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EXHIBIT 10.60
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. IT MAY NOT BE TRANSFERRED,
ASSIGNED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION
OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED BECAUSE OF AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
THIS DEBENTURE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE DEBENTURE IN
THE EVENT OF A REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION
OR CONVERSION OF ANY PORTION OF THIS DEBENTURE, THE OUTSTANDING PRINCIPAL AMOUNT
REPRESENTED BY THIS DEBENTURE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND THE
ACCRUED INTEREST SET FORTH BELOW. ACCORDINGLY, ANY POTENTIAL ASSIGNEE MAY WISH
TO, BUT IS NOT OBLIGATED TO, CONFIRM THE OUTSTANDING PRINCIPAL AMOUNT
REPRESENTED HEREBY WITH THE COMPANY, IN ADDITION TO THE ASSIGNOR.
NO. 1 $15,000,000
DATED: AS OF JUNE 5, 2000
APPLIEDTHEORY CORPORATION
5% CONVERTIBLE DEBENTURE DUE JUNE 5, 2003
THIS DEBENTURE ("DEBENTURE") is one of a duly authorized issue of
debentures of APPLIEDTHEORY CORPORATION (the "COMPANY"), a corporation duly
organized and existing under the laws of the State of Delaware, designated as
the Company's 5% Convertible Debentures Due June 5, 2003, in an aggregate
principal amount of Thirty Million U.S. Dollars (U.S. $30,000,000) (the
"DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to HALIFAX FUND, L.P.,
the initial holder hereof, or its order (including successors-in-interest, the
"HOLDER"), the principal sum of Fifteen Million U.S. Dollars (U.S. $15,000,000)
on June 5, 2003 (the "MATURITY DATE") and to pay interest on the principal sum
outstanding under this Debenture ("OUTSTANDING PRINCIPAL AMOUNT"), at the rate
of 5% per annum, compounded semi-annually, payable in arrears on the first day
of December and June of each year and on the Maturity Date (each an "INTEREST
PAYMENT DATE"), with the first such payment due on December 5, 2000. Interest
shall accrue daily commencing on the date hereof and shall continue until
payment in full of all amounts due under this Debenture. The interest so payable
will be paid to the person in whose name this Debenture is registered on the
records of the Company regarding registration and transfers of the Debenture
(the "DEBENTURE REGISTER"). Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Amended and Restated Purchase
Agreement dated as of June 5, 2000 between the Company and the Holder (the
"PURCHASE AGREEMENT") or the Amended and Restated Registration Rights Agreement
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dated as of June 5, 2000 between the Company and the Holder (the "REGISTRATION
RIGHTS AGREEMENT").
The interest on this Debenture is payable, at the Company's option:
(a) in such coin or currency of the United States as of the
time of payment is legal tender for payment of public and private debts, at the
address last appearing on the Debenture Register of the Company as designated in
writing by the Holder hereof from time to time;
(b) by adding the amount thereof to the Outstanding Principal
Amount due under this Debenture ("PIK INTEREST"); or
(c) provided that there is Effective Registration (as defined
in the Purchase Agreement) at such time, in Common Stock (as defined below)
("STOCK INTEREST"). For purposes of calculating the number of shares of Common
Stock to be delivered by the Company to the Holder on the applicable Interest
Payment Date pursuant hereto, the dollar amount then payable will be divided by
the average of the Market Price for Shares of Common Stock (as defined below and
as adjusted appropriately for stock splits, reverse stock splits,
recapitalizations, stock dividends and the like) for the five (5) consecutive
Trading Days immediately preceding and excluding such Interest Payment Date.
Except as herein provided for interest, all amounts payable under this
Debenture shall be paid as provided in clause (a) above.
The Company shall exercise its option hereunder by delivering an
irrevocable statement in the form of Exhibit 1 hereto ("PAYMENT STATEMENT")
delivered at least ten (10) Trading Days prior to the applicable Interest
Payment Date and applicable for such Interest Payment Date only. If the Payment
Statement is not timely delivered to the Holder as provided herein, the payment
with respect to such Interest Payment Date shall be in PIK Interest. If the
Company selects either cash interest or Stock Interest in the Payment Statement
and fails to deliver such cash or Common Stock on or before the Interest Payment
Date, the Holder shall have the right to require the Company to pay PIK Interest
in lieu thereof. Any PIK Interest when so added to the Outstanding Principal
Amount due under this Debenture shall, for all purposes of this Debenture, be
deemed to be part of the principal indebtedness evidenced by this Debenture
including, without limitation, for purposes of determining interest payable
hereunder after the applicable Interest Payment Date for which such PIK Interest
is paid and amounts convertible into Common Shares hereunder after the
applicable Interest Payment Date for which such PIK Interest is paid.
The Company will pay any principal due and all accrued and unpaid
interest due upon this Debenture to the person that is the Holder of this
Debenture on the records of the Company as of the applicable Interest Payment
Date and addressed to such Holder at the last address appearing on the Debenture
Register.
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The Outstanding Principal Xxxxxx and interest due hereunder shall bear
interest, from and after the day following the occurrence and during the
continuance of an Event of Default hereunder, at the per annum rate equal to the
lower of the Citibank Prime Rate per annum plus six (6%) percent or the highest
rate permitted by law. The Holder shall have the option to receive such interest
as cash interest, PIK Interest or Stock Interest and shall exercise its option
by delivering to the Company a statement in a form substantially similar to the
Payment Statement which shall be effective until the earlier of (a) the date
upon which the applicable default is cured or (b) Holder delivers an additional
statement to the contrary. If the Holder elects to receive the interest in cash,
it shall be payable on demand.
Additional cash payments (referred to as "DEFAULT PAYMENTS") may be
required pursuant to the Registration Rights Agreement if there occurs an
"INTERFERING EVENT" (as defined therein), or pursuant to the Purchase Agreement
under the terms set forth in Section 3.14 therein. Such default payments, if not
paid in cash when due, may be treated by the Holder in its sole discretion as
being added to the Outstanding Principal Amount due under this Debenture.
Subject to applicable law, any interest otherwise payable that is not
paid for any applicable period because it would exceed the highest rate
permitted by law shall become payable whenever the payment thereof, together
with other interest due for any such subsequent period, would not exceed such
highest legal rate.
The Holder of this Debenture is entitled to certain rights and remedies
pursuant to the Purchase Agreement and Registration Rights Agreement, including
without limitation provisions requiring mandatory redemption of the Debenture.
This Debenture does not provide voting rights to the Holder.
This Debenture is subject to the following additional provisions:
1. EXCHANGE. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. TRANSFERS. This Debenture may be transferred or exchanged in the
United States only in compliance with the Act and applicable state securities
laws, or applicable exemptions therefrom. Prior to due presentment for transfer
of this Debenture, the Company may treat the person in whose name this Debenture
is duly registered on the Company's Debenture Register as the owner hereof for
the purpose of receiving payment as herein provided, whether or not this
Debenture is overdue.
3. DEFINITIONS. For purposes hereof the following definitions shall
apply:
"ACCEPTABLE DELIVERY DATE" shall mean (x) with respect to a
conversion pursuant to Section 4, Section 5(b), Section 5(c)(ii) and Section
5(d), within three (3) Trading Days of the delivery to the Company of the
Conversion Notice and (y) with respect to a conversion pursuant to Section
5(c)(i) and Section 7, on the Holder
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Conversion Date ; provided, that, if book entry transfer under Section 5(f)
below is not being used for a particular conversion, the Acceptable Delivery
Date with respect to such conversion shall be no later than the later of the
date set forth above or one (1) Trading Day following the delivery to the
Company of the Debenture submitted for conversion.
"ACT" shall have the meaning set forth in the legend set forth
on the face of this Debenture.
"ADDITIONAL REDEMPTION CAP" shall equal $7,500,000, with $1.00
to be deducted from such amount for every $3.00 in Outstanding Principal Amount
of this Debenture that is converted or redeemed pursuant to Sections 5(b) and
5(c) or Section 6(a) hereof, respectively. In addition, the Additional
Redemption Cap shall be reduced by $1.00 for every $1.00 in Outstanding
Principal Amount that is converted or redeemed pursuant to Section 5(d), Section
7(a) or Section 6(b).
"AFFECTED CONVERSION PRICE" shall have the meaning set forth
in Section 8(a).
"AGGREGATE DOLLAR SALE VOLUME" shall mean the product of (i)
the share volume of sales of Common Stock (as reported on all markets on which
the Company's Common Stock trades) on a given Trading Day and (ii) the VWAP on
such Trading Day (on the principal market on which such Common Stock is traded).
"CHANGE IN CONTROL CONSIDERATION" shall have the meaning set
forth in Section 4 hereof.
"CHANGE IN CONTROL CONVERSION PRICE" shall have the meaning
set forth in Section 4 hereof.
"CHANGE IN CONTROL TRANSACTION" shall mean the occurrence of
(x) any consolidation or merger of the Company with or into any other
corporation or other entity or person (whether or not the Company is the
surviving corporation), or any other corporate reorganization or transaction or
series of related transactions in which in excess of 50% of the Company's voting
power is transferred through a merger, consolidation, tender offer or similar
transaction, or (y) any person (as defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT")), together with its
affiliates and associates (as such terms are defined in Rule 405 under the Act),
beneficially owning or being deemed to beneficially own (as described in Rule
13d-3 under the Exchange Act without regard to the 60-day exercise period) in
excess of 50% of the Company's voting power.
"CLOSING DATE" shall mean the date of the original issuance of
this Debenture.
"CLOSING PRICE" shall mean $13.35.
"COMMON STOCK" shall mean the common stock, par value $0.01,
of the Company.
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"COMPANY" shall have the meaning set forth in the Preamble.
"CONVERSION NOTICE" shall have the meaning set forth in
Section 5(a)(iii).
"CONVERTIBLE SECURITIES" shall have the meaning set forth in
Section 8(b)(ii).
"CONVERSION PRICE" shall have the meaning set forth in Section
5(b).
"CONVERSION PRICING PERIOD" shall mean the 20 Trading Days
commencing on the 3rd Trading Day and ending on and including the 22nd Trading
Day, in each case following the receipt of a Conversion Notice delivered
pursuant to Section 5(c)(i).
"CONVERSION RATE" shall have the meaning set forth in Section
5(a)(ii).
"DEBENTURE" shall have the meaning set forth in the Preamble.
"DEBENTURES" shall have the meaning set forth in the Preamble.
"DEBENTURE REGISTER" shall have the meaning set forth in the
Preamble.
"DEFAULT PAYMENTS" shall have the meaning set forth in the
Preamble.
"DISTRIBUTED PROPERTY" shall have the meaning set forth in
Section 8(c).
"DTC" shall have the meaning set forth in Section 5(e).
"DWAC" shall have the meaning set forth in Section 5(e).
"EVENTS OF DEFAULT" shall have the meaning set forth in
Section 18 hereof.
"FAST" shall have the meaning set forth in Section 5(e).
"FINAL RESET" shall have the meaning set forth in Section
5(b).
"FORCED CONVERSION WARRANTS" shall have the meaning set forth
in Section 7(b)(iii).
"HOLDER CONVERSION DATE" shall mean the date on which the
person or persons entitled to receive shares of Common Stock issuable upon a
given conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock.
"INITIAL CONVERSION PRICE" shall have the meaning set forth in
Section 5(b)(i)(A).
"INTEREST PAYMENT DATE" shall have the meaning set forth in
the Preamble.
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"MATURITY DATE" shall have the meaning set forth in the
Preamble.
"MARKET PRICE FOR SHARES OF COMMON STOCK" shall mean the price
of one share of Common Stock determined as follows:
(i) If the Common Stock is approved for trading on the NASDAQ
National Market System or the Nasdaq Small-Cap Market, the closing price thereon
on the date of valuation;
(ii) If (i) does not apply and the Common Stock is listed on
NYSE or the American Stock Exchange, the closing price on such exchange on the
date of valuation;
(iii) If neither (i) nor (ii) apply but the Common Stock is
quoted in the over-the-counter market, another recognized exchange, on the pink
sheets or bulletin board, (A) the last sales price on the date of valuation or,
if there is no such sales price, (B) the mean between the last reported "bid"
and "asked" prices thereof on the date of valuation; and
(iv) If neither clause (i), (ii) or (iii) above applies, the
market value as determined by a nationally recognized investment banking firm or
other nationally recognized financial advisor retained by the Company for such
purpose, taking into consideration, among other factors, the earnings history,
book value and prospects for the Company, and the prices at which shares of
Common Stock recently have been traded. Such determination shall be conclusive
and binding on all persons.
"NOTICE OF FORCED CONVERSION" shall have the meaning set forth
in Section 7(a).
"NYSE" shall mean the New York Stock Exchange.
"OUTSTANDING PRINCIPAL AMOUNT" shall have the meaning set
forth in the Preamble.
"PAYMENT STATEMENT" shall have the meaning set forth in the
Preamble.
"PIK INTEREST" shall have the meaning set forth in the
Preamble.
"PRE-NOTICE PERIOD" shall have the meaning set forth in
Section 7(a).
"POST-CONVERSION PERIOD" shall have the meaning set forth in
Section 5(c)(ii).
"POST-NOTICE PERIOD" shall have the meaning set forth in
Section 7(a).
"PUBLIC ANNOUNCEMENT" shall mean any public filing with the
Securities and Exchange Commission, any press release by either the Company or a
third party or any other public statement, that announces a proposed transaction
which, if consummated, would constitute a Change in Control Transaction.
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"PURCHASE AGREEMENT" shall have the meaning set forth in the
Preamble.
"REDEMPTION DATE" shall have the meaning set forth in the
definition of "Redemption Notice" below.
"REDEMPTION NOTICE" shall mean a written irrevocable notice
given by the Company to the Holder indicating its intention to redeem all or
part of this Debenture as may be provided herein. The Redemption Notice shall
(x) state that the Company seeks to redeem the Debenture, (y) set the date (the
"REDEMPTION DATE") for the Company's redemption of the Debenture and (z) state
the Outstanding Principal Amount of the Debentures that the Company seeks to
redeem and the redemption price for such Outstanding Principal Amount (plus
accrued but unpaid interest and default payments (not previously added to
principal)). Unless otherwise provided in the Redemption Notice, redemptions
shall occur at the offices of Xxxxxx's counsel.
"REDEMPTION PRICE" shall equal 100% of the Outstanding
Principal Amount of this Debenture to be redeemed (plus accrued but unpaid
interest and default payments (not previously added to principal)) and shall be
payable in cash only.
"REGISTRATION RIGHTS AGREEMENT" shall have the meaning set
forth in the Preamble.
"RESET" shall have the meaning set forth in Section
5(b)(i)(B).
"RESET AVERAGE" shall have the meaning set forth in Section
5(b)(i)(B).
"RESET FACTOR" shall have the meaning set forth in Section
5(b)(i)(B).
"RESET PRICING PERIOD" shall have the meaning set forth in
Section 5(b)(i)(B).
"RESTRICTED OWNERSHIP PERCENTAGE" shall have the meaning set
forth in Section 13.
"STOCK INTEREST" shall have the meaning set forth in the
Preamble.
"TRADING DAY" shall mean a day on which the Common Stock is
traded on the NASDAQ National Market System or principal exchange on which the
Common Stock has been listed (or any similar organization or agency succeeding
such market or exchange's functions of reporting prices).
"VWAP" shall mean the volume-weighted average price per share
of Common Stock on a given Trading Day as calculated by the AQR function on
Bloomberg Financial Market.
4. CHANGE IN CONTROL, ETC.
(a) If at any time there occurs a Public Announcement of a
pending Change in Control Transaction in which the public shareholders of the
Company are to
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receive consideration, a material portion of which is cash or indebtedness not
convertible into capital stock, the Holder shall be entitled, at its sole
option, to have the Company redeem this Debenture in whole or in part at a
redemption price equal to 115% of the Outstanding Principal Amount of this
Debenture (plus accrued but unpaid interest and default payments (not previously
added to principal)), which such 15% premium on the Outstanding Principal Amount
shall be reduced by 1/36 per month for each month from the date of issuance to
and including the Maturity Date. Such Holder shall be entitled to make such
election at any time after a Public Announcement of a pending, and up to 10 days
after the effective date of a, Change in Control Transaction.
(b) If at any time there occurs a Public Announcement of a pending
Change in Control Transaction in which the public shareholders of the Company
are to receive consideration, a portion of which is capital stock or any
security convertible into capital stock of another entity in exchange for shares
of Common Stock ("CHANGE IN CONTROL CONSIDERATION"), then prompt provision shall
be made in a manner reasonably acceptable to the Holders so that each Holder
shall have the right (in addition to its rights hereunder) following such Public
Announcement to:
(i) convert its Debentures into the Change in Control
Consideration that such Holder would have been or would be entitled to receive
had it converted all of its Debentures into Common Stock (notwithstanding any
restrictions imposed upon the Holder pursuant to this Debenture or the Purchase
Agreement in its ability to do so) immediately prior to the Change in Control
Transaction at the Change in Control Conversion Price (as defined below), and
acquired the Change in Control Consideration as a shareholder of the Company; or
(ii) convert its Debentures into Common Stock at the Change in
Control Conversion Price (as defined in this subsection 4((b)(ii)). The Holder
may exercise this right by delivering a Conversion Notice to the Company. Unless
otherwise agreed to the contrary, the date upon which the Conversion Notice is
delivered shall be the Holder Conversion Date. The "CHANGE IN CONTROL CONVERSION
PRICE", at the time a Conversion Notice is delivered, shall mean a price equal
to the lesser of: (x) the then existing Conversion Price (as defined in Section
5(b) below); and (y) the average of the VWAP for each of the four Trading Days
immediately preceding the Public Announcement of the Change in Control
Transaction. The Conversion Price shall be subject to adjustment and Reset as
elsewhere set forth in this Debenture. The VWAP shall be appropriately adjusted
for stock splits, reverse splits, stock dividends and other dilutive events as
provided in Section 8 hereof, including those events occurring in connection
with the Change in Control Transaction, and those that occur during the Trading
Days referred to above.
(c) If at any time there is a Public Announcement of a pending
Change in Control Transaction which does not involve the exchange, conversion,
transfer or other disposition of shares of Common Stock held by the public
shareholders of the Company, then the Conversion Price shall be adjusted so that
thereafter the Conversion Price shall be equal to the Change in Control
Conversion Price.
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The rights set forth in this Section 4 are cumulative
and are in addition to any other rights or remedies that the Holder may have.
5. CONVERSION AT THE OPTION OF THE HOLDER. The Holder of this Debenture
shall have the following conversion rights.
(a) Mechanism. (i) This Debenture shall be convertible, at the
option of the Holder, in whole or in part, from time to time, into fully paid,
validly issued and nonassessable shares of Common Stock, in accordance with the
terms set forth in this Debenture. If this Debenture is converted in part, the
remaining portion of this Debenture not so converted shall remain entitled to
the conversion rights as provided herein.
(ii) The Outstanding Principal Amount of this Debenture that
is converted into shares of Common Stock at the option of the Holder shall be
convertible into the number of shares of Common Stock which results from
application of the following formula:
P + I + D
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Conversion Price
P = Outstanding Principal Amount of this Debenture submitted for
conversion as of the Holder Conversion Date
I = accrued but unpaid interest (not previously added to
principal) on P as of the Holder Conversion Date
D = default payments (not previously added to principal) on P as
of the Holder Conversion Date
The number of shares of Common Stock into which each $1,000
Outstanding Principal Amount of this Debenture hereto may be converted pursuant
to this paragraph hereof is hereafter referred to as the "CONVERSION RATE."
(iii) In order to convert this Debenture, in accordance with
the terms of this Debenture, in whole or in part, into full shares of Common
Stock, the Holder (x) shall give written notice in the form of Exhibit 2 hereto
(the "CONVERSION NOTICE") by facsimile to the Company in accordance with Section
24 hereof that the Holder elects to convert the Outstanding Principal Amount
(plus accrued but unpaid interest and default payments (not previously added to
principal)) specified therein, which such notice and election shall be
irrevocable (unless expressly provided herein to the contrary) and shall be
deemed received on the date given, and (y) shall surrender this Debenture, duly
endorsed, to the principal office of the Company, on or before the Acceptable
Delivery Date or indicate that it is effecting delivery of this Debenture
pursuant to Section 5(f). For the sake of clarity, a Conversion Notice shall be
delivered to the Company via facsimile and shall be deemed received by the
Company upon delivery thereof with electronic confirmation of receipt having
been received by the Holder.
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(iv) Following its receipt of a Conversion Notice submitted
pursuant to the terms hereof, the Company shall be obligated to issue
certificates evidencing the shares of the Common Stock issuable upon such
conversion on the Acceptable Delivery Date only if either (x) the Debenture
evidencing the principal amount is delivered to the Company as provided above or
(y) the Holder notifies the Company that the Debenture has been lost, stolen or
destroyed and promptly executes an agreement reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection with
such lost, stolen or destroyed Debenture or (z) the Holder elects to effect
delivery of the Debenture in accordance with Section 5(f). Subject to the
foregoing, the Company shall issue and deliver, on the relevant Acceptable
Delivery Date, to the Holder of the Debenture at the address of the Holder, or
to its designee, a certificate or certificates for the number of shares of
Common Stock to which the Holder shall be entitled as aforesaid, together with a
calculation of the Conversion Rate and a Debenture or Debentures for the
principal amount of Debenture not submitted for conversion. In the event that
such Holder or its designee has not received such certificate or certificates
and the balance of the Debenture(s), subject to Section 5(f), within ten (10)
calendar days of the Acceptable Delivery Date, the Holder may, in addition to
any other rights or remedies it may have, revoke its Conversion Notice.
(v) The conversion terms set forth herein are supplemented,
but not superceded, by the conversion terms set forth elsewhere in this
Debenture, including without limitation in Section 4.
(b) Right of Holder to Convert at the Conversion Price.
(i) (A) Subject to adjustments pursuant to Section 8, the
Holder shall have the right to convert this Debenture, at any time and from time
to time, at an initial conversion price (the "INITIAL CONVERSION PRICE") equal
to $16.69 (such price, as may be Reset and as adjusted in accordance with
Section 4(c), Section 5(b)(ii) and Section 8 of this Debenture, shall be
referred to herein as the "CONVERSION PRICE"). The date on which the Conversion
Notice is given shall be the Holder Conversion Date.
(B) On June 5, 2001, December 5, 2001, June 5, 2002,
December 5, 2002 and June 5, 2003, the Conversion Price shall reset ("RESET") to
a price equal to (x) the average Market Price for Shares of Common Stock (the
"RESET AVERAGE") for the twenty (20) Trading Day period immediately preceding
and excluding such respective date (the "RESET PRICING PERIOD") multiplied by
(y) the Reset Factor (as defined below), provided that no Reset shall exceed the
then current Conversion Price. If the Reset Average for any Reset Pricing Period
is greater than the Closing Price (as adjusted in accordance with Section 8), no
Reset shall occur with respect to such Reset Pricing Period. The Market Price
for Shares of Common Stock shall be appropriately adjusted for stock splits,
reverse splits, stock dividends and other dilutive events that occur during the
Reset Pricing Period pursuant to Section 8. As herein provided, the Conversion
Price shall be subject to further Reset, and further adjustment as set forth in
Section 4(c), Section 5(b)(ii) and Section 8. The "RESET FACTOR" is the number
equal to (1- (the respective Reset Average/the Closing Price)) + 1; provided,
however, that if such number is greater than 1.5, the Reset Factor shall be 1.5.
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(C) Notwithstanding the foregoing, provided that
there is Effective Registration during such period, in the event that the VWAP
for each of sixty (60) consecutive Trading Days is in excess of 125% of the
Initial Conversion Price as adjusted in accordance with Section 8 (other than
subsection 8(b)), then the Conversion Price shall Reset to the Initial
Conversion Price, subject to all non-Reset adjustments (other than pursuant to
Section 8(b)) from the date of issuance of the Debenture (i.e., June 5, 2000) to
such Reset, and thereafter subject to further adjustments pursuant to Section
4(c), 5(b)(ii) and Section 8 (the "FINAL RESET").
(ii) In addition to the foregoing and in addition to any other
rights or remedies which may be available to the Holder in this Debenture, under
the Purchase Agreement and/or the Registration Rights Agreement, if at any time
the Company fails for any reason to repurchase the Debenture (or portion
thereof, as applicable) or make any cash payment (other than interest payments
with respect to which the Holder has the right to require the Company to pay PIK
Interest in lieu thereof) in accordance with the terms of this Debenture, the
Purchase Agreement or the Registration Rights Agreement, then the Conversion
Price shall be subject to further adjustment (downwards only) so that it shall
thereafter be equal to the lesser of (x) the lowest Market Price for Shares of
Common Stock during any of the five (5) days prior to the date that the Holder
submits a Conversion Notice (as defined above) to the Company and (y) the
Conversion Price otherwise applicable at such time, subject to further
adjustment pursuant hereto, to Section 4(c), 5(b)(ii) and Section 8 and further
Resets in each case.
(c) Additional Right of Holder to Convert Limited Principal Amount.
(i) (A) Subject to the Company's redemption rights set forth
in Section 6(a) below, and in addition to the other conversion rights of the
Holder set forth herein, the Holder shall have the right to submit for
conversion pursuant to this Section 5(c)(i), at any time and from time to time
during each calendar month, a maximum aggregate principal amount of the Holder's
outstanding Debenture(s) equal to the greater of (x) $1,500,000 and (y) 10% of
the Aggregate Dollar Sale Volume for the 21 Trading Days immediately preceding
the delivery of a Conversion Notice pursuant to this Section 5(c)(i).
(B) If the Company has not exercised its redemption
rights in accordance with Section 6(a), then on the 5th, 10th, 15th and 20th
Trading Day of each Conversion Pricing Period (in such case, each shall be a
Holder Conversion Date), 25% of the Outstanding Principal Amount (plus accrued
but unpaid interest and default payments (not previously added to principal))
submitted for conversion shall be converted into shares of Common Stock at a
price (the "LPA CONVERSION PRICE") equal to the average of the VWAP for each of
the relevant Holder Conversion Date and the 4 Trading Days immediately preceding
such Holder Conversion Date. The VWAP shall be appropriately adjusted for stock
splits, reverse splits, stock dividends and other dilutive events as provided in
Section 8 hereof, including those events occurring in connection with the Change
in Control Transaction, that occur during the Trading Days referred to above.
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(C) In the event that there is not Effective
Registration at any time on a Holder Conversion Date or on any of the 4 Trading
Days immediately preceding such Holder Conversion Date, the Holder may, in its
sole discretion, opt within 23 Trading Days after giving its Conversion Notice
to revoke its Conversion Notice delivered pursuant to this Section 5(c)(i)
either (x) with respect to the Outstanding Principal Amount (plus accrued but
unpaid interest and default payments) of this Debenture which is otherwise to be
converted on such Holder Conversion Date, or (y) as to the Outstanding Principal
Amount (plus accrued but unpaid interest and default payments) of the Debenture
which is otherwise to be converted on such Holder Conversion Date and all future
Holder Conversion Dates within such Conversion Pricing Period.
(D) Notwithstanding the foregoing, the maximum
aggregate principal amount of Debentures which the Holder may convert pursuant
to this Section 5(c)(i) is $7,500,000.
(ii) In addition to the other conversion rights of the Holder
set forth herein, subject to the Company's redemption rights set forth in
Section 6(a), in the event that 7.5% of the Aggregate Dollar Sale Volume for the
21 Trading Days immediately following the Company's receipt of a Conversion
Notice (the "POST-CONVERSION PERIOD") exceeds 150% of the principal amount
submitted for conversion pursuant to such Conversion Notice, whether or not the
Company exercised its 6(a) redemption rights with respect thereto, the Holder
shall have the right to convert, up to, in the aggregate, an additional 50% of
the Outstanding Principal Amount (plus accrued but unpaid interest and default
payments (not previously added to principal)) submitted for conversion. The
conversion price for any conversion under this Section 5(c)(ii) (the "ADDITIONAL
50% CONVERSION PRICE") shall be equal to the average of the VWAP for each day in
the Post-Conversion Period. The VWAP shall be appropriately adjusted for stock
splits, reverse splits, stock dividends and other dilutive events as provided in
Section 8 hereof, including those events occurring in connection with the Change
in Control Transaction, that occur during the Trading Days referred to above.
The Holder may exercise this right by delivering a Conversion Notice to the
Company at any time and from time to time during the period commencing on the
3rd Trading Day and ending on the close of the 12th Trading Day immediately
following the Post-Conversion Period. The date on which the Conversion Notice is
given shall be the Holder Conversion Date.
(d) Additional Right of Holder to Convert Amount Otherwise to
be Redeemed. In addition to the other conversion rights of the Holder set forth
herein, in the event that the Company has submitted a Redemption Notice to force
the Holder to redeem all or any part of the Outstanding Principal Amount (plus
accrued but unpaid interest and default payments (not previously added to
principal)) of the Holder's Debenture pursuant to Section 6(b), the Holder may
opt instead to convert all or any part of such Outstanding Principal Amount
(plus accrued but unpaid interest and default payments (not previously added to
principal)), at any time and from time to time. The conversion price for any
such conversion under this Section 5(d) ("POST-REDEMPTION NOTICE CONVERSION
PRICE") shall be equal to the average of the VWAP for each of the 5 Trading Days
preceding the Holder's receipt of the Redemption Notice. The Holder may exercise
this right by delivering a Conversion Notice to the Company prior to the
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Redemption Date. The date on which the Conversion Notice is given shall be the
Holder Conversion Date. The VWAP shall be appropriately adjusted for stock
splits, reverse splits, stock dividends and other dilutive events as provided in
Section 8 hereof, including those events occurring in connection with the Change
in Control Transaction, that occur during the Trading Days referred to above.
(e) Depository Trust Company. In lieu of delivering physical
certificates representing the Common Shares issuable upon conversion of
Debentures or the Warrant Shares (as defined in the Purchase Agreement)
deliverable upon exercise of Warrants (as defined in the Purchase Agreement),
provided the Company's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon
request of the holder, the Company shall use its best efforts to cause its
transfer agent to electronically transmit the Common Shares and Warrant Shares
issuable upon conversion or exercise to the Holder, by crediting the account of
Xxxxxx's prime broker with DTC through its Deposit Withdrawal Agent Commission
("DWAC") system. The time periods for delivery described above shall apply to
the electronic transmittals through the DWAC system. The parties agree to
coordinate with DTC to accomplish this objective. The conversions pursuant to
Section 5 shall be deemed to have been made immediately prior to the close of
business on the Holder Conversion Date. The person or persons entitled to
receive the Common Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Shares at the close of
business on the Holder Conversion Date.
(f) Book Entry. The Holder shall not be required to physically
surrender this Debenture to the Company unless the full Outstanding Principal
Amount represented by this Debenture is being converted or redeemed. The Holder
and the Company shall maintain records showing the Outstanding Principal Amount
so converted or redeemed and the dates of such conversions and/or redemptions or
shall use such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Debenture upon each
such conversion or redemption. Notwithstanding the foregoing, if this Debenture
is converted or redeemed as aforesaid, the Holder may not transfer this
Debenture unless the Holder first physically surrenders this Debenture to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Debenture of like tenor, registered as the Holder may
request, representing in the aggregate the remaining Outstanding Principal
Amount represented by this Debenture and reflecting the use of the book entry
provisions set forth herein. The Holder and any assignee, by acceptance of this
Debenture or a new Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion or redemption of any portion
of this Debenture, the Outstanding Principal Amount represented by this
Debenture may be less than the principal amount and the accrued interest set
forth on the face hereof.
6. OPTION TO REDEEM.
(a) In the event that the Holder seeks to convert all or part
of its Debentures pursuant to Section 5(c) above and the Company has not
defaulted on any of its redemption obligations hereunder, the Company may force
the Holder to instead surrender such Debentures (unless the Holder elects to
effect delivery of this Debenture
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pursuant to Section 5(f)) for redemption at the Redemption Price. The Company
may, in its sole discretion, exercise such right by providing the Holder with a
Redemption Notice, which shall be delivered to the Holder via facsimile and via
electronic mail in accordance with Section 24 hereof, (x) within 2 Trading Days
of the Company's receipt of a Conversion Notice delivered pursuant to Section
5(c)(i), to redeem all or part of the Outstanding Principal Amount (plus accrued
but unpaid interest and default payments (not previously added to principal)) so
submitted for conversion, (y) on each of the first, second, and third Holder
Conversion Dates referred to in Section 5(c)(i)(B), to redeem all or part of the
Outstanding Principal Amount (plus accrued but unpaid interest and default
payments (not previously added to principal)) which would otherwise be converted
on the immediately subsequent Holder Conversion Date or (z) within 2 Trading
Days immediately following the Post-Conversion Period described in Section
5(c)(ii), to redeem all or part of the additional 50% of Outstanding Principal
Amount (plus accrued but unpaid interest and default payments not previously
added to principal) which the Holder may submit for conversion pursuant to
Section 5(c)(ii). The delivery of a Redemption Notice on the first or second
Holder Conversion Date referred to in Section 5(c)(i)(B) in accordance with (y)
in the foregoing sentence, shall not have any effect on the Holder's conversion
rights for each Holder Conversion Dates following such redemption. The
Redemption Date in each of (x), (y) and (z) above shall be a Trading Day not
later than 3 Trading Days following the Company's delivery of the corresponding
Redemption Notice. If the Company fails to pay the Redemption Price in full on
the Redemption Date, in immediately available funds, (x) the Company shall lose
its right to redeem any Debenture in accordance with this Section 6 and (y) in
addition to any other rights or remedies it may have, the Holder shall have the
right to require the Company to repurchase the Debenture (or any portion
thereof, as selected by the Holder) at a price equal to 110% of the Redemption
Price pursuant to a written notice to the Company.
(b) In addition to Section 6(a) above, at any time and from
time to time, the Company may force the Holder to surrender up to, in the
aggregate, a maximum Outstanding Principal Amount of the Holder's Debenture
(unless the Holder elects to effect delivery of this Debenture pursuant to
Section 5(f)) equal to the Additional Redemption Cap, in exchange for the
Company's payment to such Holder of the Redemption Price. The Company may, in
its sole discretion, exercise such right by submitting a Redemption Notice to
the Holder, which shall be delivered to the Holder via facsimile and via
electronic mail in accordance with Section 24 hereof. If the Company fails to
pay the Redemption Price in full on the Redemption Date set forth in the
Redemption Notice (which in this case shall be between not less than 20 and not
more than 30 Trading Days after the Holder's receipt of the Redemption Notice),
in immediately available funds, (x) the Company shall lose its right to redeem
any Debenture in accordance with this Section 6 and (y) in addition to any other
rights or remedies it may have, the Holder shall have the right to require the
Company to repurchase the Debenture (or any portion thereof, as selected by the
Holder) at a price equal to 110% of the Redemption Price pursuant to a written
notice to the Company.
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7. FORCED CONVERSION.
(a) In the event that the VWAP is in excess of 200% of the
Initial Conversion Price (as adjusted pursuant to Section 8 hereof only) for
each of sixty (60) consecutive Trading Days ("PRE-NOTICE PERIOD"), the Company
may require the Holder to surrender this Debenture for conversion at the
then-applicable Conversion Price. To exercise such right, the Company must
deliver a notice within two (2) Trading Days following the Pre-Notice Period to
that effect ("NOTICE OF FORCED CONVERSION"), but the failure to deliver a Notice
of Forced Conversion shall not deprive the Company of its right to deliver a
Notice of Forced Conversion for any subsequent Pre-Notice Period, which may
overlap with any other Pre-Notice Period. The Notice of Forced Conversion shall
establish a Trading Day for the conversion to occur, which such Trading Day
shall be no more than twenty (20) Trading Days following the delivery of such
Notice of Forced Conversion (the "POST-NOTICE PERIOD") and shall be the Holder
Conversion Date.
(b) A Notice of Forced Conversion shall only be effective if:
(i) Effective Registration existed during the entire
Pre-Notice Period and Post-Notice Period;
(ii) no material default or breach exists, and no event
shall have occurred which constitutes (or would constitute with notice or the
passage of time or both) a material default or breach of the Purchase Agreement,
the Registration Rights Agreement, any Warrant or this Debenture; and
(iii) conversion by the Holder to Common Shares will not
exceed the limits on a Holder's right to convert under Section 13 below.
In the event that a portion of the Outstanding Principal
Amount may not be converted into Common Shares pursuant to Section 7(a) above by
reason of Section 7(b)(iii) above and Section 13 below, the Holder shall in lieu
of such Common Shares receive a number of warrants (the "FORCED CONVERSION
WARRANTS") equal to the total number of Common Shares which the Holder would
have been entitled to receive but for Section 13 upon conversion of the
remaining portion of the Outstanding Principal Amount at the then-existing
Conversion Price less $.01. Each such Forced Conversion Warrant shall be
exercisable for one Common Share at an exercise price equal to $.01 per share.
The Forced Conversion Warrants shall be in the form annexed hereto as Exhibit 3.
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8. STOCK SPLITS; DIVIDENDS; ADJUSTMENTS; REORGANIZATIONS.
(a) If the Company, at any time while the Debentures are
outstanding, shall (i) pay a stock dividend or otherwise make a distribution or
distributions on any equity securities (including investments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock into a larger
number of shares, (iii) combine outstanding shares of Common Stock into a
smaller number of shares, then each Affected Conversion Price (as defined below)
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section 8(a) 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 an issuance, a subdivision or a
combination.
As used herein, the Affected Conversion Prices (each an
"AFFECTED CONVERSION PRICE") shall refer to: (v) the Conversion Price; (w) the
Initial Conversion Price; (x) each Market Price for Shares of Common Stock
occurring on any Trading Day included in the Reset Pricing Period, provided that
such Trading Day occurred before the record date in the case of events referred
to in the immediately preceding paragraph and the effective date in the case of
the events referred to in clauses (ii) and (iii) of the immediately preceding
paragraph (collectively, the "RELEVANT EVENT"); (y) the VWAP on each Trading Day
used to determine any conversion price hereunder, in each case provided that
such Trading Day occurred before the Relevant Event; and (z) the Closing Price.
(b) In the event that the Company issues or sells any Common
Stock or securities which are convertible into or exchangeable for its Common
Stock, or any convertible securities, or any warrants or other rights to
subscribe for or to purchase or any options for the purchase of its Common Stock
or any such convertible securities at a per share of Common Stock selling price
("PER SHARE SELLING PRICE") which is less than:
(i) the Conversion Price then in effect, then the
Conversion Price per share in effect immediately prior to such issue or sale
shall be reduced effective concurrently with such issue or sale to equal such
lower Per Share Selling Price effective concurrently with such issue or sale;
and/or
(ii) the Market Price for Shares of Common Stock on the
Trading Day next preceding such issue or sale, then the Affected Conversion
Prices per share shall be reduced effective concurrently with such issue or sale
to an amount determined by multiplying the Affected Conversion Price then in
effect by a fraction, (A) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale, plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would purchase
at such Market Price for Shares of Common Stock and (B) the denominator of which
shall be the number of shares of Common Stock of the Company outstanding
immediately after such issue or sale.
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Notwithstanding the foregoing, this provision shall not apply
to (x) any issuances or sales of securities pursuant to employee or director
option plans of the Company approved by shareholders or pursuant to contracts
currently in effect and disclosed to the Holders, (y) arrangements with the
Holders and (z) the issuances or sales of securities in connection with
strategic acquisitions of other entities by the Company which engage in
businesses related or complementary to the Company's business and that is not
essentially a capital raising transaction on behalf of the Company.
For the purposes of the foregoing adjustment, in the case of
the issuance of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, shares of Common Stock
("CONVERTIBLE SECURITIES"), the maximum number of shares of Common Stock
issuable upon exercise, exchange or conversion of such Convertible Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Convertible Securities. With respect to Convertible
Securities, the Per Share Selling Price shall be equal to the lowest price at
which shares of Common Stock may be issued on conversion, exercise or exchange
of the Convertible Securities as of the issuance date of such Convertible
Securities or any subsequent date, whichever results in the lower Per Share
Selling Price. If such lowest price may change after issuance of the Convertible
Securities (for example, by reason adjustments or resets resulting from changes
in the market price for the Common Stock, or for any other reason) then this
adjustment shall be recomputed to reflect such new "lowest price".
In the event of any such issuance for a consideration which is
less than the Market Price for Shares of Common Stock on the Trading Day next
preceding such issue or sale and also less than the Conversion Price then in
effect, than there shall be only one such adjustment by reason of such issuance,
such adjustment to be that which results in the greatest reduction of the
Conversion Price computed as aforesaid.
Upon the occurrence of a Final Reset, all prior Resets
pursuant to this Section 8(b) shall be superceded as of the date of the Final
Reset and there shall be no further adjustments thereafter pursuant to this
Section 8(b).
(c) If the Company, at any time while the Debentures are
outstanding, shall distribute to all holders of shares of Common Stock evidences
of its indebtedness or assets or securities or rights or warrants to subscribe
for or purchase any security (excluding those referred to in Section 8(b) above)
("DISTRIBUTED PROPERTY"), then the prices referred to in (w) through (z) of the
definition of the Affected Conversion Prices set forth in Section 8(a) above
shall be reduced to equal the relevant Affected Conversion Price multiplied by a
fraction (i) the numerator of which is equal to (A) the Market Price for Shares
of Common Stock on the record date for the distribution minus (B) the price
allocable to one share of Common Stock of the value (as jointly determined in
good faith by the board of directors of the Company and the Holder) of any and
all such distributed property and (ii) the denominator of which is equal to the
Market Price for Shares of Common Stock on the record date for the distribution.
(d) In the event that at any time or from time to time after
the Closing Date, the Common Stock issuable upon the conversion of the
Debentures is changed into
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the same or a different number of shares of any class or classes of stock,
whether by merger, consolidation, recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Section 8), then and as a
condition to each such event provision shall be made in a manner reasonably
acceptable to the Holders of Debentures so that each Holder of Debentures shall
have the right thereafter to convert such Debenture into the kind of stock
receivable upon such recapitalization, reclassification or other change by
holders of shares of Common Stock, all subject to further adjustment and Resets,
mutatis mutandis as provided herein. In such event, the formulae set forth
herein for conversion and redemption shall be equitably adjusted to reflect such
change in number of shares or, if shares of a new class of stock are issued, to
reflect the market price of the class or classes of stock (applying the same
factors used in determining the Conversion Price) issued in connection with the
above described transaction.
(e) Whenever any element of the Conversion Price is adjusted
pursuant to Section 8, the Company shall promptly mail to each Holder of the
Debentures, a notice setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(f) In the event of any taking by the Company of a record date
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
any security or right convertible or exchangeable into or entitling the holder
thereof to receive additional shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall deliver
to each Holder of Debentures at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right and the amount
and character of such dividend, distribution, security or right.
(g) If the Company, at any time while the Debentures are
outstanding, shall distribute to all holders of shares of Common Stock
distributed property then the Holder shall participate in such distribution on a
pro rata basis with the holders of shares of Common Stock entitled to receive
such distributed property as if the Holder held that number of shares of Common
Stock that the Holder would have been entitled to receive hereunder upon
conversion of the Debenture (without regard to Section 13) immediately prior to
the record date fixed for determination of shareholders entitled to receive such
distributed property, at the Conversion Price then in existence.
9. FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder. The
number of shares of Common Stock that are issuable upon any conversion shall be
rounded up to the nearest whole share.
10. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company
covenants that it will at all times reserve from its authorized and unissued
Common Stock a sufficient number of shares, which shall not be less than the
number required by Section
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3.10 of the Purchase Agreement, for the issuance of shares of Common Stock upon
conversion of the Debentures (and/or exercise of the Warrants).
11. NO REISSUANCE OF THE DEBENTURE. No Debentures acquired by the
Company by reason of redemption, purchase, exchange or otherwise shall be
reissued, and all such Debentures shall be retired.
12. NO IMPAIRMENT. The Company shall not intentionally take any action
which would impair the rights and privileges of the Debentures set forth herein
or the Holders thereof.
13. LIMITATIONS ON HOLDER'S RIGHT TO CONVERT.
(a) Notwithstanding anything to the contrary contained herein,
the number of shares of Common Stock that may be acquired by a Holder upon
conversion pursuant to the terms hereof at any time shall not exceed a number
that, when added to the total number of shares of Common Stock deemed
beneficially owned at such time by such Holder (other than by virtue of the
ownership of securities or rights to acquire securities (including the
Debentures and Warrants) that have limitations on the Holder's right to convert,
exercise or purchase similar to the limitation set forth herein), together with
all shares of Common Stock deemed beneficially owned at such time (other than by
virtue of the ownership of securities or rights to acquire securities that have
limitations on the right to convert, exercise or purchase similar to the
limitation set forth herein) by the Holder's "affiliates" (as defined in Rule
144 of the Act) ("AGGREGATION PARTIES") that would be aggregated for purposes of
determining whether a group under Section 13(d) of the Securities Exchange Act
of 1934 as amended, exists, would exceed 9.99% of the total issued and
outstanding shares of the Common Stock (the "RESTRICTED OWNERSHIP PERCENTAGE").
Each Holder shall have the right (w) at any time and from time to time to reduce
its Restricted Ownership Percentage immediately upon notice to the Company and
(x) (subject to waiver) at any time and from time to time, to increase its
Restricted Ownership Percentage immediately upon notice to the Company in the
event of the announcement as pending or planned, of a transaction or event
referred to in Section 4 or Section 18(g) or (k) hereof. For this purpose, any
material modification of the terms of a Change in Control Transaction will be
deemed to result in a new Change in Control Transaction. The Company shall
provide all Holders with the later of (i) 20 days' prior written notice of any
such Change in Control Transaction, to the extent the Company has prior
knowledge of a Change in Control Transaction; or (ii) notice on the day
immediately following the Company's learning of any such transaction, but only
after, in the case of (i) and (ii), such Change in Control Transaction has been
publicly disclosed.
(b) The Holder covenants at all times on each day (each such
day being referred to as a "COVENANT DAY") as follows: During the balance of
such Covenant Day and the succeeding sixty-one (61) days (the balance of such
Covenant Day and the succeeding 61 days being referred to as the "COVENANT
PERIOD") such Holder will not acquire shares of Common Stock pursuant to any
right (including conversion of Debentures and exercise of Warrants) existing at
the commencement of the Covenant Period to the extent the number of shares so
acquired by such Holder and its Aggregation Parties (ignoring all dispositions)
would exceed:
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(x) the Restricted Ownership Percentage of the total
number of shares of Common Stock outstanding at the commencement of the Covenant
Period,
minus
(y) the number of shares of Common Stock actually
owned by such Holder and its Aggregation Parties at the commencement of the
Covenant Period.
A new and independent covenant will be deemed to be given by
the Holder as of each moment of each Covenant Day. No covenant will terminate,
diminish or modify any other covenant. The Holder agrees to comply with each
such covenant. This Section 13 controls in the case of any conflict with any
other provision of the Purchase Agreement or related documents.
(c) The Company's obligation to issue shares of Common Stock
which would exceed such limits referred to in this Section 13 shall be suspended
to the extent necessary until such time, if any, as shares of Common Stock may
be issued in compliance with such restrictions. Without limiting the foregoing,
a conversion pursuant to Section 5(c)(i) shall be suspended until such time that
the issuance of shares of Common Stock in connection therewith will not exceed
the limits set forth in this Section 13.
14. OBLIGATIONS ABSOLUTE. No provision of this Debenture, the Purchase
Agreement or the Registration Rights Agreement shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest and default payments on, this Debenture or to issue
shares of Common Stock in response to a Conversion Notice at the time, place and
rate, and in the manner, herein prescribed.
15. WAIVERS OF DEMAND, ETC. The Company hereby expressly and
irrevocably waives demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, notice of acceleration or intent
to accelerate, bringing of suit and diligence in taking any action to collect
amounts called for hereunder and will be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder.
16. REPLACEMENT DEBENTURE. In the event that any Holder notifies the
Company that its Debenture(s) have been lost, stolen or destroyed, replacement
Debenture(s) identical in all respects to the original Debenture(s) (except for
registration number and Outstanding Principal Amount, if different than that
shown on the original Debenture(s)), shall be issued to the Holder, provided
that the Holder executes and delivers to the Company an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such Debenture.
17. PAYMENT OF EXPENSES; ISSUE TAXES. The Company agrees to pay all
debts and expenses, including attorneys' fees, which may be incurred by the
Holder in
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enforcing the provisions of this Debenture and/or collecting any amount due
under this Debenture, the Purchase Agreement, any Warrant or the Registration
Rights Agreement. The Company shall pay any and all issue and other taxes
(excluding any income, franchise or similar taxes) that maybe payable in respect
of any issue or delivery of shares of Common Stock on conversion of any
Debenture pursuant hereto.
18. DEFAULTS. If one or more of the following described "EVENTS OF
DEFAULT" shall occur:
(a) the Company shall default in the payment of (i) interest
on this Debenture or any other Debenture issued pursuant to the Purchase
Agreement (subject to the Company's option to pay PIK Interest), and such
default shall continue for five (5) business days after the due date thereof, or
(ii) the principal of this Debenture or any other Debenture issued pursuant to
the Purchase Agreement; or
(b) any of the representations or warranties made by the
Company herein, in the Purchase Agreement, the Registration Rights Agreement,
any Warrant or in any certificate or financial or other statements heretofore or
hereafter furnished by or on behalf of the Company in connection with the
execution and delivery of this Debenture or such other documents shall be false
or misleading at the time made; or
(c) the Company shall fail to materially perform or observe
any covenant or agreement in the Purchase Agreement or the Registration Rights
Agreement, or any other covenant, term, provision, condition, agreement or
obligation of the Company under this Debenture and such failure shall continue
uncured for a period of ten (10) business days after notice of such failure; or
(d) the Company shall (1) become insolvent; (2) admit in
writing its inability to pay its debts generally as they mature; (3) make an
assignment for the benefit of creditors or commence proceedings for its
dissolution; or (4) apply for or consent to the appointment of a trustee,
liquidator or receiver for it or for a substantial part of its property or
business; or
(e) a trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or business without its
consent and shall not be discharged within forty-five (45) days after such
appointment; or
(f) any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within forty-five (45) days thereafter;
or
(g) the Company shall sell or otherwise transfer all or
substantially all of its assets and either (i) a material portion of the
consideration received by the Company is cash or (ii) the public shareholders of
the Company did not receive Change in Control Consideration; or
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(h) bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any bankruptcy law or any law
for the relief of debt shall be instituted by or against the Company and, if
instituted against the Company shall not be dismissed within forty-five (45)
days after such institution, or the Company shall by any action or answer
approve of, consent to, or acquiesce in any such proceedings or admit to any
material allegations of, or default in answering a petition filed in any such
proceeding; or
(i) the Company shall be in default of any other of its
indebtedness exceeding $1,000,000, or any other event shall have occurred, and
as a result thereof the holders thereof shall have accelerated or shall have the
right (upon the giving of notice, the passage of time, or both) to accelerate
such indebtedness; or
(j) a "going private" transaction under Rule 13e-3 promulgated
pursuant to the Exchange Act shall have been announced; or
(k) a tender offer by the Company under Rule 13e-4 promulgated
pursuant to the Exchange Act shall have been announced (i) on or before the
eighteen (18) month anniversary of the Closing Date, and/or (ii) to which the
Company is or will be required to dedicate more than 10% of its available cash
and marketable securities.
(l) the Company shall act in contravention of Section 3.6(A),
clause (b)(z) of the Purchase Agreement.
then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the Holder and in the Holder's sole discretion, the Holder may
consider the Debenture immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything herein or in any other instruments contained to the contrary
notwithstanding, and the Holder may immediately, and without expiration of any
period of xxxxx, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law. In such event,
the Debenture shall be redeemed at the greater of (i) 115% of the Redemption
Price and (ii) the cash value that the Holder would be entitled to receive upon
conversion of the Debenture at the Conversion Price in existence on such date,
without regard to Section 13, and the subsequent sale of the Common Stock at the
Market Price for Shares of Common Stock then existing.
19. SAVINGS CLAUSE. In case any provision of this Debenture is held by
a court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby, and such provision shall remain
effective in all other jurisdictions.
20. ENTIRE AGREEMENT. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the
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Company and the Holder with respect to the subject hereof. Neither this
Debenture nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Company and the Holder.
21. ASSIGNMENT, ETC. The Holder (but not the Company) may without
notice, transfer or assign this Debenture or any interest herein and may
mortgage, encumber or transfer any of its rights or interest in and to this
Debenture or any part hereof and, without limitation, each assignee, transferee
and mortgagee (which may include any affiliate of the Holder) shall have the
right to transfer or assign its interest. Each such assignee, transferee and
mortgagee shall have all of the rights of the Holder under this Debenture. The
Company agrees that, subject to compliance with the Purchase Agreement, after
receipt by the Company of written notice of assignment from the Holder or from
the Holder's assignee, all principal, interest and other amounts which are then
and thereafter become due under this Debenture shall be paid to such assignee at
the place of payment designated in such notice. This Debenture shall be binding
upon the Company and its successors and affiliates and shall inure to the
benefit of the Holder and its successors and assigns.
22. NO WAIVER. No failure on the part of the Holder to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
23. CERTIFICATE. The Company shall, upon the written request at any
time of any Holder of Debentures, furnish or cause to be furnished to such
Holder a certificate prepared by the chief financial officer of Company setting
forth any adjustments or readjustments of the Conversion Price pursuant to this
Debenture and any right of the Holder to receive additional shares of Common
Stock or any other equity or debt security pursuant to Section 8.
24. NOTICES.
(a) The Company shall distribute to the Holders of Debentures
copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other documents distributed generally
to the holders of shares of Common Stock of the Company, at such times and by
such method as such documents are distributed to such holders of such Common
Stock, but shall not directly or indirectly provide material non-public
information to the Holder without such Xxxxxx's prior written consent.
(b) Except as set forth above, any notice or other
communication required or permitted to be given hereunder shall be in writing by
facsimile, mail or personal delivery and shall be effective upon delivery of
such notice. Notices may (and, as may expressly be provided herein or in the
Purchase Agreement, in some cases, shall)
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also be delivered via e-mail in addition to the foregoing. The addresses for
such communications shall be:
to the Company:
0000 Xxxxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Chief Financial Officer
Xxxxxxxxx: (000) 000-0000
E-mail: xxxxxxx@xxxxxxxxxxxxx.xxx
with copies to:
000 Xxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxx, XX 00000
Attn: General Counsel
Facsimile: (000) 000-0000
E-mail: xxxxxxx@xxxxxxxxxxxxx.xxx
to the Holder:
Halifax Fund, L.P.
c/o The Palladin Group, L.P.
Investment Manager
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxxx Xxxxxx
Tax I.D. No.:_____________________
Facsimile: (000) 000-0000
E-mail: xxxxxxx@xxxxxxxxxxxxx.xxx
with copies to:
Xxxxxxxxx, Xxxxxx, Xxxxx & Xxxxx, P.C.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Xxxxxxxxx: (000) 000-0000
E-mail: xxxxxxxx@xxxx.xxx
Any party hereto may from time to time change its address for
notices by giving at least 10 days' written notice of such changed address to
the other parties hereto.
25. SPECIFIC ENFORCEMENT. The Company agrees that irreparable damage
would occur in the event that any of the provisions of this Debenture were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the Holders of Debentures shall be entitled to swift
specific performance, injunctive relief or other equitable remedies to prevent
or cure breaches of the provisions
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of this Debenture and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which any of them may be entitled
under agreement, at law or in equity.
26. MISCELLANEOUS. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be sufficiently given if in
writing and personally delivered, facsimiled or mailed to said party by
certified mail, return receipt requested, at its address set forth herein or
such other address as either may designate for itself in such notice to the
other and communications shall be deemed to have been received when delivered
personally or, if sent by mail or facsimile, then when actually received by the
party to whom it is addressed. Whenever the sense of this Debenture requires,
words in the singular shall be deemed to include the plural and words in the
plural shall be deemed to include the singular. Paragraph headings are for
convenience only and shall not affect the meaning of this document.
27. GOVERNING LAW; CONSENT TO JURISDICTION. THIS DEBENTURE SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS TO BE EXECUTED AND PERFORMED ENTIRELY WITHIN
SUCH STATE. THE COMPANY (I) HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURT LOCATED IN NEW YORK COUNTY, NEW YORK
FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO
THIS DEBENTURE AND (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUCH
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER. THE COMPANY CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION
OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AS PROVIDED HEREIN AND
AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS
AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR LIMIT ANY RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
APPLIEDTHEORY CORPORATION
By: /s/ Xxxxx X Xxxxxx
-----------------------------------------
Name: Xxxxx X Xxxxxx
Title: Senior Vice President / CFO
Signature page to 5% Convertible Debenture of APPLIEDTHEORY CORPORATION
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EXHIBIT 1
PAYMENT STATEMENT
Date:______________
To: [NAME OF HOLDER OF DEBENTURE] ("HOLDER")
RE: 5% CONVERTIBLE DEBENTURE DUE JUNE 5, 2003 ("DEBENTURE") OF APPLIEDTHEORY
CORPORATION (THE "COMPANY"), IN THE OUTSTANDING PRINCIPAL AMOUNT OF
US$____________________.
The Company hereby irrevocably elects to pay interest on the
Debenture, for the Interest Payment Date indicated below, in the following
manner (the Company should check its selection):
____ cash interest;
____ PIK Interest; or
____ Stock Interest
Interest Payment Date: _________________________
If the selection above is PIK Interest, the Company should
fill in the following:
Outstanding Principal Amount prior
to issuance of this Payment Statement: US$_____________
PIK Interest: US$_____________
Outstanding Principal Amount after
issuance of this Payment Statement: US$_____________
The Company hereby certifies to the Holder, its successors and
assigns that the Outstanding Principal Amount due under the Debenture after
delivery of this Payment Statement equals the amount indicated below.
Capitalized terms used in this Payment Statement and not otherwise defined shall
have the meaning ascribed thereto in the Debenture.
IN WITNESS WHEREOF, this Payment Statement has been duly
executed and delivered on the date first written above.
APPLIEDTHEORY CORPORATION
By:
---------------------------------
Name:
Title:
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EXHIBIT 2
(To be Executed by Registered Holder and to be Delivered via Facsimile
in order to Convert Debenture)
CONVERSION NOTICE FOR
5% CONVERTIBLE DEBENTURE DUE JUNE 5, 2003
The undersigned, as Holder of the 5% Convertible Debenture Due JUNE
___, 2003 of APPLIEDTHEORY CORPORATION (the "COMPANY"), in the outstanding
principal amount of U.S. $_____________ (the "DEBENTURE"), hereby elects to
convert that portion of the outstanding principal amount of the Debenture shown
on the next page into shares of Common Stock, $0.01 par value per share (the
"COMMON STOCK"), of the Company, as of the date written below, according to the
conditions of the Debenture. The undersigned hereby requests that share
certificates for the Common Stock to be issued to the undersigned pursuant to
this Conversion Notice be issued in the name of, and delivered to, the
undersigned or its designee as indicated 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. No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any.
Conversion Information: NAME OF XXXXXX:
--------------------------------------
By:
--------------------------------------------------
Print Name:
Print Title:
Print Address of Holder:
---------------------------------------------
---------------------------------------------
Issue Common Stock to:
-----------------------
at:
------------------------------------------
Electronically transmit and credit
Common Stock to:
at:
------------------ -----------------------
---------------------------------------------
Date of Conversion
---------------------------------------------
Applicable Conversion Rate
THE COMPUTATION OF THE NUMBER OF COMMON SHARES TO
BE RECEIVED IS SET FORTH ON THE ATTACHED PAGE
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PAGE 2 TO CONVERSION NOTICE FOR:________________________________________________
(NAME OF XXXXXX)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
A. Outstanding Principal Amount converted: $_____________
B. Accrued, unpaid interest on Outstanding Principal Amount converted: $_____________
C. Default payments due on Outstanding Principal Amount converted: $_____________
TOTAL DOLLAR AMOUNT CONVERTED (TOTAL OF A + B + C) $
=============
RELEVANT CONVERSION PRICE (UNDERSIGNED TO CHECK APPLICABLE PRICE): $_____________
_____ the Change in Control Conversion Price (Section 4(b));
_____ the Conversion Price (Section 5(b));
_____ the LPA Conversion Price (Section 5(c)(i));
_____ the Additional 50% Conversion Price (Section 5(c)(ii)) or
_____ the Post-Redemption Notice Conversion Price (Section 5(d));
in each case, provide the Relevant Conversion Price as adjusted and/or Reset in
accordance with the Debenture.
NUMBER OF SHARES OF COMMON STOCK = Total dollar amount converted $
----------------------------- - --------------
Relevant Conversion Price $
NUMBER OF SHARES OF COMMON STOCK = _____________________________
If the conversion is not being settled by DTC, please issue and deliver _____
certificate(s) for shares of Common Stock in the following amount(s):
________________________________________________________________________________
________________________________________________________________________________
The undersigned elects to:
____ surrender this Xxxxxxxxx, duly endorsed, to the principal
office of the Company, on or before the Acceptable Delivery Date; or
____ effect delivery of the Debenture pursuant to the book
entry provisions contained in Section 5(f) thereof.
Provided that the undersigned is not electing to effect delivery of the
Debenture pursuant to Section 5(f) thereof, please issue and deliver _____ new
Debenture(s) in the following amounts:
________________________________________________________________________________
________________________________________________________________________________