
IAT MULTIMEDIA, INC.
By: /s/ Xxxxx Xxxx
-----------------------------
Name: Xxxxx Xxxx
Title: Xxxxx Xxxx
Attest:
By:
--------------------------
Name:
Title:
-20-
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. A-1 into shares of
common stock, $.01 par value per share (the "Common Stock"), of IAT Multimedia,
Inc. (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
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.
Conversion calculations:
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Date to Effect Conversion
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Principal Amount of Debentures to be Converted
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Number of shares of Common Stock to be Issued
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Applicable Conversion Price
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Signature
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Name
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Address
EXHIBIT B
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of IAT Multimedia, Inc. (the
"Company") hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to Series A 5% Debentures Due June 19, 2001
("Debentures") held by the Holder into shares of Common Stock, par value $.01
per share (the "Common Stock") of the Company according to the terms hereof, as
of the date written below. No fee will be charged to the Holder for any
conversion hereunder, except for such transfer taxes, if any which may be
incurred by the Company if shares are to be issued in the name of a person
other than the person to whom this notice is addressed.
Conversion calculations:
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Date to Effect Conversion
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Principal Amount of Debentures to be Converted
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Number of shares of Common Stock to be Issued
----------------------------------------------
Applicable Conversion Price
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Signature
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Name
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Address
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